Category Archives: Real Estate

Fixer-Upper Notes

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In an effort to go beyond my normal “we have a housing crisis, not just an affordable housing crisis” rap, I read Fixer-Upper: How to Repair America’s Broken Housing Systems by Jenny Schuetz. I was interested in it because it looked like it would be prescriptive, not just descriptive in nature and I was not disappointed. The chapter headings pretty much tell the story:

  1. Housing Sits at the Intersection of Several Complex Systems
  2. Build More Homes Where People Want to Live
  3. Stop Building Homes in the Wrong Places
  4. Give Poor People Money
  5. Homeownership Should Be Only One Component of Household Wealth
  6. High-Quality Community Infrastructure is Expensive, but it Benefits Everyone
  7. Overcoming the Limits of Localism
  8. Build Political Coalitions around Better Policies

I’ll be doing a separate post on each chapter and as I do I’ll link to them from the list above. In the meantime you can see a presentation by Schuetz related to this over at Harvard’s Joint Center for Housing Studies’ website.

Get Used to the Low Home Ownership Rates

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This is a cross-post of something I wrote for the work blog:

From the 6/8/15 Wall Street Journal:

The U.S. homeownership rate is below where it stood 20 years ago when President Bill Clinton launched a national campaign to encourage Americans to buy homes. Conventional wisdom says the rate, at 63.7%, is leveling off to where it was for decades before the housing-market peak.

But this is probably wrong, according to research from the Urban Institute, which predicts homeownership will continue to slip for at least 15 years.

Demographics tell the story.

Urban Institute researchers predict that more than 3 in 4 new households this decade, and 7 of 8 in the next, will be formed by minorities. These new households—nearly half of which will be Hispanic—have lower incomes, less wealth and lower homeownership rates than the U.S. average.

The upshot is that fewer than half of new households formed this decade and the next will own homes. By contrast, almost three-quarters of new households in the 1990s became homeowners.

The downtrend would push homeownership below 62% in 2020, and it would hold the rate near 61% in 2030, below the lowest level since records began in 1965.

You really should read the whole article. A couple of people who disagree with this assessment are quoted, but even they see the rate of home ownership stabilizing and staying lower than it was before the recession. There’s also some discussion about the impact on housing affordability, and interestingly it’s led by Ron Terwilliger who was the keynote speaker at this year’s Apartment Association of North Carolina (AANC) education conference. He has some interesting ideas about reducing the mortgage deduction and moving some of those dollars over to help with rental housing. That would be a political hot potato, but it’s a sign of how different times are these days.
All in all, those signs bode will for the apartment industry from years, maybe even decades to come.

Where Are the Young Home Buyers?

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*This is a cross post of something I wrote for the day job.

It’s no secret that there’s a dearth of younger home buyers these days, but why are young adults still slow to move from renting to buying even though the economy is finally growing? Shane Squires of MPF Research wrote about some of the challenges faced by millennials:

For starters, income levels for those between 25 and 34 are down. Median household income for that demographic has declined between roughly 5% and 15% in real terms from 2000 to 2012 for every education level of the head of household, according to the National Center for Education Statistics. And in 2013, the real median net worth of households under 35 years old was just $10,400. That was approximately 32% below the level estimated in 2001, according to the Federal Reserve Survey of Consumer Finances…

He then cites some data showing that the combination of an increasing population and anemic job growth coming out of the past two recessions led to a highly competitive job market that prompted many students to continue on to grad school. That demand allowed universities to jack up tuition which led to more debt:

That brings us to the most commonly cited economic constraint for Gen Y – student debt. Over the decade from 2002-2003 to 2012-2013, the number of full-time undergraduate students rose from 9.1 million to 11.6 million people, according to College Board. That increased demand enabled higher education institutions to raise tuition prices 51% past the rate of inflation in the past 10 years,…

Add to that the increase in health care costs, which he cites as being 31% greater than the reported rate of inflation, and the increase in cost of staples and you can see that young adults face some serious obstacles to home ownership. Even the accelerated job growth of 2014 is recognized with a caveat:

Given that job growth has accelerated notably in 2014, with a much higher share being created in higher-paying sectors, these trends in income and net worth are bound to start improving to some degree. Though, considering that the appreciation of median home prices has vastly outpaced wage growth over the past decade, many in the Millennial generation will likely continue to find it more difficult to qualify for a mortgage than Generation X did 10 years ago.

It would be easy to point to the Great Recession as the primary cause for the struggle young adults will have in moving from renting to buying, but some of the contributing factors are the result of societal shifts that began a generation ago. For instance, the decoupling of income from worker productivity:

The “decoupling” is the divergence between labor productivity and employment/wages that happened in the US in the 1980s and has become quite pronounced over the past thirty years. During the great postwar boom, productivity and wages grew in lockstep in the US. Of course, we don’t see any data from the 19th century and the first half of the 20th century so it’s not clear that labor and wages have always grown in lockstep. But something certainly changed in the 1980s and the result has not been good for median family income which has been stagnant in the US for almost thirty years now.

This is the kind of shift that does not happen overnight, and if that trend is to reverse it will not happen in a matter of years but in decades. What that means for rental housing providers in particular is that the falling rate of home ownership could be the new normal for a generation to come, which is good news for their businesses. On the other hand, if real median household income continues to decline then the demand for market rate units could stall and the demand for affordable housing units could skyrocket.

Obviously some policy changes could change this outlook. For instance if lending standards are relaxed again and if more affordable single family homes are constructed, then rental demand would obviously be impacted. Considering the lessons we learned when the housing bubble popped that first if is pretty big, and given the persistent problem of slow income growth any growth in home construction we do see probably won’t come close to what we saw in the late 90s through mid 00s.

Long story short – rental housing should continue to grow for the foreseeable future.

Digging Its Own Grave

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Some property in London is so valuable that it has become more economical to bury excavation equipment after it’s been used to dig new basements than to retrieve it:

The challenge of adding new subterranean floors to London houses has become a highly lucrative business. The heavy lifting – or, in this case, the heavy digging – is usually contracted out to basement-conversion specialists. These firms discovered that it was reasonably easy to get a small digger (occasionally two) into the rear garden of a house on an exclusive 19th-century square. Sometimes they simply knock a hole in the wall and drive the diggers straight through the house. In other cases, the windows are so large that a digger can squeeze through without dismantling the bricks and mortar.

The difficulty is in getting the digger out again. To construct a no-expense-spared new basement, the digger has to go so deep into the London earth that it is unable to drive out again. What could be done?

A new solution emerged: simply bury the digger in its own hole. Given the exceptional profits of London property development, why bother with the expense and hassle of retrieving a used digger – worth only £5,000 or £6,000 – from the back of a house that would soon be sold for several million? The time and money expended on rescuing a digger were better spent moving on to the next big deal.

The new method, now considered standard operating practice, is to cover the digger with “hardcore”, a mixture of sand and gravel. Then a layer of concrete is simply poured over the top. Digger? What digger? The digger has literally dug its own grave – just as the boring machines that excavated the Channel Tunnel were abandoned beneath the passage they had just created.

This sounds like a circa 2006 story which is kind of nerve wracking.

We’re Talking Downtown

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Over at the NC Legal Landscapes blog attorney Tom Terrell writes about the changes proposed for High Point by consultant Andres Duany:

Duany described High Point’s furniture market as “the most complete monoculture I’ve ever seen,” adding that all it is good for is “fame and tax base.” The town is designed and constructed to support a semi-annual economic event that, in itself, causes High Point to exist on statistical ledge, waiting against an unexpected event – any event – to topple it to the canyon floor below. “If the monoculture sneezes,” Duany noted, “there is no Plan B.”

In both standing-room-only public presentations, Duany expressed amazement at the obstacle created by the “market.” “When the market is gone, the entire downtown hibernates. . . . I’ve been to many places but never to a place where all the storefronts hibernate.”

In economic terms, Duany explained that the market is a “spike,” and spikes are terrible for commerce because businesses must continually “staff up and staff down.” High Point, he marveled, has the “Everest of spikes.”

Duany’s antidote is to create a mixed use town anchored by one “hot destination” district. Since the historic downtown is unavailable for that, he recommended another area several blocks north. “All it takes is two and a half blocks to create a famous destination,” citing examples of 2-3 block famous areas all of us had heard of.

High Point also must plant trees along that stretch and engage in “road dieting,” something he described as a non-negotiable aspect of the plan. Road dieting eliminates the hostile experience of speeding traffic, creates places for parking and landscaping, and nurtures a friendly, desirable place to visit.

For those of us working on Lewisville's downtown we don't need to worry about a hibernating downtown, but we do need to worry about how a bedroom community like ours can develop a downtown that hasn't really existed before. It's amazing how similar our concerns are to High Point's, especially our desire to create an environment that "nurtures a friendly, desirable place to visit."

 

 

Foreclosing the AARP Crowd

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The economic meltdown this country has been living through for the last four or five years has been especially cruel to those citizens who probably won't have time to make up for their losses once the economic recovery begins to pick up steam. If life's hard for those who are in their 30s and 40s, imagine what it's like for someone in his 50s or 60s, trying to figure out how to rebuild the nest egg that was obliterated by the market crash, long term unemployment, an underwater mortgage or all of the above. That's what makes this item so disheartening:

According to AARP:

  • About 600,000 people who are 50 years or older are in foreclosure.
  • About 625,000 in the same age group are at least three months behind on their mortgages.
  • About 3.5 million — 16 percent — are underwater, meaning their home values have gone down and they now owe more than their homes are worth.

AARP said that over the past five years, the proportion of seriously delinquent loans held by older Americans grew more than 450 percent.

An Alternative View for Malls

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We've all seen them – dying malls that blight suburban landscapes. According to this article in the New York Times the high vacancy rates at the country's malls have led planners to envision some creative uses for America's retail monoliths:

So, as though they were upholstering polyester chairs from the 1960s with Martha Stewart fabric, urban planners and community activists are trying to spruce up and rethink the uses of many of the artifacts.

Schools, medical clinics, call centers, government offices and even churches are now standard tenants in malls. By hanging a curtain to hide the food court, the Galleria in Cleveland, which opened in 1987 with about 70 retailers and restaurants, rents space for weddings and other events. Other malls have added aquariums, casinos and car showrooms.

Designers in Buffalo have proposed stripping down a mall to its foundation and reinventing it as housing, while an aspiring architect in Detroit has proposed turning a mall’s parking lot there into a community farm. Columbus, Ohio, arguing that it was too expensive to maintain an empty mall on prime real estate, dismantled its City Center mall and replaced it with a park.

Even at many malls that continue to thrive, developers are redesigning them as town squares — adding elements like dog parks and putting greens, creating street grids that go through the malls, and restoring natural elements like creeks that were originally paved over.

Congress Trying to Get More Efficient

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My fellow Americans I believe Congress might finally be endeavouring to become more efficient since they seem to be trying to kill two birds with merely one stone.

The reeling housing market has come to this: To shore it up, two Senators are preparing to introduce a bipartisan bill Thursday that would give residence visas to foreigners who spend at least $500,000 to buy houses in the U.S…

Foreigners have accounted for a growing share of home purchases in South Florida, Southern California, Arizona and other hard-hit markets. Chinese and Canadian buyers, among others, are taking advantage not only of big declines in U.S. home prices and reduced competition from Americans but also of favorable foreign exchange rates.

To fuel this demand, the proposed measure would offer visas to any foreigner making a cash investment of at least $500,000 on residential real-estate—a single-family house, condo or townhouse. Applicants can spend the entire amount on one house or spend as little as $250,000 on a residence and invest the rest in other residential real estate, which can be rented out…

International buyers accounted for around $82 billion in U.S. residential real-estate sales for the year ending in March, up from $66 billion during the previous year period, according to data from the National Association of Realtors. Foreign buyers accounted for at least 5.5% of all home sales in Miami and 4.3% of Phoenix home sales during the month of July, according to MDA DataQuick.

Housing crisis? Check. Immigration? Check. Gotta love efficiency.