Is Housing Too Expensive?

Roller-Coaster Housing Prices

I read a post the other day that said the reason for the flat rate of housing sales is that they are too expensive. According to the article by Frank Anton, only 1 in 6 homes sold is a new home. Currently the percentage is even lower. One of the reasons is the national average has new homes costing 45% more than an existing home. I’m shocked that it took this long to figure out what has been the norm for more than fifty years—new homes almost always cost more than existing homes.

It is this relationship between the new home and the existing home that has provided the base line for affordable housing—the existing older home is the affordable home market. The twisted belief that we can build new affordable housing is the mantra pushed by agencies, charities, and cities. And the only way it happens is by subsidies, fees tacked on new housing, and grants. In other words new affordable housing exists because someone other than the homebuyer is contributing to the bottom line cost of the house. Which brings me back to home prices.

Outside of those few who believe that all homebuilders are carpetbaggers, speculators, and opportunists, almost every builder I know won’t build unless he has a confirmed market. There is little if any speculative building today, this is a lesson they learned in 2008 when it all when to hell in a lender’s basket. To believe that builders just throw out product like they were chumming for tuna is just plain silly—the forces of the marketplace would kill them.

At any time in any market housing will be too expensive—until it's not. What controls housing costs are five things: land cost, entitlements, materials, labor, and profit. Working backwards the builder makes choices through these five factors to set his price. He narrows his profit, he finds cheaper or non-union labor, he buys materials in bulk, he begs for fee reductions (building the park may be cheaper than paying the park fees), and lastly maybe he can renegotiate the land cost. It is a complex dance played to the tune of the band—the marketplace—that has its own balancing act of interest rates, debt, and income.

The difficulty today, especially in dense urban markets, is the newest player in the game—the non-profit affordable home builder (the non-profit thing is a ruse, they make a lot of money, it’s just called something different). They compete directly and unfairly with the for-profit builder at the first-time-buyer market. Why would a builder go through all the sturm and drang of the entitlement process to compete at the lowest cost/profit level when, with government assistance, he can and will be undercut? They won’t, they will just build to a different price point.

So, the real reason for the rising cost of housing is that we are not building enough housing—period. The only way that housing costs can go down is to noticeably modify one of the five factors. I don’t see this happening in the near future. Land costs are dramatically rising in urban areas, my experience recently is that cities are not interested in reducing their fees (some are raising or expanding their fees), materials costs are holding steady but this is a result of more supply than demand, labor is flat (but the push on the minimum wage may have an effect), and profit is what it is, except when there is competition which can noticeably affect the price.

It’s my opinion the biggest problem right now is the first time homebuyer market. They are unsure about the future and will bide their time. If they can settle into a good apartment, get their student debt managed, and maybe even find a willing partner to share the burden, the market will change. But right now I think they are marking their time—which is not good for the merchant homebuilder.

Stay Tuned . . . . . . . .

Noodling February

Running to Keep Up

I was not the first and I won’t be the last to point this out (see last week), but there is pressure building on the new home front. Builders are now running behind, and it will be expensive and costly to catch up.

In Orlando, Long Lines for New Home Lots

Rent? Okay but where?

What drives people to rent versus owning and why do they chose a house instead of an apartment, it’s due to income, children, and family size. And by the way it’s also the amenities.

Survey Single Family Renters vs. Multifamily Renters

Now for the Esoteric

In RCLCO’s latest Advisory, the subject of form-based codes is discussed, I have followed this alternative to Euclidian Zoning, or the type of zoning 90%+ of cities use (keep like uses together and don’t allow too much mixing). Form codes use a different relationship basis and can be down right confusing and costly – the administrator has to be a genius to figure it out, but they have their place, sometimes.

For Article:

Market Pitfall of Form-Based or Smart Codes

TED

And here are five TED features (videos and talks) that discuss housing and design, take a look, but I warn you there is silliness going on (masquerading as serious thought).

GO HERE

The First

James Howard Kunstler trashes suburbia in 2004, it’s like, you know, like a, diatribe, that goes and on and on, like you know, whining all the way. The man has proven that he’s just mad at everything. Nice gig if you can get it – and great speaking fees.

The Second

William McDonough in 2005, rambles on and on about design and the intentions of things designed. But there you are.

The Third

Cameron Sinclair in 2006, socially responsible architecture is discussed. It is a broad reach across many horizons and frontiers of design, very little whining. Very cool. It is a very big and complicated world out there.

The Fourth

Majora Carter in 2006, how get it done with a limited budget. New York is the focus on how to deal with cities and get back the city bits that can help people. Good speaker – no whining.

The Fifth

Thomas Heatherwick in 2011, on bio-inspired design and soulfulness of design. Cool architecture unlike the usual stuff we see. The bridge is uber-cool.

Stay Tuned . . . . . . . .