Friday, December 27, 2013

Housing 2014

This time of year every national newspaper and trade magazine or journal spits out facts about housing: its recent sordid past, its numbers, and its future. They will write what they write and since every housing market is local it really doesn't mean a thing to most Americans that builders can't find land in north San Diego, or the tiny size of new apartments in New York City, or the dearth of affordable housing in San Francisco. I can assure you that someone in Des Moines doesn't give a rat's pittutty about the rent of an apartment in the City by the Bay, it only makes them smug.

The old reliables are still there, growth of the population, the shifting of population to more southerly locations, the push out of cities into the suburbs (yes, that is the truth, check out Kotkin's and Cox's work), and for some urban markets increased pressure on the housing base – witness San Francisco and the desire by the young techies who want the urban lifestyle yet work thirty miles south in Silicon Valley. As I said housing is local, kind of.

But there are trends in the overall market that should be considered. The following are some thoughts on three of the critical issues facing the general housing market, take them for what they are.

They ain't make any more of it. But forty acres outside of Denver is a lot different than one acre in Santa Monica. The underlying cost of a housing unit is land, but the critical issue is the market and availability. What can the market support? For the better part forty years there has been a gradual, and often with voter approval and bonds, removal of the land from the housing marketplace for parks, wetlands, conservation areas, mitigations, and even aesthetics. Each lost acre forces up the price of another acre. As an example there are tens of thousands of acres of developable land between Oakland and Concord, California but most is now locked into parks and open space. This pushes growth into the Central Valley where farmland is lost. Ones man's scenic view is worth more than orchard or field of corn.

The Baby Boomer Generation
This is a huge opportunity for creative developers. Millions of men and women are sitting on trillions of dollars of equity in their homes waiting for the right moment to move out and "retire." But there is nothing available in their specific market. Here is what they (or I) want: 1850 to 2400 square feet, ground floor master bedroom, highly amenitized interior, good to great suburban neighborhood, garage, security, minimal yard (but good private facilities), and affordable monthly dues/HOA. It is a market that is very underserved in most regions.

Affordable Housing
If there is one glaring debacle that has contributed to the housing crises in the urban marketplace it is the creative use of the fiction called affordable housing (AF). Pass a law to fix a market problem created by the politicians themselves. Everyone feels good, except for the people trying to find a home. It is now so deeply ingrained in the business model of housing that it can probably never be extracted. The most affordable home is an existing home in most urban markets. And to put an existing home on the market requires another home to be built in the same market – usually at a higher price. All well and good, except when a highly subsidized AF comes on the market that directly competes with the existing housing stock. Often that AF is subsidized with fees placed on other non-AF units (adding to their cost), it is given priority in the approval process (time and money), and is targeted at particular markets or economic sectors (approved discrimination). In the long run the housing stock of a region suffers, prices increase, housing becomes unavailable, but I'm happy to say everyone feels so much better. One lasting impact is that the development community walks away from the production of inexpensive and affordable housing. There was a time when this was a good market to build in, now its avoided and left to the quasi-public non-profits, the cities and their whims and agencies, and the cradle to grave attitude of many city and sate governments.

Stay Tuned . . . . . . the next year will be very interesting!

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