People using localized social media for an edge in searching for homes

Scroll through local Facebook or Nextdoor groups and there is a more common request these days: does anyone know of an upcoming listing for a 4 bedroom home in a desirable neighborhood? Or, perhaps a three bedroom townhome or house for rent at a reasonable price?

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It is hard to know how many good leads are generated by such posts. They often ask for DMs. Generating more competition for such housing is probably not the goal – though landlords or sellers might be interested in drumming up more interest (also evidenced by pictures of homes soon to be on the market). The more direct interaction cuts out some of the middle actors.

Judging by the posts I have seen, the housing needs seem to be present. Even with economic instability during COVID-19, homes in desirable neighborhoods and communities have held their value or increased in value. The housing supply is limited. At least a few people have looked to move out of cities to quiet suburbs. Stories of bidding wars abound. Finding places at reasonable rents is hard.

I could imagine some broader partnerships between the socials and real estate websites. Imagine a special Zillow add-in to your Twitter feed or a Realtor.com bonus for Instagram. All of the real estate websites are competing and so are the social media platforms; which one can truly integrate real estate into their daily feeds beyond the posts of individual users? Say you are looking for a home with particulars and the social media plug-in can alert you to matches and you can get an exclusive bidding window; potential buyers could feel they get an in and realtors might like the added competition among buyers ready to spend.

All of this might matter less if there is more housing supply in the future. Yet, if real estate is truly so lucrative because there is only so much land in the first place, why wouldn’t it permeate even social media.

Could housing bounce back even more unequally after COVID-19?

Even as rents dropped in some major cities during COVID-19, might increased interest now reinforce existing issues in the housing market where those with resources have options and those with fewer resources cannot easily get a foot in the door? From Chicago:

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Trisler is among the buyers showing renewed interest in the downtown housing market after attention waned during the past year, as the lure of amenities and access to offices, restaurants and bars took a back seat in many cases to space and relative quiet…

In March, more homes were sold in the Loop and the surrounding neighborhoods than during any other month in at least a year, according to data from the Chicago Association of Realtors. A total of 531 homes were sold across those neighborhoods in March, compared with 418 in March 2020…

Low mortgage interest rates are making downtown condos more affordable to first-time buyers, such as those renting in luxury apartment buildings and looking to buy in similar buildings, he said. Homeowner’s association fees tend to be higher in buildings in dense neighborhoods, but the lower monthly mortgage payments can offset that. And buyers can negotiate good deals on homes in some parts of downtown, he said…

Despite the uptick in sales, lower-priced, one-bedroom condos have been slower to sell than bigger spaces, said @properties real estate agent Chris McComas. He speculated the smaller spaces appeal more to first-time homebuyers, who might have been furloughed earlier in the pandemic.

Some people did just fine during COVID-19. They had good jobs in particular fields that weathered the storm or even thrived during the pandemic. They may have been able to work from home. They already had homes, whether they owned or had rents they could afford.

Others had a tougher time. They have been laid off or furloughed. It could have been hard to find work. They might have become sick. Their housing situation might have been more precarious going in.

Now, as COVID-19 and its effects look like they are winding down, people can think about real estate again. Those who came out relatively unscathed will be able to more easily buy and sell. Those who did not will have a tougher time. This is not solely the fault of COVID-19; this bifurcated housing market has existed for some time. Starter homes are limited in number, somebody is buying the luxury condos that have continued to go up in the biggest cities, and younger adults have several obstacles that could limit their entrance into the housing market. At the same time, this could become another legacy of COVID-19: the ongoing splitting of the housing market.

To get richer, get the right job and then “buy a home in a neighborhood with a lot of zoning restrictions”

David Brooks looks at which professions provide a higher likelihood of getting into the 1% and then how to get even richer once you are there:

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Once you’ve made some money, there’s one more way to get richer. Buy a home in a neighborhood with a lot of zoning restrictions. For example, 84 percent of the land in Charlotte, N.C., and 94 percent of the land in San Jose, Calif., is zoned for detached single- family homes. These restrictions keep the supply of housing low and jack up the value of homes for people wealthy enough to already own one.

My main message is that if you want to get rich, don’t invent a new and useful product, start a company and try to sell it. That seems risky. Put the effort into entering a clubby line of work in which legislators and professional associations are working to make you rich. It’s easier!

While the majority of the argument is about particular professions, I think the connection between jobs and exclusive homes is this: in both cases, the structures are set up to enrich those that can participate. Just as regulations and structures may privilege particular careers, zoning in the United States is often meant to protect single-family homes. If a homeowner can purchase a residence with particular features and in a specific setting, the zoning helps ensure that the property will be worth more in the future. The homeowner is responsible for some upkeep and updating – and may even go so far as to pursue a teardown – but the protections for the property are almost enough in themselves to let the investment grow in worth just be sitting there.

Connected to this, the zoning for single-family homes restricts the number of residences in that immediate area. More density does not necessarily mean lower property values; numerous urban centers – such as Chicago and New York – are home to new tall buildings whose units are only available to the super-wealthy. At the same time, proximity to amenities and particular neighborhoods are desirable and fewer residences there can help drive up the value of existing properties.

To some degree, many Americans are hoping for this to work for them. Go to college and get a good degree from a good school to gain the right skills, qualifications, and access to social networks. This leads to a better job with higher pay. Then, purchase a home in a reputable community where prices will continue to rise. Wait a few decades and let the pay, home investment, and other benefits accrue. This may not lead to being rich but it reduces anxiety about later decades in life.

Of course, the system could be set up in other ways. Do Americans want homes to be investment vehicles? Should there be such differences in pay and compensation across fields or job positions? Is zoning about the good of the community as a whole or about particular land owners? Combating existing patterns is no easy task, particularly in times when any discussion of inequality can quickly get heated.

Asking in San Francisco why a McMansion is allowed but a fourplex is not

McMansions may not just be undesirable on their own. If a McMansion is built, another kind of dwelling is not. One proposal in San Francisco aims to address this:

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He will introduce an ordinance making it much harder to build giant homes — the ones increasingly dotting the hillsides above Glen Park that many San Franciscans deride as monster homes or McMansions, but which are perfectly legal to build.

He will also ask the city attorney to draft legislation making it legal for any corner lot in the city that’s currently slated for one home to allow up to four units. And, most significantly, the legislation will allow any parcel within a half mile of a major transit stop like the Glen Park BART Station to be converted into a fourplex — corner property or not. The extra units could be rented or sold.

Yes, in large swaths of San Francisco — this supposedly progressive bastion — it’s currently legal to build an enormous, over-the-top house for one family, but illegal to build a small apartment building of the same size for four families.

This question plagues many desirable neighborhoods in big cities and suburbs: should anything that disturbs the existing character and/or property values be allowed? If this is the driving question, a McMansion might be a threat because it is a different kind of home – derided by critics as too big, architecturally incoherent – compared to what is already there. At the same time, the McMansion is still a single-family home. If that single-family home was replaced by a multi-family unit, residents then express concerns about increasing densities. They might also have concerns about renters moving into what was a neighborhood of homeowners as many Americans assume renters are less committed to their community.

And, as the article notes, making changes like this often means neighborhood by neighborhood conversations to consider the implications. Will a change have different impacts in different communities? What might be some of the unintended consequences? What will neighborhoods look like in a few decades with changes?

San Francisco may have a particular need for solutions but so do many other locations. The answers might come slowly on a case-by-case basis.

“NYC isn’t dead”…for the wealthiest

A look at the ten most expensive properties sold in the United States in 2020 highlights the presence of New York City properties on the list:

Google Street View image of 220 Central Park South (September 2020)

By the end of September, the volume of Manhattan co-op and condo sales was down 43% year over year, according to a report by Douglas Elliman, as sellers held back from listing their apartments and buyers increasingly gravitated toward the suburbs

Of the top 10 national sales compiled by Jonathan Miller, president and chief executive officer of Miller Samuel appraisers, five were in 220 Central Park South, a new luxury tower on Central Park designed by architects at Robert A.M. Stern

Another trend from this year, namely rich people “fleeing” New York for Florida, didn’t manage to trickle up to the highest tier. Only two of this year’s top 10 sales were in Palm Beach; last year there were three…

Even the three Los Angeles entries diverge slightly from conventional 2020 narratives. Yes, the L.A. market is one of the few urban bright lights this year, with sales soaring and inventory hard to come by. But numbers at the very top are down from last year, when it notched four entries in the top 10, totaling $463 million. This year there were three, totaling $293 million.

The actions of the wealthiest homeowners matters not only because people often have an interest in what those who have lots of money do with all that money; it matters because these are people with clout and influence. If they are continuing to purchase in New York City – it is less clear how much time the owners would necessarily spend in the city – it is a sign of the importance of the city and the prospects for future development.

The optics of 2020 might not be favorable to the list above but the project and the trends were underway far ahead of COVID-19. In a very expensive land and housing market, purchasing a residence in one of the newest buildings and in such a location within Manhattan is an object of desire for some who have the resources to purchase such places. While a figure later in the article notes that the total price for the properties on this list is lower than the price for the properties the year before, this may only allow the wealthiest to get into hot markets even more.

It may (or may not) be worth noting that five of the ten properties are in a tower in New York City while the other five properties are large homes on some land. On the whole, Americans as a whole tend to prefer or idealize single-family homes but the wealthiest in the United States and elsewhere may be more inclined to purchase large units in multi-unit buildings.

What could lead to Americans considering what they want the suburbs to be

Yesterday, I wrote about competing visions of American suburbs. Under what circumstances might a national conversation, debate, and/or reckoning take place regarding what suburbs should be in the future? Here are a few possibilities:

photo of houses under starry skies

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  1. An election. As noted yesterday, elections can help to bring issues to the forefront. The suburbs are not a key issue in the 2020 presidential election but this does not mean they could not be down the road.
  2. Building concern about housing. The need for cheaper housing in certain metropolitan areas has led to local and state-level debate but this has rarely reached national levels. I am pessimistic about national level discussions about and solutions for housing – but it could happen.
  3. Some sort of crisis or unusual occurrence in suburbia that pushes people to rethink what suburbs are about. Perhaps it is ongoing police violence – like in Ferguson, Missouri – or an usual place like Columbia, Maryland that people want to emulate.
  4. Declining interest in living in suburbs among future generations. Whether millennials and their successors want to or can live in suburbs is up for debate.
  5. A redefinition of the American Dream away from single-family homes, driving, and private spaces to other factors ranging from different kinds of spaces (perhaps more cosmopolitan canopies?) to an inability or declining interest in homeownership compared to securing health care and basic income or a rise in AI, robots, and technology that renders spaces less important than ever.
  6. Black swan events or large changes beyond the control of the average suburbanite. Imagine no more gasoline or a disease that strikes suburbanites at higher rates or a collapse of the global economy rendering the suburban lifestyle difficult. (Because these are black swan events, they are hard or impossible to predict.)

For roughly seventy years, the United States has promoted suburbs on a massive scale (with evidence that a suburban vision has existed for roughly 170 years). With a majority of Americans living in suburbs, it would take work or certain events for a robust conversation to be had and then a wind-down of the suburbs and shift toward other spaces would likely take decades. At the same time, future researchers and pundits might look back to important conversations, events, decisions, or changes that started the United States down a path away from suburbs. Those precipitating factors could occur today, in the near future, somewhere down the road, or never. While the suburbs in the United States have tremendous inertia pushing them into the future, they do not necessarily have to continue.

Explaining a low housing supply

Relatively few homes are available for purchase in the United States:

Sales of existing homes rose a steeper-than-expected 3.5% in December compared with January, according to the National Association of Realtors.

Demand is surging because mortgage rates are about a full percentage point lower than they were a year ago, and the largest generation, millennials, are aging into their homebuying years.

That demand has pushed the supply of homes for sale down 8.5% annually to the lowest level since the Realtors began tracking inventory in 1982…

Sales of homes priced below $100,000 were down 7.7% annually in December, while every other price category saw increased sales. That is because there is so few for sale at the entry level. Investors have been very active in this category, turning these homes into lucrative rentals.

The article cites multiple factors at work: low mortgage rates, older millennials looking to purchase properties, and a decreased supply of cheaper homes (in part because of investors looking for rental properties).

I am curious about two things the article does not mention:

1. Who are all the actors involved in these trends? Mortgage rates are down – because federal interest rates are low? How are lenders reacting to this? Millennial homebuying might be up – what do the trends look like for other groups (particularly since homeownership is not necessarily high)? How are policymakers reacting to this shortage, particularly when affordable housing is a major concern in many markets?

2. This seems like an opportunity for builders and developers: the supply is low, people want homes. How are builders responding? According to the Census, new housing construction is trending up in the last few years:

NewResidentialConstructionDec19

These converging actions and trends bear watching in a country devoted, at least in ideology, to homeownership.

 

Toll Brothers, smaller homes, and “affordable luxury”

Can a smaller home also be luxurious? Toll Brothers is looking to sell such an option:

In an effort to expand into new segments of the housing market that fit into its wheelhouse, Toll is putting a new focus on reaching out to the first-time homebuyer, particularly through its concept of “affordable luxury.”

Historically, luxury in the housing market has meant McMansions. However, Toll Brothers has broadened its offerings to include luxury apartment buildings, and its newest effort: affordable luxury. The affordable luxury niche (Toll won’t refer to it as a “segment”) is geared toward the millennial buyer, who is buying later in life and often has more financial resources than the typical first-time homebuyer. Currently, 37% of Toll’s offerings now have price points below $500,000, and in some areas hit $375,000. Note, however, that these are base prices, and when customization and additional amenities push the prices higher. Still, affordable luxury properties fall well below Toll’s average selling price in the fourth quarter of $857,800. The increased density (meaning smaller units/properties built close to each other) of these projects will help Toll maintain margins despite the lower price points.

During the earnings conference call on Dec. 9, Toll Brothers CEO Douglas Yearly explained the concept:

“While affordable luxury crosses all buyer segments including move-up and active-adult, this initiative is driven in large part by a growing number of millennials who are older, more affluent, and more discerning when they buy their first home. Think of it as a BMW 3 Series, a great example of affordable luxury.”

While there is a lot of concern in recent years about developers constructing few new starter homes and millennials not being able to buy into the housing market, could this plan suggest another factor at work: are younger adults expecting more out of their first home? Having a dwelling is one thing; people need a place to live and store their stuff. But, when committing to homeownership for the first time, do buyers expect the features they see all over TV and in the homes they knew growing up: open kitchens and living spaces, nice appliances, custom finishes, designer touches, plenty of bathrooms and bedrooms?

Toll Brothers says they are aiming at people who want their first home to not be just a dwelling: they want “affordable luxury.” One could argue that if people really needed first-time homes, perhaps the tiny home industry should be booming (and it is not mainstream yet). This builder believes there is a market for buyers who do not just want a home; they want a distinguished home that feels good to live in and shows well to others.

I have noted before that having smaller homes in the United States does not necessarily mean they will forgo nicer touches or be cheaper. I would guess there are a good number of buyers who are willing to trade some square footage (there is some bottom limit – many people do not want to truly live in a really small house) for luxury items in the home.

Black homeownership rates similar to before 1968 Fair Housing Act

An article about homeownership among black millennials includes this statistic:

Homeownership levels for blacks reached 42.7% in the third quarter of 2019 (compared with 64.8% for the overall population), a near-record low that has virtually erased all of the gains made since the passage of the Fair Housing ACt in 1968, landmark legislation outlawing housing discrimination, census data show.

“African Americans are already being left out of the housing market and that’s exacerbating levels of inequality in this country,” says Lawrence Yun, chief economist and senior vice president of research at the National Association of Realtors. “There’s a kind of urgency now within the housing community to bring younger African American buyers into real estate.”

Despite a decade of economic growth in the United States, including record low unemployment and higher wages for black workers, millennials of color make up only a small portion of the overall market for real estate, data show.

This cannot be good. Even as other economic figures might be good, owning a home offers a key way for Americans to build wealth over time. Going further, not having a home means being at the whim of landlords, perhaps more instability regarding having housing, and limited access to wealthier communities where a majority of residents own homes. Furthermore, this data suggests not much has changed in 50 years; does this hint that the gap between groups in the United States remains relatively unchanged?

If the next generation of young adults is struggling to purchase homes, that suggests the problem will continue for at least another 10-20 years. If there are politicians serious about fighting inequality, wouldn’t this be a good issue to take up, particularly given the persistent gaps between black and Latino homeownership and white homeownership?

Looking for stories of millennials and young adults who want to and enjoy living in suburban homes

The suburbs are indeed changing – such is the premise of Curbed‘s “The Suburbs Issue.” And the lead story seems to fit into this argument: the suburbs are changing in that millennials are not so sure about buying a large suburban home. Here is the conclusion from that story:

Scocca concludes that the dream of having a big house built just for you was “never a very good dream anyway,” and that might be true, and maybe it’s not even a revelation. Houses have always been a location where we can project our hopes, dreams, and fears. No matter how much we try to rationalize the process of owning a house, the relationship is always a bit foggy, tinted by human emotion. It doesn’t seem possible to live somewhere for any meaningful length of time without imbuing it with your own nebulous ego. Over the past few months, I kept returning to this quote from novelist Helen Oyeyemi: “I think that houses, or at least the home part of them, are so much constructed that they’re simultaneously magical and haunted anyway.” Houses are not homes, and homes are not necessarily houses. Perhaps the real American dream is to find a sense of stability, safety, and acceptance. Maybe this is a downsized version of our parents’ American dream, or perhaps it’s just more honest, taking into account all the different stories we’re fed from the outside, and all the private stories we tell ourselves behind closed doors.

There is much truth here: homeownership in the suburbs is not such an obvious path for many young Americans due to financial insecurity, watching what happened to older generations, and different priorities about what they want to get out of life. Just because Americans prioritized suburban homeownership in the last one hundred years (and propped it up through policies and cultural ideology) does not necessarily mean this will continue in the future.

At the same time, is an article like this in a long line of suburban critiques that now stretch back roughly a century? Some of the same concerns are present: what makes a home (the happy suburban facade or the difficulties many people still face even when it looks like they have the American Dream), whether the suburbs are financially possible (beyond just homes, driving is expensive and giving children all sorts of advantages is encouraged), environmental effects (using more land, driving, building individual homes), and a lack of excitement or vibrant community in the suburbs.

All of this leads me to wondering about the millennials who are still moving to suburbs by their choice. Surely they exist. Surveys suggest many millennials want to own a home in the suburbs at some point. The homeownership rate recently increased, driven by millennial’s purchases. The population of millennials in big cities recently declined. Empirical data could settle whether millennials are not settling in the suburbs at the same rate as previous generations or might be doing so at a delayed rate (which would fit with other findings regarding emerging adulthood).

Is finding these suburban millennials not a priority because it reinforces the suburban ideology? If millennials do largely settle in suburbs, would this be viewed as a failure of American society on multiple levels? Would settling in denser suburban areas be enough to make amends for decades of urban sprawl and “the ghastly tragedy of the suburbs“? Or, might slight changes among millennials be an acknowledgement that reversing long-standing narratives about the good life – the American Dream – could take decades (just as it took time to develop suburbia as the ideal on a mass scale)? What if, in the end, Americans like suburbs for multiple reasons?