Tag Archives: homeownership

Housing for tenants, housing for landlords?

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Who is housing for? The expiration of the national rent moratorium highlights competing interests in American housing:

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The eviction wave is expected to hit population centers across the country. Housing advocates point to renters in Ohio, Texas and parts of the Southeast — where tenant protections are generally low, housing costs are high and economic problems from the pandemic linger — as particularly at risk. Even though it has its own ban in place through August, New York is also a concern, because it has been especially slow at distributing rental assistance funds to the hundreds of thousands of tenants in the state who are behind on their rent.

The last-minute gridlock between President Joe Biden and Democrats in Congress that resulted in the demise of the eviction ban this week threatens to impose new economic burdens on state and local governments. The officials will have to respond to mass evictions triggered by landlords — including many struggling financially themselves because of lost revenue — who are poised to kick out tenants who fell behind on their bills during the pandemic. The renter safety net is severely weakened, with fewer than a dozen state eviction bans in place and state and local governments having disbursed only a fraction of the $46.5 billion in rental assistance that Congress authorized over the past year.

About 7.4 million adult tenants reported they were behind on rent in the latest U.S. Census Bureau survey, which was taken during the last week of June and the first week of July. About 3.6 million tenant households said they were “somewhat likely” or “very likely” to face eviction over the next two months.

The lapse of the eviction ban, which was first imposed by the Centers for Disease Control and Prevention in September as a Covid-19 safety measure, comes after landlords warned that it cost them billions of dollars each month. Industry groups including the National Association of Realtors lobbied against extending the moratorium this week and made the case to lawmakers that it “unfairly shifts economic hardships to the backs of housing providers who have jeopardized their own financial futures to provide essential housing to renters across the country.”

In addition to tenants and landlords, there are more actors involved including builders, developers, real estate agents, mortgage providers, local officials, and more. But, ultimately, whose interests should win out in times of trouble?

The era of COVID-19 is a very unusual time. But, the US has faced severe housing issues before. The housing bubble of the late 2000s. The Great Depression. A housing shortage after World War Two. In the United States, the logic regarding housing tends to default to free markets – people can access what they have resources for and there is much money to be made in housing – plus homeownership. With both, interventions from actors, like the federal government, may be necessary in times of crisis or for people with very limited means. In non-crisis times, interventions can favor developers and homeowners.

In contrast, there is less support for public housing or seeing housing as a right. Housing is needed for a variety of reasons – health, stability, accessing jobs and services, personal space, etc. – but not guaranteed.

If any city or local government truly wanted to distinguish itself as a people-oriented location rather than a market-oriented community, guaranteed housing would be one way to stand out.

Big drop in construction of starter homes of under 1,400 square feet

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For younger adults looking for smaller homes to purchase as their first home, there at least one reason they are not easy to find: few have been built in recent years.

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The supply of entry-level housing, which Freddie Mac defines as homes up to 1,400 square feet, is near a five-decade low, and data on new construction from the National Association of Home Builders shows that single-family homes are significantly bigger than they were years ago.

Homeowners from previous generations had access to smaller homes at the start of their financial lives. In the late 1970s, an average of 418,000 new units of entry-level housing were built each year, according to data from Freddie Mac. By the 2010s, that number had fallen to 55,000 new units a year. For 2020, an estimated 65,000 new entry-level homes were completed…

“What was really striking to me was the consistency in the decline in the share of entry-level homes, irrespective of geography,” Mr. Khater said. “The thing that struck me the most was that really, it’s all endemic. It’s all over the U.S. It doesn’t matter where.”…

Homeownership leads to greater wealth for those who buy earlier. An analysis from the Urban Institute estimates that those who became homeowners between the ages of 25 and 34 accumulated $150,000 in median housing wealth by their early 60s. Meanwhile, those who waited until between the ages of 35 and 44 to buy netted $72,000 less in median housing wealth.

Three things stand out to me from this article:

  1. The decline in the construction of these smaller homes is real. The numbers cited above suggest roughly 15% of these smaller homes are constructed now compared to the late 1970s.
  2. At the same time, the definition of an entry-level homes is contingent on square footage. These days, 1,400 square feet is not that large for a home. These standards have changed over the decades; new homes in the 1950s in Levittown were more around 1,000 square feet while many new homes today are over 2,500 square feet. As builders construct larger homes (presumably making more money) and some buyers want larger homes, what is now an entry-level home may have changed.
  3. The final paragraph above considers the wealth implications about being able to buy a home earlier on. This is important: homes are one of the biggest generators of wealth for Americans. Yet, this also marks a shift in viewing homes as investments as opposed to good spaces for people to live.

More Americans looking for vacation homes in Europe

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Those with means and resources can purchase real estate around the globe. This is essential for development in many locations, including major cities as well as vacation destinations in Europe:

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From Lisbon to the Greek islands, the Americans are back, ready to take advantage of the buyer’s market in many of Europe’s leading resort areas. There are bargains to be had at the entry and mid-levels, with prices buoyant at the top end…

Knight Frank last week released its Global Residential Cities Index for the first quarter of 2021, giving a view of price changes from the year-earlier period, when lockdowns began to take hold world-wide. It shows double-digit increases clustered in the Nordic countries and Eastern Europe, while prime European second-home destinations that had been inching toward the top in previous years—including Lisbon and Malaga on Spain’s Costa del Sol—are seeing declines…

Americans typically play a niche role in Southern Europe’s luxury second-home markets, which tend to be dominated by sun-hungry Northern Europeans. But they have traditionally made themselves more conspicuous at the very top of those markets.

This is different than Americans looking for relatively inexpensive places to retire; this is about finding real estate to invest in and profit from in the long term in desirable locations. This is an opportunity to make money in locations where prices have decreased, in contrast to numerous markets in and around big cities where prices have increased for years. Homes are places to enjoy and to invest in, as sociologist Brian McCabe argues. Being wealthy and staying wealthy can depend, in part, on buying real estate when it is available and then profiting later.

All of this is an opportunity that most Americans do not have or could not even dream about. A second home in a foreign country? The ability to travel there regularly? Being able to sell this property later and/or pass down profits to heirs? Just as those featured on HGTV’s International House Hunters are a select group, those who can take advantage of a European buyer’s market are limited.

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

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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?

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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”

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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

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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

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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

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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

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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.