Tag Archives: housing industry

Where is the construction of cheaper homes in the United States?

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One recent analysis suggests a major contributor to the lack of homes for sale is limited construction of new homes:

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Earlier this year, Realtor.com estimated the gap between the number of homes needed and the number of homes available at 5.24 million. That estimate in June represented an increase of 1.4 million above the estimated 3.84 million gap in 2019, primarily because residential construction hasn’t kept up with household formations.

From January 2012 to June 2021, 12.3 million new American households were formed, but just 7 million new single-family houses were built, according to Realtor.com.

The housing shortage is particularly acute in the more-affordable range. Newly built houses with a median sales price of $300,000 represented just 32 percent of builder sales in the first half of 2021, compared with 43 percent during the first half of 2018, according to Realtor.com. To close the gap between demand and supply, builders would need to double their pace of construction for five or six years, Realtor.com economists estimate.

I have been trying to keep track of this for several years now: where are the new cheaper homes? If home builders are interested in selling homes, why not also create products for this part of the market?

There could be lots of reasons for this present state. But, this is not just a problem of 2021; this has been going on for at least a few years. Who can or will act to address this? Is this a pressing social concern that requires attention or just something to note every so often?

Imagine a time in the near future after this trend of the last ten years or so has truly piled up. How will younger adults pursue homeownership, a goal many Americans still say is desirable? Will a lower end of the housing market simply disappear to be overshadowed by more expensive, larger homes that truly generate profits?

If this continues, I would not be surprised to see more calls for housing interventions beyond the market.

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.

Percentage of delinquent FHA loans keeps rising

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The economic and social consequences of COVID-19 might be just beginning. A new report suggests a number of FHA mortgage holders are behind in payments:

More than 17% of the Federal Housing Administration’s almost 8 million home loans nationwide were delinquent in August, according to a new study from the American Enterprise Institute.

“Rising FHA delinquency rates threaten homeowners and neighborhoods in numerous other metro areas across the country,” American Enterprise Institute researchers said in the just released report. “It would be expected that these delinquency percentages will increase over time…

The increase in late FHA loan payments is even greater than the rise in the number of overall mortgage delinquencies since the start of the pandemic…

A new study by the Federal Reserve Bank of Dallas warns that highly indebted FHA borrowers are at risk of losing their homes when payment forbearance programs end.

More people falling significantly behind on their mortgages – plus other issues related to housing – could have ripple effects on a number of actors:

  1. Americans who need housing. If you cannot afford your mortgage or rent, what viable options do you have?
  2. Mortgage providers. If a lot of mortgages go into default or foreclosure, what does this mean for these large financial actors?
  3. Local governments and communities. With larger numbers of people without housing and limited housing, what happens? What happens to local tax revenues?
  4. Housing investors and people with resources. Does this mean they can take advantage of opportunities?

The memory of the burst housing bubble just over ten years ago lingers. While few predicted a worldwide pandemic and the resulting impact on housing, we could know within a few months whether this will lead to another housing crisis.

Does new housing data support the claim that people are leaving cities?

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Reuters tries to connect the dots between data on housing construction and claims that people are leaving cities:

selective focus photography cement

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U.S. homebuilding increased in June by the most in nearly four years amid reports of rising demand for housing in suburbs and rural areas as companies allow employees to work from home during the COVID-19 pandemic…

A survey on Thursday showed confidence among single-family homebuilders vaulting in July to levels that prevailed before the coronavirus crisis upended the economy in March.

Builders reported increased demand for single-family homes in lower density markets, including small metro areas, rural markets and large metro suburbs. The public health crisis has shifted office work from commercial business districts to homes, a trend that economists predict could become permanent…

Home building last month was boosted by a 17.2% jump in the construction of singe-family housing units, which accounts for the largest share of the housing market, to a rate of 831,000 units. Groundbreaking activity increased in the Midwest, South and Northeast, but fell in the West.

It is widely assumed that large numbers of urban residents have left New York (and possibly) other places for suburbs and other parts of the country. If so, this could influence the housing industry. Yet, I would ask a few more questions.

First question to ask: is this activity due to people leaving cities or other factors? It would be helpful to consider other possible factors at play such as seasonal changes (more housing activity in warmer weather, more demand in warmer months) and the economy (ranging from confidence of different actors to mortgage rates to available capital to unemployment – all intertwined with COVID-19). Is the uptick in activity since roughly early March to today (when

Second question to ask: if there is evidence that things are happening simultaneously, is there more evidence to suggest they are causal patterns at play? If people are leaving cities, it does not necessarily mean they are looking for new homes. Perhaps they want to return to the city, perhaps they are living with others, perhaps they are willing to rent for a while and see what happens.

And out of my own curiosity, the reporting I have seen about people leaving cities during COVID-19 seems to primarily apply to wealthier residents. Does this mean the new construction of homes will tilt toward larger, more expensive homes? If so, this is a continuation of a bifurcated housing market where those with resources will have options while many with limited resources or opportunities will not.

There is a lot to consider here and we may not the patterns for a while yet. Even if the housing industry thinks that people are fleeing cities for good, this matters regardless of the actual data.

When the landlord for a single-family home is an institutional investor…

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Alana Semuels explores what happens when you rent a house from an institutional investor:

I talked with tenants from 24 households who lived or still live in homes owned by single-family rental companies. I also reviewed 21 lawsuits against three such companies in Gwinnett County, a suburb of Atlanta devastated by the housing crash. The tenants claim that, far from bringing efficiency and ease to the rental market, their corporate landlords are focusing on short-term profits in order to please shareholders, at the expense of tenant happiness and even safety. Many of the families I spoke with feel stuck in homes they don’t own, while pleading with faraway companies to complete much-needed repairs—and wondering how they once again ended up on the losing end of a Wall Street real estate gamble…

As the industry started to grow, the major players all described their desire to standardize and improve the business of being a landlord. But even to the companies’ employees, the effort to become more efficient started to look more like craven attempts to squeeze tenants. “It shouldn’t be just about making money, but that’s what it turned into,” Shanell Hanson, who was a property administrator for Colony American Homes in an Atlanta suburb from 2014 to 2016, told me. Hanson said the company had six maintenance workers for 2,100 homes in the area she managed. Residents would frequently call with substantial problems: Sewage was overflowing, or the house was full of mold. But with such a small staff, Hanson could rarely deal with the problems quickly. And the law was on the corporations’ side: If tenants want to seek financial remedy for a landlord not keeping the property in adequate condition, under Georgia law, they have to take the landlord to court, a costly and lengthy process. “It’s almost impossible to do without an attorney,” Lindsey Siegel, an attorney at Atlanta Legal Aid who works on housing issues, told me…

Many other single-family landlord companies were cutting corners on maintenance and repairs. “As the corporation got bigger, it just got worse, in terms of what we had to work with and how we had to deal with problems,” a former Los Angeles leasing agent who worked for Waypoint between 2015 and 2017 told me. (She spoke on the condition of anonymity because she still works in real estate.) Regional teams received bonuses for keeping costs low, she said, which incentivized them to skimp on spending. Instead of responding to tenants personally, supervisors would send calls for maintenance to out-of-town call centers—which would in turn assign maintenance workers dozens of repairs in a day, not realizing that Los Angeles traffic could mean that relatively short distances could take hours to traverse…

Tenants also say that rather than taking advantage of economies of scale, the rental companies are taking advantage of their clients, pumping them for fines and fees at every turn. This impression is backed up by the financial reports of the companies themselves. American Homes 4 Rent increased the amount of money it collected from “tenant charge-backs” (essentially billing tenants for repairs after they move out) by more than 1000 percent between 2014 and 2018, according to company earnings reports, though it only grew the number of homes it owned by 70 percent over that period. In some states, Invitation Homes keeps the utilities in its name, and charges tenants a monthly $10.99 “utility service fee,” which is in addition to the cost of water, gas, and electricity. The company increased its “other property income”—the amount it collected from resident reimbursement for utilities, service charges, and other fees—by 114 percent between the first nine months of 2017 and the first nine months of 2018, despite only growing the number of homes it owned by 71 percent. On an earnings call in 2017, Invitation Homes’ then-CEO John Bartling said that “automated charges to residents” drove profits in the quarter, leading to a 22 percent increase in “other income.”

I wonder how much of these issues are due to overwhelming emphasis in the United States on homeownership rather than renting. Do large companies think they can do this to renters because the long-term goal is to sell the property for a large sum to a homeowner (or another investor)? Similarly, do renters put up with this for a longer period of time because they expect to leave the rental market? Or, perhaps in markets where renting is more common and more rental units are available, renters would leave these situations sooner and institutional investors would have to do more to keep renters?

I would also be interested in more information on the profitability of such companies. How lucrative is it to purchase thousands of homes? While Americans historically are opposed to government involvement in housing (unless it is subsidizing suburban single-family homes), stories like these seem like they could be used to justify more government intervention in regulating housing. But, what if regulations cut into profits? The housing industry is a large and profitable one.

Another angle to take here would be to examine how these institutional investors do or do not contribute to local communities. One justification of homeownership in the United States was that it gave owners a stake in their local community and government. Yet, much capital in the world today is global and real estate decisions made thousands of miles away could heavily influence smaller communities that look like – they are full of single-family homes – they are constructed to emphasize local control.

Thriving construction industry in 2018 will primarily build for wealthier firms/residents?

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The recovery from the housing bubble and Great Recession of the late 2000s continues in the construction industry:

For all of 2017, construction added 210,000 jobs, a 35 percent increase over 2016.

Construction spending is also soaring, rising more than expected in November to a record $1.257 trillion, according to the Commerce Department. That was up 2.4 percent annually. Spending increased across all sectors of real estate, commercial and residential, with particular strength in private construction projects. The only weakness was in government construction spending.

Construction firms are clearly looking to hire more workers. Three-quarters of them said they plan to increase payrolls in 2018, according to a new survey from the Associated General Contractors of America. Industry optimism for all types of construction, measured by the ratio of those who expected the market to expand versus those who expected it to contract, hit a record high…

Contractors are most optimistic about construction in the office market, which has seen little action since the recession. Transportation, retail, warehouse and lodging were also strong in the survey. Respondents were less encouraged by the multifamily apartment sector, which is just coming off a building boom.

Although this article does not say much about this topic, it would not surprise me if most of the gains in new structures in 2018 tend to go to (1) wealthier areas and (2) wealthier occupants (whether companies/organizations or residents). A thriving construction sector could theoretically float all boats but it sounds like the bifurcated housing market (and perhaps office and commercial as well) will continue.

It is interesting to see that the office market could see some significant construction. How much of that new office space comes at the expense of older structures that are less desirable because of less popular locations or because rehab costs would be too high?

 

Construction of apartments increases in the Chicago suburbs

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The pace of apartment construction is at the highest in the Chicago region since 2004:

Rental construction reached its highest level in more than a decade last year in the Chicago suburbs, and 2018 is shaping up as another busy year. More than 4,200 units were completed in 2017, and about 3,900 more units are projected for this year, according to data from Marcus & Millichap and MPF Research…

The rental resurgence is the result of several factors, including a rising disparity between suburban and downtown rents, pent-up demand after little new construction over the past decade, and declining home ownership, industry experts say…

Unlike downtown Chicago, where much of the development is clustered together, many suburban projects are miles from another new development, meaning they face minimal competition for new renters…

“Now, with condo development just about going away, you’re seeing towns and cities giving building permits to apartment projects they wouldn’t have considered a few years ago. Also, I think apartments have lost some of their stigma because now they’re so damn nice.”

Three quick thoughts:

  1. While this may be an increase in apartment units, this is still behind the construction of single-family homes. For example, the Chicago region had 6,000+ new housing starts for single-family homes in 2016.
  2. It is interesting to note where the apartments are being built: probably in desirable communities (relatively wealthy, close to jobs and amenities) and often in downtown areas (this is cited in this same article). To flip this around, apartments are not desired everywhere or by all suburban communities.
  3. Will the trend toward apartments in the suburbs continue to increase? This might be a correction to a lack of apartment construction in the last decade or it might represent an enduring change as suburban residents desire more rental units.

Overall, apartments in the suburbs are relatively unique compared to the overwhelming preference for owner-occupied units. Thus, the numbers regarding apartment construction in the suburbs bears watching.

Don’t forget that American residents can collectively help decide what houses mean for Americans

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Kate Wagner of McMansion Hell ends a commentary piece several months ago by arguing Americans need to redefine the meaning of the home:

We need a cultural re-examination of what a home should do for us. Are we building our homes to cater to the communal needs of a family or to accommodate items or signifiers that will impress others? Will a home inspire its inhabitants to spend time with one another or isolate themselves in myriad rooms? Are we building a home to live in, or are we preoccupied with the idea of selling it even before the first brick is laid? Do we want to remodel or redecorate, or do we feel we have to because we’re constantly flooded with content that makes us feel inadequate if we don’t?

It’s time we as space-inhabiters break this unsustainable, unnecessary, and wasteful cultural cycle of consumption and reclaim our homes as our proverbial rocks, the spaces that make us feel safe and content. Who gave industry-funded media like HGTV or Houzz the right to dictate the proper and best ways to inhabit our spaces, to ridicule or diagnose as wrong those of us who lack the desire or the means to constantly consume in precisely way they want us to? A home isn’t an investment vehicle where cash goes in and more cash comes out, or the “After” segment of a television show. A home is, above all, an intimate, personal place; a haven where our intricate lives as human beings unfold. Grey paint be damned.

This names several actors who are defining what Americans want in homes. This includes:

-Media like HGTV.

-The housing industry.

Both certainly have power and influence. The housing industry through the National Association of Home Builders has a powerful lobbying presence. Just see their actions in the latest debates over the mortgage interest deduction. For decades, various media outlets have pushed the image of single-family homes filled with consumer goods; they needs advertisers after all. HGTV has a limited audience but their viewers may be the same upper-middle class Americans that feel like they are not doing well and are very vocal about this.

But these are not the only actors influencing what Americans think of homes. This list should also include:

-The government.

-American residents.

Histories of how the American suburbs developed in addition to overviews of federal housing policy (see this recent example) suggest that federal government in the last century or so is set up to help people obtain homes in the suburbs.

Often missing in these analyses is the role of American residents themselves. What kinds of homes do they truly want? More Marxist analyses suggest Americans have been duped or led into wanting large homes in a capitalist system. Thus, we should help Americans find homes that truly fit their needs rather than mindlessly giving in to what the housing industry and government want them to have. (Wagner’s paragraphs above sound very similar to Sarah Susanka arguments in The Not-So-Big House.) “Re-claim our homes” could involve fighting back against the capitalist system that insists our homes are true markers of who we are (and distracts us from the real issues at hand). In contrast, historian Jon Teaford suggests these sorts of homes are what Americans do truly want because they highly value freedom and individualism. Others like Joel Kotkin have made similar arguments: Americans keep moving to the suburbs because they like them, not because they are forced into them or are not smart enough to fight the system.

Regardless of where these ideas about homes came from (and it includes a mix of institutions as well as ideologies), American residents still have the ability to reject the typical narratives about single-family homes. They do often have options available to them. What kind of home they chose is a very consequential decision. And, perhaps even better, this does not have to be an individual effort or solely about personal empowerment: Americans could collectively vote for candidates and parties that would have a different image of housing. But, oddly enough, housing rarely comes up in national politics and local politics seems full of zoning and housing disputes but few large-scale efforts to provide alternatives. If Americans want housing options to change, they do not have to just turn off HGTV; at both the federal and local level, they should vote accordingly and/or insist that political candidates talk about these issues.

Ideologies and behaviors regarding housing do not just happen: they develop over time and involve a multitude of actors. To have a new vision of housing in America will likely take decades of sustained effort within multiple structures and institutions. These are not new issues; those opposed to McMansions today are related to those opposed to the mass suburbs of the 1950s and to the social reformers of the early decades of the 1900s who promoted public housing. The efforts can be top-down – changes need to be made at the highest levels – but could be more effective if they start at the bottom – with average voters – who demand change of businesses and governments.

Can the housing industry survive by only catering to the wealthy?

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In the short-term, it appears the housing industry is aiming at the wealthy. Can this work in the long run?

It’s possible to get rich if your business only caters to rich people. But it’s hard to have a massive and really successful industry in the United States today if you only cater to rich people. There are only so many people in the country with good credit and lots of cash sitting around. And this week, we got evidence that one of America’s largest industries may be running into trouble because its products appeal only to the upper crust. I’m not talking about jewelry or apparel. I’m talking about housing.

And yet the article goes on to provide little evidence that the housing industry will be in trouble if it continues on this path. The profit margins are higher. The big builders, like Toll Brothers highlighted in the story (as they almost always are when there is a story about luxury housing), and the big investors who swooped in during the housing crisis are doing fine. There are not that many smaller builders left. A loss in building volume would probably mean some job losses in real estate, construction, banking, and other related services. But, perhaps the housing industry in the future is leaner and aimed at the upper end?

As I mentioned in Friday’s post, if markets work as they are said to work, there are plenty of opportunities here for businesses to jump in. Newer technologies can lead to cheaper housing units and lower construction costs. There is a huge need for affordable housing so there shouldn’t be a shortage of demand (even if it may be difficult to find sites where neighbors aren’t opposed to it). Doesn’t someone want to grind out profits at a lower margin? The question moving down the road is whether the housing industry will react in such a way or not. There is no guarantee that it will.

NAR economist: “major housing shortage” in the US

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The chief economist for the National Association of Realtors suggests there is a major housing shortage:

“A major housing shortage exists in this country,” Yun said in a statement. “It is therefore disappointing to witness in March the continued lackluster performance in new-home building, which was the second lowest activity over the past six months. Home prices have risen by 41 percent and rents have climbed 17 percent over the past five years at a time when the typical worker wage has grown by only 11 percent. To relieve housing costs, there simply needs to be more homes built.”

My first thought on this reading this: builders and developers are still skittish from the 2000s housing bubble. Instead of risking overextending themselves, compared to the past they are now focusing on more expensive homes or rental properties. Oddly though, I have seen little media coverage regarding builders and developers. They may be a secretive bunch generally but why isn’t there more scrutiny of their actions and motivations?

My second thought: if there is indeed a housing shortage, what does this say about the state of the economy? A booming construction sector is often related to a good economy. It doesn’t necessarily have to be this way in the future, particularly if there is a shift away from sprawl and homeownership of detached single-family homes, even if it was true in the post-World War II era.

Finally, who might be held responsible if there is indeed a housing shortage? It is hard to rally potential homebuyers into a cohesive group. Is there a way to prod politicians and business leaders to act and if so, could their actions even effect much change?