Tag Archives: housing industry

Housing anxiety in America will lead to what kind of action?

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A new poll suggests Americans are worried about housing:

According to a survey by the NHP Foundation, 75 percent of Americans are worried they could lose their homes, while 83 percent of respondents said that they were concerned about the rising costs of housing.

Some 30 percent of the respondents described themselves as “very concerned” that they or a close friend or relative could lose their housing, meaning that nearly one-third of Americans feels that a lack of affordable housing could represent a personal crisis. Another 27 percent described themselves as “concerned”—meaning more than half of respondents consider housing instability to be a looming danger.

Per the poll, about 40 percent of respondents say that they fear they could lose their homes due to job loss. This fear is not unfounded. Neil Gabler’s May cover story for The Atlantic cites Federal Reserve Board data that showed that almost half of U.S. households (47 percent) could not muster $400 in an emergency. A report by the Urban Institute shows that more than one-third of all American families (36 percent) have savings of less than $250. One-quarter of U.S. households have no savings at all…

The NHP Foundation finds that 80 percent of its respondents (1,000 Americans polled nationwide) say that they would welcome affordable housing in their communities. But affordable housing is rarely if ever posed to residents or voters as an up-or-down, yes-or-no question: “Would you like more affordable housing?” Sure, we all would. Except when it involves changes to the places where we live; then our neighbors flip out about it.

Perhaps builders will help with a shift toward constructing smaller homes. Or, as the quote above suggests, housing isn’t the primary issue: people anxiety about jobs which then affects housing.

Thinking longer term, I wonder what it would take to advance more drastic solutions to housing issues. Some possible turning points:

–The homeownership rate continues to drop. Some might say this limits the American Dream while builders could note that this limits their profits and industry (which is also connected to jobs).

-Housing prices rise to where a larger segment of the market is paying substantially more than 30% of their income for housing. Even then, how exactly would this group turn their grievances into collective action?

-Another economic downturn leads to higher employment and more housing issues. Higher foreclosure and eviction rates could cause issues.

-A political candidate makes housing a major issue. As this article notes, no one is really talking about this.

-Could there be a major building or financial scandal that leads to reform?

I’m not sure any of these would lead to anything but temporary measures. Or, perhaps housing in the United States will simply slowly change: wealthier residents will be able to afford newer housing in better locations, people with fewer resources will have fewer and fewer options, homeownership will become less desirable, and all of this will be more clear in a few decades.

Recession decimated construction workforce

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Here is another sign the construction industry has not fully recovered from the economic crisis: the number of construction workers is still low.

The new-construction housing market is slowly recovering from the turmoil of the recessionary years, but builders haven’t been able to pick up where they left off. More than 2 million skilled labor jobs were lost to the economy, and many of those workers are gone forever…

Nearly 30 percent of the construction workforce disappeared during the Great Recession, reports FMI Corp., a Raleigh, N.C., provider of management consulting, research and investment banking to the construction industry. Among its ranks are plumbers, electricians, roofers, bricklayers and carpenters.

The shortage seems to be worsening. According to FMI’s 2015 “Talent Development in the Construction Industry” survey, 86 percent of respondents reported shortages of skilled labor. That’s up from the 2013 survey, in which 53 percent of respondents reported such shortages.

It may take a long time before the housing industry approaches where it was in the early to mid-2000s. In the meantime, those workers have to do something and/or go elsewhere. Even with all the political talk about helping workers, I don’t remember anyone suggesting plans for helping construction workers in the same way that politicians have discussed manufacturing workers.

Additionally, I wonder what it takes to ramp up with a lot of new workers if the housing industry starts booming again. Businesses today tend to shed workers when times are bad, add when the economy picks up, and disregard training and upstart costs. However, it is not always simple to just hire large numbers of laborers.

Calculator suggests developers can profit and build affordable housing

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The Inclusionary Calculator suggests developers can typically make 10% profits and build 12-15% affordable housing at the same time:

It can feel like a mantra among private developers: Requirements by municipal governments to include affordable units in market-rate housing developments make those developments unprofitable, even unfeasible. It may be one of the most frequently repeated claims about housing in general. Can it possibly be right?

The Inclusionary Calculator is an effort to settle this question—and to prove that one major assumption about affordable housing is a myth. Developed by the Cornerstone Partnership, the tool allows users to simulate the balance sheets for market-rate developments for any number of scenarios. It accounts for factors such as costs of production, financing, affordability set-asides, and parking requirements…

“In almost every case, we could target a 10 percent profit for the developer and still leave at least 12 to 15 percent of the units to be affordable,” McCarthy says…

So, not only does inclusionary zoning not raise the costs of market-rate construction beyond reason, it also does not raise the price of market-rate units for homeowners. It eats away at developer profits. That makes affordable housing a moral question, not a feasibility issue: Do leaders dare to challenge developers on their profit margins?

The Inclusionary Calculator is available here after watching a training video and registering.

This poses a fascinating question in the housing industry (as well as for other sectors of the American economy): just how much profit is enough? Very few people outside the housing industry would have any idea how much money developers and others make on the construction and sale of housing units. Perhaps the process is deliberately opaque or perhaps it is simply complicated. But, I wonder how the public in many communities would respond if they knew that 10% profits were generally possible while also providing affordable housing.

Of course, this is just one hurdle in the construction of affordable housing. Not allowing developers to claim that they can’t make money would help the process but in many communities, neighbors would still complain. A NIMBY response often takes over; who lives in affordable housing? What does this signal to outsiders? Won’t this lower our property values?

New homes shrink 40 sq ft; industry not sure what it means

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The median size of new American homes shrunk during the second quarter – but barely:

Of the 206,000 homes that went under construction in the second quarter, the median size was 2,479 square feet, according to Commerce Department data released Tuesday. That was 40 square feet smaller—or about the size of a walk-in closet—than the high set in the first quarter.

What exactly this means is unclear.

Entry-level buyers tend to purchase smaller homes. In recent years, many younger people who otherwise would buy a home have opted to rent due to stringent mortgage-qualification standards, relatively sluggish job and wage growth, mounting student debt and preferences for living near city centers, where land and homes are more pricey…

Several economists and builders foresee a gradual leveling off or decline of the median size of newly built homes. Builders such as D.R. Horton Inc., KB Home, Meritage Homes Corp., PulteGroup Inc. and Century Communities Inc. have reported early signs of first-time buyers returning to the housing market in the past year…

David Crowe, chief economist for the National Association of Home Builders, foresees a “moderation” of the median size of newly built homes as more first-time buyers come into the market. But he added that it will take a long time for the shift to be reflected in the national median-size figure, because the factors buoying first-time buyers—a loosening of mortgage-qualification standards and growth in jobs and wages—are progressing slowly…

“If anything, we’re seeing people trying to get into the largest home they can afford,” said Marcie DePlaza, a division president at GL Homes, a Florida builder that anticipates selling 1,000 homes this year at prices ranging from about $200,000 to $2 million. “With interest rates as low as they are, people can push to buy the biggest [home] in the group” that they are considering.

In other words, the data could be taken as pointing in multiple directions. A number of builders and others are at least preparing themselves for the possibility that more Americans, particularly entry-level buyers, want smaller homes. Yet, the big homes make a lot of money and wealthier buyers are a known quantity.

In situations like this, I imagine the housing industry would try to hedge its bets both ways. Playing it conservatively might work better in the long run though it might mean that some opportunities are lost. Some of these trends – such as Americans eventually wanting smaller homes – have been discussed for decades. Still, it takes time for some of these factors to work themselves out such as the behavior of younger homebuyers or the overall state of the economy or whether homeownership is promoted by politicians.

Rising development costs in American cities

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It is getting more and more expensive to build new developments in American cities:

Land costs in the urban cores have dramatically escalated, making it difficult for developers to find developable parcels that pencil. Adding to the issue of expensive land prices, in December 2014, the Wall Street Journal reported that construction costs are rising faster than the inflation rate: the U.S. Labor Department’s consumer price index had risen only 1.3 percent above the previous year, while the construction index was higher by 5.2 percent.

Land is scarce and expensive

In most major U.S. urban markets, the cost of land has risen aggressively, in line with the greater demand for urban living by millennials and empty nesters. In Los Angeles, for example, land for industrial developments—many of which are changing from industrial use to residential mixed-use—have averaged approximately $23 per sq. ft. at the beginning of 2014 and  by year‘s end, asking prices were as high as $32 per sq. ft. There has been and continues to be keen competition for every developable site, with the urban core expanding into previously blighted areas.

Current shortage of construction professionals and skilled labor

Construction employment was disproportionately affected by the recession. As a result, many construction professionals—both labor and management—left the industry. Across the country, there are 1.4 million fewer people employed in construction than there were at the peak in 2007, according to the U.S. Bureau of Labor Statistics. Many in the construction industry who lost their jobs during the recession have found new careers, and many skilled tradesmen left the industry all together. Compounding the shortage is the lack of high-quality training available to young people entering the construction workforce today…

Materials costs have little impact

Countering some of the rise in construction costs is the fact that most materials costs, apart from glass, have not greatly increased. Associated Builders and Contractors Inc. reported in April 2015 that, although concrete products prices are up 4.1 percent on a yearly basis, total input prices have fallen by 3.6 percent since the same time last year. For example, iron and steel prices are down 11.5 percent and softwood lumber prices are 7.4 percent lower than one year ago. Current crude petroleum prices are down 55 percent and crude energy materials prices are down by 43.7 percent from the same time last year.

If this is the case, this could have negative consequences in a number of areas including: it might take more to get the construction industry going to overcome these costs; this limits the incentives for developers to construct cheaper or affordable housing (such as starter homes); and only the really wealthy can purchase and utilize urban land.

McMansions as “weapons of mass construction”

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One writer resents having to put up with McMansions, labeled in the headline “weapons of mass construction,” for the sake of the economy:

I hate being all in this thing together. Or let’s just say, I hate being all in this thing together with the home-construction industry. Right now, a McMansion the size of the Louvre is going up directly across the street from my house. Nine other monstrosities are also being deployed in what was once a beautiful, empty meadow. The field has been filled with backhoes and earth movers and building materials on and off for at least two years.

The projects, once begun, take forever to finish. The crew starts work on a house, then gets dispatched to finish another project in a different town, and then comes back. So it takes months to get the micro-chateaux built. It’s like watching someone set fire to your neighborhood, then douse it, then come back and start the fire again six weeks later. You’d rather they just ruined things once and for all and got it over with. If you’re going to sack Rome, sack it. Drilling, digging, dust and leveled trees have been our reality since 2011. It makes it very, very hard to root for the home builders.

I am constantly reading that young people are not buying houses at the pace needed to get the economy percolating. Well, maybe someone should tell the developers to stop building lurid, vile houses that no one can afford. Or to stop building lurid, vile, prefab, ticky-tacky houses even if people can afford them.

When the economy cratered in 2008 and my 401(k) got massacred, I wasn’t as upset as I should have been because it meant that the McMansions scheduled to be erected across the street wouldn’t get built until the recession was over. Four happy years ensued, without bogus cathedral windows and four-car garages and faux-Belgian cobblestones and Philistines for neighbors. This situation put me in the uncomfortable position of having to root against my own country. As long as the housing industry was flat on its back, life was good.

I really wish that the economy were not so dependent upon the health of home builders. I would love to root for these guys. I really would. But they build trash. They tear down adorable bungalows and build McMansions in Princeton, N.J. In Chicago, in Boston, in Los Angeles and even in little old Easton, Pa., they are bulldozing whatever stands in their way and throwing up their eyesores. Throwing up being the operative term.

What does he really think? I wonder if this is closely tied to what he suggests is a personal experience with nearby houses. It is one thing to dislike McMansions on the whole and argue they are bad for society – like Thomas Frank suggested a few months ago – but then not live by them. In fact, a lot of social problems are like this: we know there are bad things happening in our county, state, country, and around the world but it is different when they are removed and abstract. There is some of that argument here: such homes are ugly, he doesn’t want to have to rely on the housing industry so much, etc.

It is another thing if a new McMansion under construction greets you every morning when you walk out your front door. Or if construction projects take a really long time. Are these concerns the result of teardowns where a historic neighborhood is threatened?

Buying or renting smaller spaces related to less consumer spending

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If Americans turn away from McMansions and toward smaller homes or renting, they may also spend less on other items:

The apartment/renting moves have two implication for consumer spending. First, less space means less stuff. Second, rental units typically aren’t fitted with high-end appliances and finishes.

Looking at real spending for certain home goods, the data show annual increases in spending on items like appliances, furniture and window treatments are averaging less than they did during the boom years. That means that, like home construction, demand for home goods isn’t supplying the boost to economic growth that it did before the recession.

The Demand Institute, a joint initiative of The Conference Board and Nielsen, looked into the shift’s impact on consumer spending in a 2012 study. The DI analysis expected demand for home goods to pick up as housing recovers, but “value-oriented brands are likely to see the greatest growth,” the report said, a short-run trend “driven by landlords and renters who want to spend less on fixtures and furnishings than homeowners [do].”

Renting households also tend to own fewer vehicles, said the DI report, in part because their finances are worse than homeowners but also because parkingspots are limited. That shift will limit future car sales

All together, this links spending in one large area – housing – to spending in other sectors. Take owning a large suburban house. Such a home tends to support a more robust housing industry including construction and real estate. Such homes are often built in more sprawling suburban neighborhoods, leading to more cars and more road construction. Bigger homes require more furnishings, landscaping, and opportunities for improvements and repairs, supporting more suburban big box stores and other retailers.

I do wonder how much this is a case of spurious correlation versus indicating broader shifts: is this all linked to people having less disposable income? If they feel they have less money, they might make different choices about housing as well as consumer goods. Or, due to the economic crisis and relatively stagnant income for many Americans, consumers might be shifting their preferences in a number of ways that could upset traditionally important economic sectors. It could be a move away from expensive and more durable goods (houses, cars) toward electronics (like smartphones) and entertainment (the creative class).

Argument: we’ve sacrificed everything for McMansions

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Critics of McMansions are not hard to find but Thomas Frank takes the argument further: McMansions are behind a whole host of issues including sprawl and inequality.

Of course there was something different this time around. In the 2008 collapse, the real-estate bust wasn’t the result of some larger economic trend but the cause of it. Although we are accustomed to blaming it all on subprime loans, about half of the disaster was attributable to the less-well-known fiasco in Alt-A instruments which fed the McMansion market, the “liar’s loans” which were securitized and sold off stamped with a big Triple-A. The worst recession of our lifetimes, in other words, was in large part the result of our superiors’ longing to get themselves a piece of the grandiose.

That astounding reversal of the usual chain of cause and effect changed the way I thought about the McMansion. I once believed it would be amusing to track stylistic change in the tract-mansion form—how, say, the fake French simplicity of Newt Gingrich’s 1987 McMansion gave way to the complex multigabled fakery of Michele Bachmann’s 2007 McMansion, with maybe a stop in between to contemplate Ricky Bobby’s McMansion in “Talladega Nights.”

But what I discovered is that the form doesn’t really change. Yes, the houses get bigger every year, gables and gazebos come and go, but what is really striking about the McMansion is its vapid consistency as the decades pass…

This is not some absurdity at the fringe of our way of life. This is civilization’s very center, the only thing that really makes sense in “clusterfuck nation,” the tawdry telos at which all our economic policies aim. Everything we do seems designed to make this thing possible. Cities must sprawl to accommodate its bulk, eight-lane roads must be constructed, gasoline must be kept cheap, coal must be hauled in from Wyoming on mile-long trains. Middle-class taxes must be higher to make up for the deductions given to McMansion owners, lending standards must be diluted so more suckers can purchase them, banks must be propped up, bonuses must go out, stock prices must ascend. Every one of us must work ever longer hours so that this millionaire’s folly can remain viable, can be sold successfully to the next one on the list. This stupendous, staring banality is the final outcome for which we have sacrificed everything else.

This is a strong statement: we created and generally buy into a system whose goal is to grant a privileged few the ability to live in private McMansions in nice neighborhoods. The fulfillment of the American Dream at the turn of the 21st century involves living in a McMansion. It is not just about suburbs, 0wning a car, buying cheap goods at Walmart, and sending your kids to nice schools; it is about having the glitzy, architecturally-dubious but spacious home.

What I don’t see in Frank’s piece is how exactly the dots connect. The number of McMansions are still relatively limited due to their cost. Not all gated communities have McMansions. Not all suburbs are edge cities or vacuous tract neighborhoods like the ones highlighted in Suburban Nation. I’d like to see the data where half of the housing bubble of the late 2000s was due to loans for McMansions. In other words, this may be a populist argument today given the status of McMansions but the true story is likely more complicated.

If homeownership in the US isn’t about making a good investment, what is it really about?

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Politicians and others argue homeownership is a good financial investment. But, if it isn’t really a good investment, what is homeownership in the United States all about?

Politicians and pundits across the spectrum regard homeownership both as the best investment a family can make and a measure of national prosperity. But a significant majority of Americans believe differently. According to a 2012 Pew survey, 86 percent of Americans now believe the key to a middle-class life is a “secure job,” almost double the share (45 percent) who say the same about owning their home. To compare, seven out of ten respondents to a Time/CNN/Yankelovich survey back in 1991 said that homeownership was essential to middle class membership, while just one-third said that a white-collar job was required. Since 2004, the overall rate of homeownership in the U.S. has declined from 69.2 percent to 65 percent…

Of course, I’m by no means advocating that we put an end to homeownership altogether and become a nation of renters. My hunch is a homeownership rate of between 50 and 60 percent is just about right; and that’s not too far from where the U.S. is now. But we can’t hide from the fact that excessive levels of homeownership — either among nations or metros — seem to be associated with lower levels of innovation, productivity and economic development.

I wholeheartedly concur with Columbia University economist Edmund Phelps (I quoted him in my book The Great Reset) when he says, “it used to be the business of America was business. Now the business of America is homeownership.”  And, he adds, “America needs to get over its ‘house passion.'”

Americans like financial investments but they also like other aspects of homeownership. Here are a few other reasons:

1. Some have argued Americans like private spaces to the detriment of public spaces. Having a home that you control, and not just rent, is the epitome of this private space. Owning a home is viewed as related to independence and self-determination.

2. Americans like to consume and houses are another consumption object. When you own, you can put your own personal stamp on the property as well as shape the house into a reflection of yourself. (This is opposed to viewing homes primarily as dwelling places, not as individual expressions.)

3. Owning a home is historically linked to the American Dream. Being able to buy your own home demonstrates that you have made it. The American Dream may indeed change in the future but it takes time to overcome this decades-old inertia.

4. This may not come up much now but homeownership was viewed in the past as a bulwark against communism.

5. Building homes as well as buying and selling them is a big industry. There is a lot of money to be made – though homeowners themselves might not make much.

6. There are long-standing negative perceptions about renters including renters are often from less desirable segments of society and renters are less committed to a community because they are more transient and don’t have the same kind of investment in their property.

While the idea of investing in a home may soon fade, there are other influential reasons Americans choose to buy homes. Economics may be a powerful motivator but it isn’t the only one when it comes to homes.

North Dakota: “Little Housing Boom on the Prairie”

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A booming oil industry in North Dakota has contributed to the state leading the United States in housing growth in 2012:

According to recently released Census data, North Dakota led the nation in housing growth in 2012, increasing its supply of housing by 2.3% in just one year. Overall national growth was 0.3%.

While much of this growth has been focused on the oil patch, the entire state has seen strong economic growth, job creation, and accompanying strength in the housing market. Cities located hours outside the oilfield are reporting shortages of housing and tight markets for existing housing. Shortages of housing have also been reported in small towns throughout the state, as job-seekers move to the region looking to find work in the state’s growing oil and ag industries. A review of the new Census data bears out such reports. North Dakota is home to 8 of the top 100 counties nationwide for housing growth, including 4 of the top 10. Williams and McKenzie County, in the heart of the Bakken development, placed number one and two nationally, respectively, but counties far outside the oil patch also showed strong rates of growth.

The new shift towards more permanent housing construction will probably come as a relief to communities and officials throughout the state, who have been scrambling to find solutions to shortages. While temporary housing for oil workers has boomed throughout the oilfield, local officials have begun to explore limits on such “man camps”, citing their negative effects on local communities, impact on permanent development, strain on infrastructure, and safety concerns. The state has also seen rising rates of homelessness, and faced challenges finding enough workers to fill job openings- often due to lack of places for those interested in moving to the region to work. As estimates of the amount of recoverable oil in the Bakken continue to climb, larger, out of state developers have begun to enter the region, looking to take advantage of what may be a longer, more sustained expansion. With 21,000 job openings currently unfilled statewide and the potential for tens of thousands of wells remaining to be drilled over the next three decades, the pressure for more housing growth to meet the needs of expanding businesses is likely to continue.

It makes sense that housing is following the people and money to North Dakota. But, it is unclear what this means in the bigger picture:

1. Is this housing meant to last, meaning that it is intended to be there 50 years from now when the oil boom may or may not be there? What happens in these communities if these new subdivisions are ghost towns in ten years?

2. Are there any sort of housing innovations in North Dakota? Since this is a unique situation, it seems like a ripe opportunity for some new ideas.

3. Is this housing industry money (real estate, builders, construction jobs) benefiting people in North Dakota or does this involve a lot of out-of-town/state businesses? Growth may often be viewed as solely a good thing but we can also ask who is benefiting from the housing boom.