2014 and beyond will be
a new horizon for the real estate development industry. It will not be business
as usual.
The following questions
are not new but the answers may very well be different. Housing is striving to
gain a foothold and lead the nation to recovery. After six years, the following
questions remain unanswered:
What to build?
How to build?
When to build?
Where to build?
We need to begin the
discussion by considering the distribution of housing stock:
·
11%
of the US homes (14 million) were built between 2000 - 2010
·
26%
of the US homes (33 million) were built between 1980 - 1999
·
31%
of the US homes (40 million) were built between 1960 – 1979
·
16%
of the US homes (21 million) were built between 1940 – 1959
·
9% of the US homes (11 million) were built
between 1920 – 1939
·
7% of the US homes (9 million) were built
before 1919
Source:
US Census Bureau 2013 Housing Profile and REALTOR®
2010 - 2019
This decade is half
over so we can use actual numbers, add a reasonable projection and guess the
remaining years.
2010 614,000
2011 630,000
2012 723,000
2013 898,000
2014 1,000,000 (maybe)
2015
– 2019 @ 1,200,000/year (6 million) (Note: why would it be any
higher based on current economic projections)
The total number of
housing starts for the decade would be 10,000,000 rounded up.
The following
estimate represents the annual demand for new housing units (in millions)
Source: Credit Suisse, March 9, 2012
Household
formations
1.31
Net Removal of housing
units
0.26
Trend growth of vacant
units
0.05
Placements of mobile
homes
(0.14)
Units started but not
completed
0.06
Required ANNUAL number of housing
starts
1,540,000*
* I have been using 1,200,000 annual housing starts as the benchmark for a
thriving economy.
In the perfect world
of data analysis, we will have a 2,000,000 new housing starts shortfall based
on the anticipated population growth.
Existing housing
stock is getting older and families are staying in their homes longer.
Many Baby Boomers will be retiring in-place and
Millennials remain on the fence.
With this basic
background, the above questions have to be answered by more questions:
WHERE TO BUILD?
LOCATION
– LOCATION – LOCATION
OR
AFFORDABILITY?
Real estate has always been about location,
location, location. Also, the industry has always been fragmented based on
markets but in the future, the industry will be further defined by market
segments.
But for the buyer, it is always community,
community, community. Affordability is not the least
expensive home but a home a buyer can afford on a monthly basis in the
community of choice.
Typical criteria
buyers look for when they are buying a home:
·
Top
rated schools
·
Recreation
facilities, parks, open space
·
Views
·
A
variety of shopping
·
Homes
with consistency of architecture
·
Economic
stability within the community
·
Public
transportation availability
·
Health
care alternatives
·
Quality
jobs
·
Location
of the home within the neighborhood
·
Environmental
concerns i.e. hazards, flood plains, flight path
·
Crime
·
Noise
·
Landscape
features
·
Business
climate
·
Cost
of energy i.e. natural gas, electricity, oil
·
Proximity
to job
·
Home
appreciates faster because of its location
LIVE – does the location
provide a livable environment for raising a family, becoming active in the
neighborhood and joining a church community?
WORK – are there jobs
close to where you live? Can you get to those jobs without driving long
distances? Is your community thriving with sound economic policies?
PLAY - Do you live to work or work to live? Are
there recreation areas, open space, and cultural opportunities within walking
distance or easy access by car?
SHOP - All types of
shopping should be within easy access. Is there a mix of uses in one place so
that “one stop shopping” is achieved?
LEARN – education opportunities
for all age groups. Technology will force us toward continuous learning online
but our children will always be going to a brick and mortar school – let it be
the best your community has to offer..
WHAT TO BUILD
Builders have included too many
bells and whistles as standards and buyers are unwilling to accept less. First
time homebuyers will not be able to afford the new standards.
As
an example: A/C used to be an option in cars and in homes!
Design and material use have been elevated
as a key component for local government approval.
How about “nice but not necessary”
to bring home prices down –
The housing industry always relied
on the market to dictate product, features and finishes. If we don’t return to
the basics, today’s buyer will not buy because they can’t afford their wish
list and government will require more for less.
Unfortunately, today’s first time buyers
will not make concessions and they want instantaneous satisfaction. Otherwise,
they will move on.
WHEN TO BUILD
If you build it, will
they come? Yes.
HOW TO BUILD
With quality
Housing – Next Phase
Small markets will again be the
attraction – people will stay close to family and friends
Commercial Developers will dominate
the urban markets
The move-up market will dominate the
suburban markets
Sales will become virtual as
builders shy away from traditional model centers
Do you really think the college
graduating classes from 2008 – 2013 are optimistic about buying a home?
Do you think they have the same
dreams as their parents?
If
illegal immigrants are allowed to remain, they will replace those in need of
shelter. The intended consequence is the collapse of the housing industry. Even
if the illegal immigration is temporary, the affect on housing will be long
lasting.
I
do not see housing leading the recovery and we are still talking about a
recovery 6-years since the great recession statistically ended
I
do not expect builders will increase production anytime soon
National
builders will expand into sub-markets to survive
I
expect most builders to concentrate on the move-up market
I
expect the first time home buyer to be shut out for a long time
I
expect material and labor shortages will prevail in the short term
“Where will our children Live” will
once again be the motto for the future!
