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The Homes Are As Scarce As They Are Expensive
Surprise! Existing US home sales fell again in October, data released on Tuesday showed.
The 3.79 million pace marked a 4.1% decline from the prior month and counted as a new "since 2010" low.
If was the fifth straight decline and the 19th in 21 months.
The range of estimates for the annual rate was 3.78 million to 4 million from 58 economists who ventured a guess.
No one needs to hear this story again, but... alas. Resale inventory is scarce. Although mortgage rates receded in November am
I currently live in the biggest house I’ve ever had. I was new when I bought it 14 years ago and was about a median priced home. I have no mortgage and I have made improvements to upgrade useful things. Astonishingly, my taxes are going to drop about 7% for the coming year, about the same as last year. I wish I understood this market better and I’ve written a book about this stuff.
The other unfortunate aspect about this is that we’ve allowed local governments to block density in desirable locations. That plays a huge role in affordability as well. The arguments about maintaining the “character” of a neighborhood really just means increase my property values at the expense of affordable housing for others. This is the ultimate example of pulling the proverbial ladder up behind you.
They may not make more land, but they can certainly fit more houses on the land that already exists.
Increasing permitted density in high-priced urban single-family areas is something I’ve looked at a lot. What typically happens is that raising the permitted density drives land value much higher. The lot size remains single-family house sized, so if using the least expensive construction type (a couple floors of wood frame over a masonry ground floor) the potential multi-family building is fairly small (height, footprint, units). The high land cost and all the other hard and soft project costs and overhead/profit have to be amortized over rather few units.
I’ve looked at the pro formas, and absent large public subsidy these projects never produce affordable housing. In the hands of for-profit developers, they can produce small high-priced housing, in the form of expensive apartments and row houses. They tend not to work as condos – a 4-6 unit condo building is a nightmare. When affordable housing developers do projects (with large public subsidies, regulated rents, ostensibly non-profit) they look for larger lots; they usually don’t mess around with lots sized for single houses.
TL:DR look at Vancouver BC, has tried every density trick in the book, and housing prices have kept going up – landowners have gotten rich, though. I’ll recommend a book “Sick City” by Patrick Condon, on this topic.
John, I’m a fan of your always thoughtful contributions to this site. Thank you for your efforts.
Yeah, John’s the man. Except when he doesn’t agree with me.
I don’t know that I’d consider Vancouver a representative example, especially if we are talking about the US housing market. It does appear that the new housing production has picked up there though. Here is a report they’ve produced on housing dynamics (https://vancouver.ca/files/cov/pds-housing-policy-housing-needs-report.pdf). I admittedly don’t have time to dig into all the details, but I have a hard time imagining that the new supply is a contributor to driving up overall housing costs.
Also, it’s not just about turning single-family lots in urban areas into multi-family units (although I did see a lot of single-family homes turned into duets when I lived near downtown Denver). There is no shortage of building opportunities in the suburbs as well, but there is almost always opposition to converting shopping or office lots into high density housing, especially out here in California. Any new construction that does manage to get approval still either has to go through a ton of red tape or ends up in the exurbs which creates its own set of problems.
A perfect example in my own suburb is a golf course that runs through the middle of the city that developers are salivating over, but residents will not let be developed. Yes, any new units would likely be high priced condos, but you sure could fit a lot of nice houses on that land and you’d help free up supply at the lower end of the market.
Got it. I wasn’t thinking of residential development in office/retail areas. That doesn’t draw much (any?) opposition in my city. The lots are large enough for the project to have scale, and the existing buildings are increasingly challenged occupancy-wise.
In fact, I don’t think we have much commercial zoning that would exclude residential (other than actual “industrial” zones).
Shopping malls and their acres of parking lots are candidates for residential redevelopment. The class C and B malls are usually struggling and their owners looking for a way out. Always plenty of transit nearby.
Development goes in cycles. There was a big surge in multi-family permits and starts during the pandemic, in response to free money, WFH, and double-digit rent increases. Now that new supply is hitting the market and in many markets developers have hit the brakes on new projects, in response to not-free money and flattish rent growth. In the Sunbelt especially.
None of the above has much to do with affordable housing. The production of affordable housing basically responds to subsidies, is what I’ve seen. The more (less) public money offered, the more (less) affordable housing gets built. In my city there is no such thing as new unsubsidized affordable housing. There is old housing stock that is affordable unsubsidized, but it is being redeveloped away.