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ULI Sacramento Capital Markets Council December 6, 2012. Higher consumption of housing-related services, coupled with the indirect effects from home price appreciation, will raise housing’s contribution locally. Economy.
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ULI Sacramento Capital Markets Council December 6, 2012
Higher consumption of housing-related services, coupled with the indirect effects from home price appreciation, will raise housing’s contribution locally. Economy Housing will be a major positive contributor to California’s economic recovery, $15-30 billion. Each new home generates between two and three new jobs. Add it up- big impact on unemployment in Sacramento. National housing starts will increase to 1 million by the end of 2012 and 1.5 million by the end of 2016. 5,000 in Sacramento, then 8,000 starts in 2016.
Economy Not only are sales, margins, and backlogs improving, but a sense of “visibility” is coming back to underwriting land acquisitions and capital investment. That’s positive for a sustained recovery in Sacramento’s housing market. Small builders, especially those in the major housing markets where big builders are most active, complain that the big boys outbid them for land then undercut them on housing prices. This year, they will account for about 50% of the almost 500,000 new homes closing. That’s up from about 40% in 2005.
Who’s Buying New Homes? Household formation has started to rebound from its post-crisis lows. It’s possible that household formation patterns have shifted, with fewer families being created . . . as unemployed “twenty-somethings” live with their parents. Many builders are offering to accommodate the changing shape of the American Family.
The “Headship Rate” (individuals become heads of households) has dropped during the crisis, as more and more young people lived at home, and immigrants stayed awayfrom market. Headship Rate among 24-34 year olds collapsed during the crisis, but is now rebounding back towards pre-crisis trends. 41 % of adults between 25 and 29 are now living, or have lived recently, with their parents. Overall, more than 50 million Americans are in multigenerational households, a 10% increase from 2007. Sacramento rates are slightly higher. Today’s Gen X and Y homebuyer is not the buyer of five or more years ago. Savvier researchers and more informed consumers. Don’t count out the 35-55 age cohort! This group continues to constitute a large piece of the market. Post Recession behavior may surprise regional planners.
Residential Architecture Transforming Quickly Modern one-floor homes are open and bright, with fewer walls. It won’t be advertised as a ranch by the developer. The bump in one-story new homes may have more to do with the industry creating more affordable models. Two-story homes being built with the master bedroom on the first floor to accommodate family members who can’t trudge up the stairs . . . or perhaps create a separate living environment for another adult. When land supply is tight and lot prices are higher, often the only affordable option is to build up. Bay Area market affecting Sacramento market.
Serving a Diverse Market Builders responding to a much more diverse market: “Four Gardens” Townhomes Story - The word “four” in Chinese sounds similar to the word “death” to many Asian buyers. Many avoid the number, to the point where they won’t consider buying a home with 4 in the address. Renamed 1600 Artesia Square. California Builders Ahead of the Curve Builders have created Chinese and Spanish versions of their website. Sales agents have been hired who are fluent in Korean, Spanish, Tagalog, Mandarin, Cantonese, and Ukrainian.
Sacramento’s Demographic Advantage The weak recovery has slowed migration, but expensive, overregulated and dense metropolitan areas continue to lose population to lower-cost, and generally less dense regions. Will Sacramento benefit from real estate dynamics in the Coastal metros? This includes the massive wave of aging boomers. Lower prices and “quality of life” will motivate those retiring or down-shifting their career. Moreover, previous homeowners who had been kept out of the market due to credit issues are eligible for a mortgage again. Finally, in the past 10 years, ages 25-34 presence grew 12% in suburban areas while dropping 22.7% in the core cities. More intriguing, and counter-intuitive, “hip and cool” core cities like San Francisco has also suffered double digit percent losses among this generation. Some of this cohort will be heading east to the Sacramento region.
2013 Housing Results Will Upset The New California Dream Theory Professor Arthur Nelson says that the supply of detached housing is far greater than the demand in California. He further finds that the demand of detached housing on smaller lots is far greater than supply. •The demand estimates for housing types in CA’s largest 4 planning regions – including SACOG– rely strongly on data from 3 early 2000’s “stated preference” surveys. •Nelson’s data indicates strong preference for multi-family housing, which he places at 62% of demand. The demand for multi-family housing is suggested to be ½ above the supply. •An over-supply of detached housing on conventional lots. Compared to a 2000 supply of 42% of the market, Nelson estimates the demand to be only 16%.
How About a Reality Check? Recent demand data – including actual buying behavior -- indicates a strong continuing preference for detached housing. Do smaller lots and higher density mean shorter commutes? The “higher density means shorter commute” myth is rooted in the obsolete mono-centric conception of the city. Sacramento pattern differs. The modeled demand estimates in The New California Dream appear to be at substantial odds with the actual demand. Has The New California Dream achieved the status of sacred text in the canon of urban planning? CBIA is concerned that MPOs may rely too heavily upon this myth. Regional plans based upon these housing preferences (and regulations on consumers) could well backfire. Serious implications for investors in all types of residential real estate.