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UST/PDD 610 Urban Development Process/Market Analysis

UST/PDD 610 Urban Development Process/Market Analysis. LECTURE #13 HOUSING MARKET ANALYSIS. HOUSING MARKET ANALYSIS : OVERVIEW. LINKAGES UNDERLYING DEMAND FOR HOUSING DEMOGRAPHICS OF HOUSING DEMAND STRATIFYING HOUSING INTO GEOGRAPHIC, TENURE, UNIT TYPE AND TARGET USER SUBMARKETS

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UST/PDD 610 Urban Development Process/Market Analysis

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  1. UST/PDD 610Urban Development Process/Market Analysis LECTURE #13 HOUSING MARKET ANALYSIS

  2. HOUSING MARKET ANALYSIS : OVERVIEW • LINKAGES UNDERLYING DEMAND FOR HOUSING • DEMOGRAPHICS OF HOUSING DEMAND • STRATIFYING HOUSING INTO GEOGRAPHIC, TENURE, UNIT TYPE AND TARGET USER SUBMARKETS • FILTERING: INTERRELATIONSHIPS BETWEEN SUBMARKETS • CYCLICAL ASPECTS OF HOUSING DEMAND

  3. HOUSING MARKET ANALYSIS : OVERVIEW(Cont.) • HOUSING AFFORDABILITY • TRACKING HOUSING SUPPLY • MARKET NICHE ANALYSIS • ABSORPTION AND MARKETING OF UNITS • HOUSING TRENDS IN CLEVELAND

  4. LINKAGES UNDERLYING DEMAND FOR HOUSING • IN GENERAL, HOUSING LINKAGES ARE DETERMINED BY COMMUTING TIME TO WORK OPPORTUNITIES • HOUSING PROJECTS BENEFIT FROM ACCESS TO HIGHWAYS, PUBLIC TRANSPORTATION, CBD, MAJOR EMPLOYERS, AND OUTLYING EMPLOYMENT CENTERS • PROXIMITY TO GOOD SCHOOLS, CERTAIN SERVICES, NATURAL AMENITY FEATURES, LOW TAXES, AND SHOPPING ARE ALSO IMPORTANT, DEPENDING ON SUBMARKET

  5. DEMOGRAPHICS OF HOUSING DEMAND • POPULATION -- INCREASING VERY SLOWLY IN U.S.--ABOUT 1% PER YEAR • HOUSEHOLDS -- SPACE USER FOR HOUSING. INCLUDES SINGLE PERSON HOUSEHOLD, FAMILY, AND UNRELATED PERSONS LIVING TOGETHER • FAMILIES -- PARENTS WITH CHILDREN LIVING TOGETHER IS A DECLINING PROPORTION OF OVERALL DEMAND

  6. DEMOGRAPHICS OF HOUSING DEMAND(Cont.) • GROUP QUARTERS -- EXCLUDED FROM HOUSEHOLD COUNT. INCLUDES PRISON INMATES, DORMITORIES, CONGREGATE CARE FACILITIES • PERSONS PER HOUSEHOLD RATIO -- HAS BEEN DECLINING STEADILY OVER THE PAST 20-30 YEARS. COUPLES ARE HAVING FEWER CHILDREN, LATER IN LIFE, MORE DIVORCES, MORE OUT-OF-WEDLOCK CHILDREN. HOUSEHOLD FORMATION CAN INCREASE WHILE POPULATION DECREASES. (FIGURE 1)

  7. STRATIFYING HOUSING INTO SUBMARKETS • PLACE • TENURE: RENT OR OWN • NEW/RESALE • UNIT TYPE • TARGET USER MARKET

  8. GEOGRAPHIC SUBMARKETS • TYPES • CENTRAL CITY • INNER SUBURB • OUTER SUBURB • EXURB • RURAL • MUNICIPAL BOUNDARIES MAY OR MAY NOT REFLECT DIFFERENT SUBMARKETS • GEOGRAPHIC SUBMARKETS ARE OFTEN A DATA GATHERING CONVENIENCE

  9. OCCUPANT TENURE AND HOUSING UNIT AGE SUBMARKETS • RENT -- NATIONALLY, ABOUT 1/3 RENT • OWN -- NATIONALLY, ABOUT 2/3 OWN • CONDO/COOP -- OWNERSHIP OF MULTIFAMILY UNIT. TRADITIONALLY CONSIDERED AN INFERIOR GOOD: THRIVE WHERE HOUSING IS TIGHT AND/OR FINANCING IS EXPENSIVE

  10. OCCUPANT TENURE AND HOUSING UNIT AGE SUBMARKETS(Cont.) • NEW CONSTRUCTION • MAJOR REHABILITATION: REINVESTING MAJOR $$ INTO A FUNCTIONALLY OBSOLETE UNIT THEREBY MOVING IT INTO A DIFFERENT SUBMARKET • RESALE: TURNOVER OF AN EXISTING UNIT

  11. UNIT TYPE SUBMARKETS • SINGLE FAMILY DETACHED (SFD) • DUPLEX/DOUBLE - 2 HOMES WITH ONE SHARED WALL • ZERO LOT LINE -- SFD WITH NO FRONT SETBACK, SMALL YARD, MAYBE SHARED GARAGE • PATIO HOME -- ONE FLOOR DETACHED, LITTLE GROUND MAINTENANCE

  12. UNIT TYPE SUBMARKETS(Cont.) • VACATION HOME • TOWNHOUSE -- ATTACHED IN A ROW, TWO OR MORE STORIES • CLUSTER HOME -- MULTI-UNIT POD WITH DOORS FACING AWAY FROM ONE ANOTHER

  13. UNIT TYPE SUBMARKETS(Cont.) • GARDEN APARTMENT -- 2-3 STORY, LOW DENSITY, OFTEN HAVE ON SITE AMENITIES, • WALK-UP APARTMENT -- URBAN, 3-5 STORY, NO ELEVATOR, 2-10 UNITS, OFTEN HAS COMMERCIAL ON GROUND FLOOR • HIGH-RISE APARTMENT -- LARGE, MULTISTORY URBAN, ELEVATOR, ORIENTED TOWARD VIEWS

  14. TARGET USER SUBMARKET • SINGLE - ONE PERSON • SINGLE YUPPIE - YOUNG URBAN PROFESSIONAL, UPWARDLY MOBILE • MINGLE - TWO UNRELATED PERSONS • YOUNG FAMILY - PARENTS WITH PRE-SCHOOL AGE/SMALL CHILDREN • MATURE FAMILY - FAMILIES WITH SCHOOL AGE CHILDREN • SINGLE PARENT - USUALLY THE MOTHER, AT LEAST ONE CHILD

  15. TARGET USER SUBMARKET(Cont.) • “DINC” - DOUBLE INCOME NO KIDS (YUPPIE) • EMPTY NESTER/GO GO - YOUNG SENIOR CITIZENS, GROWN CHILDREN HAVE LEFT HOME (AGES 55-65) • SLOW GO - RETIRED SENIORS, STILL MOBILE (AGES 66-80) • NO GO - DEPENDENT ELDERLY, USUALLY FEMALE • SEASONAL USER

  16. FILTERING: INTERRELATIONSHIPS BETWEEN SUBMARKETS • HOUSING CAN BE LOOKED AT AS A SERIES OF INTERLINKED SUBMARKETS OVER TIME, TENURE, PRICE AND PLACE • FILTERING HAS BOTH SUPPLY AND DEMAND SIDES • SPEED OF FILTERING DEPENDS ON BOTH SUPPLY AND DEMAND

  17. FILTERING: SUPPLY SIDE • NEW CONSTRUCTION OCCUPIES THE TOP OF THE PRICE CHAIN • HOUSING REHABILITATION MOVES UNITS UP THE PRICE CHAIN-THEY FILTER UP • PHYSICAL DETERIORATION MOVES UNITS DOWN THE PRICE CHAIN-UNITS FILTER DOWN • EVENTUAL HOUSING ABANDONMENT OCCURS WHEN UNITS HIT THE BOTTOM OF THE CHAIN

  18. FILTERING: DEMAND • DEMAND FOR HOUSING IS NEW HOUSEHOLDS + IN-MIGRATION - OUT-MIGRATION • THERE ARE EQUITY (FAIRNESS) IMPLICATIONS FROM FILTERING -- LOWER INCOME HOUSEHOLDS HAVE INCREASED ACCESS TO HIGHER QUALITY HOUSING OVER TIME. • THE SPATIAL DISTRIBUTION OF FILTERING HAS IMPORTANT IMPLICATIONS FOR THE CENTRAL CITY

  19. FILTERING SOURCE: HOUSING POLICY RESEARCH PROGRAM, URBAN CENTER, CSU

  20. CYCLICAL ASPECTS OF HOUSING DEMAND • DEMOGRAPHIC TRENDS -- BABY BOOMERS, BOOMLET, INCREASING NUMBER OF ELDERLY • NATIONAL ECONOMIC TRENDS -- HOUSING IS USUALLY ONE SECTOR THAT LEADS THE NATION OUT OF A RECESSION • COMPARATIVE ADVANTAGE OF CERTAIN REGIONS OF THE COUNTRY

  21. CYCLICAL ASPECTS(Cont.) • FINANCING COSTS -- MORTGAGE RATES, CONSTRUCTION $$, TIED TO NATIONAL ECONOMIC CYCLES • SEASONAL TRENDS -- HOUSING STARTS OCCUR WITH WARM WEATHER, FAMILIES MOVE PRIOR TO SCHOOL YEAR BEGINNING

  22. HOUSING AFFORDABILITY • HOUSING AFFORDABILITY IS A FUNCTION OF FINANCING TERMS, HOUSING PRICE AND HOUSEHOLD INCOME. DOWN PAYMENT AND OTHER HOUSEHOLD DEBT ALSO CONSIDERED • THE RULE OF THUMB RATIO BETWEEN INCOME AND MAXIMUM AFFORDABLE HOUSING IS ABOUT 1:2.5.

  23. HOUSING AFFORDABILITY(Cont.) • THE AFFORDABILITY RATIO MAY BE CALCULATED 1) GIVEN A HOUSING PRICE TO DETERMINE WHICH INCOME WOULD BE REQUIRED TO QUALIFY; OR 2) GIVEN AN INCOME, HOW EXPENSIVE A HOUSE COULD BE PURCHASED. (FIGURE 2 ) • HOUSING AFFORDABILITY INDEX: THE MEDIAN INCOME AND THE MEDIAN HOUSE FOR CITIES. CLEVELAND SCORES AS AFFORDABLE. (FIGURE 3, 4)

  24. TRACKING HOUSING SUPPLY • INVENTORY OF EXISTING COMPETITIVE SUPPLY--CONDUCT SITE VISITS • COLLECT INFORMATION ON UNIT TYPES, CHARACTERISTICS, PRICES, VALUE ($/SF), AMENITIES, AND ABSORPTION RATES • DETERMINE EXISTING VACANCY -- A FORM OF COMPETITION. FUNCTIONALLY OBSOLETE, UNSOLD/UNRENTED SUPPLY • DEMOLITIONS -- STOCK DROPPING OUT OF THE HOUSING SUPPLY

  25. TRACKING HOUSING SUPPLY(Cont.) • FUTURE SUPPLY IN THE PIPELINE -- CONTACT PLANNING DEPARTMENTS, ZONED LAND, PROJECTS AT VARIOUS STAGES OF DEVELOPMENT. CALL DEVELOPERS: HAVE THEY OBTAINED FINANCING? ASSIGN SUBJECTIVE PROBABILITY OF PROJECT GOING FORWARD. • GOOD DATA SOURCE FOR PAST CONSTRUCTION TRENDS - -U.S. CENSUS DOCUMENT: HOUSING UNITS AUTHORIZED BY BUILDING PERMIT AND PUBLIC CONTRACTS

  26. MARKET NICHE ANALYSIS • GIVEN DEMAND FOR HOUSING IN YOUR SUBMARKET FOR THE YEAR YOUR PROJECT WOULD COME ON LINE • ASSUMING ALL HOUSEHOLDS WANT THEIR OWN UNIT AND WOULD SPEND UP TO THE MAXIMUM AMOUNT THEY COULD AFFORD (A BIG ASSUMPTION) • NICHE ANALYSIS CAN DETERMINE GAPS IN THE MARKET BY PRICE RANGE

  27. MARKET NICHE ANALYSIS(Cont.) • DEVISE A LIST OF HOUSEHOLDS BY INCOME RANGE. COMPARE THIS WITH EXISTING OCCUPIED AND COMPETING VACANT AND FUTURE SUPPLY, BY PRICE. (INCLUDE SUBJECTIVE ASSESSMENT OF PROPOSED PROJECTS IN THE PIPELINE) • SUBTRACT DEMAND FROM SUPPLY TO DETERMINE GAPS AND OVERBUILT SECTORS OF THE MARKET (FIGURE 5, 6)

  28. ABSORPTION AND MARKETING OF UNITS • ABSORPTION IS THE NUMBER OF UNITS THAT COULD BE SOLD OR RENTED OVER SOME TIME PERIOD (USUALLY MONTHS) -- USE MARKET SHARE AND/OR NEAR TWIN APPROACHES • MARKETING EFFORTS OFTEN DIRECTED AT TARGET USER SUBMARKETS. PROJECT AMENITIES AND PRICE ARE KEY FACTORS • POTENTIAL BUYERS MUST BE CAREFULLY GUIDED SO THEIR FIRST IMPRESSION OF PROJECT IS FAVORABLE.

  29. MARKETING (Cont.) • SHOTGUN MARKETING: IF UNIT DESIGN IS GENERIC, DESIGNED TO APPEAL TO MANY SUBMARKETS. FAST SELLERS IF HOT MARKET • TARGET MARKETING: UNIT IS DESIGNED TO APPEAL TO A VERY SPECIFIC USER TYPE. THINNER OVERALL DEMAND, BUT CAN MOVE BETTER IN SLOW MARKETS

  30. MARKETING(Cont.) • IF PROJECT CONTAINS A MIX OF USER SUBMARKETS, THEY MUST BE COMPATIBLE • COMPETING IN SEVERAL SUBMARKETS RATHER THAN JUST ONE CAN INCREASE SALES • MARKET WINDOWS IN TIME: CHANGES IN FINANCIAL, REGULATORY, AND ECONOMIC CYCLES INDICATE A PROJECT MUST BE ABSORBED QUICKLY, WITHIN A MARKET WINDOW

  31. GUEST SPEAKER DAVID SHARKEY PROGRESSIVE URBAN REAL ESTATE

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