Urbanexus Update - Issue #141
This selection of real estate and community development news and information is curated by H. Pike Oliver, co-author of Transforming the Irvine Ranch: Joan Irvine, William Pereira, Ray Watson, and THE BIG PLAN (Routledge: June 2022.)
Please note that some items in this compilation may be behind a paywall.
The economy
If you're a single American making between about $30,000 to $90,000, you're part of the middle class. According to a Pew Research Center analysis of the Census Bureau's Current Population Survey Annual Social and Economic Supplements, the share of adults living in a middle-class household shrank from 61% in 1971 to 50% in 2021.
After China, the U.S. is the next largest exporter of goods in the world, shipping out $1.8 trillion worth of goods in 2021—an increase of 23% over the previous year.
Of course, that massive number doesn’t tell the whole story. The U.S. economy is multifaceted, with varying levels of trade activity taking place all across the nation.
Using the latest data on international trade from the U.S. Census Bureau and the U.S. Bureau of Economic Analysis, Visual Capitalist has visualized the value of America’s goods exports by state.
Real estate investment trends
A special report, produced by Real Estate Capital USA in partnership with CBRE Investment Management, outlines the big ideas that are shaping real asset investing
Residential
Home prices rise as supply dwindles
U.S. home prices have kept on climbing in the pandemic housing boom, leaving many potential buyers wondering how they can afford a place of their own in this red-hot market. After a period of stability in the years following the 2008 housing crash, the current development is a steep departure from the previous trend.
According to the St. Louis Fed, median prices for U.S. houses rose from approximately $323,000 at the start of the coronavirus pandemic to around $429,000 in Q1 of 2022. Over the same time period, U.S. inflation hit 11.5 percent. But this makes the average house price still $68,000 higher than in early 2020 even when adjusting for the measure.
Because housing is in such high demand, buyers outnumber supply, causing prices to soar. Because housing now promises sizable returns, it is also attracting investors. They bought a record share of homes in the United States last year, putting further pressure on the market.
The US housing boom Isn’t a bubble
Although the frenzied buying and inflated prices are reminiscent of the run-up to the Great Recession, there are several factors that make the current market different. First, loan standards that were loosened during the bubble are much tighter now, with stringent requirements for good credit, complete documentation and a sizable down payment. In contrast, the pre-recession years were pocked with subprime mortgages, low teaser interest rates that ballooned, weak underwriting, negatively amortized construction and other questionable practices.
Second, the boom of the early 2000s was also driven by a surge in home construction that led to abundant supply. But there’s been a building shortage over the last 10 years, especially in cities with high demand. The result is a supply-demand mismatch that can’t be resolved quickly or easily.
Housing markets and the interest-rate storm?
Stocks are sinking, a cost-of-living crisis is in full swing and the spectre of global recession looms. But you wouldn’t know it by looking at the rich world’s housing markets, many of which continue to break records. Homes in America and Britain are selling faster than ever. House prices in Canada have soared by 26% since the start of the pandemic. The average property in New Zealand could set you back more than NZ$1m ($640,000), an increase of nearly 46% since 2019.
For more than a decade homeowners benefited from ultra-low interest rates. Now, however, changes are brewing. On May 5th the Bank of England, having forecast that inflation in Britain could exceed 10% later this year, raised its policy rate for the fourth time, to 1%. The day before America’s Federal Reserve had increased its benchmark rate by half a percentage point and hinted that more tightening would follow. Investors expect the federal funds rate to rise above 3% by early 2023, more than triple its current level. Most other central banks in the rich world, ranging from Canada to Australia, have either started pressing the monetary brakes or are preparing to do so.
Economic headwinds slow housing starts in the U.S.
According to the National Association of Home Builders, the single-family housing market showed signs of slowing in April 2022 as rising mortgage rates and ongoing supply chain disruptions continue to raise housing costs and take a toll on the housing market.
Why are condos in Seattle so rare and expensive?
The average home in Seattle costs over a million dollars. And now, rising interest rates have made mortgages more expensive. Homebuyers just can’t seem to get a break. Condominiums used to be a gateway to homeownership. Even if you didn’t have a big nest egg, you could get your foot in the door and own a tiny slice of the “American Dream” while saving up for something bigger. What happened?
An eviction move may lead to tenants owning a building
When a new landlord bought their building in the Bronx of New York City and threatened to raise rents and kick them out, tenants banded together. They never expected how far they might get: the chance to buy their apartments for $2,500 each.
Second homes in the USA — eyeonhousing.org
According to the National Association of Homebuilders, the total count of second homes was 7.15 million in 2020, accounting for 5.11% of the total housing stock. This represents the most recent data available. As of 2020, the state with the largest stock of second homes was Florida (1.04 million), accounting for 10.8% of all second homes. South Dakota had the smallest stock, approximately 19,225 second homes, among all 50 states. Half of the nation’s second homes can be found in eight states – Florida, California, New York, Texas, Michigan, North Carolina, Arizona, and Pennsylvania.
Counties with at least half of their housing stock in second homes were widely spread over 15 states. The top 10 counties with the most second homes account for around 10.5% of second-home stocks, most of which were located in Arizona, Florida, California, Massachusetts, and New York. Of the top 10 counties in regards to absolute numbers of second homes, only three counties (Lee County, Florida, Barnstable County, Massachusetts, and Collier County, Florida) had more than 20% of their housing stock in second homes
Apartment renters renewing leases in tight markets
More renters are opting to stay put in their current units as rental rates continue to soar and inventory remains constrained. Richardson, Texas-based property-management software company RealPage Inc. recently found more than 57% of tenants in market-rate units with an expiring lease chose to renew in the past year, an annual increase of 3.5 percentage points. That's compared to an average apartment retention rate of 51.5% between 2010 and 2019.
Expensive apartments — labusinessjournal.com
A luxury apartment complex in Santa Monica (Los Angeles area) that attracts celebrity tenants has sold for $330 million or $2.75 million a unit! The complex has been a known home of Hollywood elites over the years with rents reported to average $15,000 a month.
The property, which touts its ocean views, consists of one-, two- and three-bedroom apartments with high-end finishes. Amenities include a rooftop pool with ocean views, a club, a business lounge, dining, and a fitness center. The Santa Monica Pier is three blocks south.
Office
On the back of continued tech-sector expansion and stable sublease inventory, the market demonstrated signs of durability and resiliency since hitting a trough in late 2020. After recording net occupancy growth for the first time since the onset of COVID-19 in Q4 2021, absorption ended Q1 essentially flat, with a quarterly decline of 5 million square feet representing a modest 0.1% decline in occupancy. Utilization nudged upward in response to a rapid decline in omicron cases, coupled with the subsequent removal of almost all remaining restrictions and mandates, enabling numerous major tech, financial, legal services and other professional services firms to set clearer targets for office reentry.
At the same time, clarity surrounding hybrid arrangements has helped to bring more certainty for tenants regarding their longer-term space needs, boosting term lengths in the process. Flight to quality remains the dominant theme affecting market performance: divergence in absorption, vacancy and rents is widening between first- and second-generation product, with little sign of slowdown. This splitting of the market into two distinct environments will define tenant and investor activity alike moving forward.
Uncertainty surrounding geopolitical tensions remains, as do concerns about inflation and new shocks to supply chains, but employment and wage growth as well as consumer spending, jobless claims and investment activity remain robust and will keep demand buoyant in spite of headwinds.
Hospitality
Little recovery in hotel business-travel revenue
Business-travel revenue at American hotels in 2022 is expected to be down about 23% below pre-pandemic levels — about $20 billion less than hotels made in 2019.
That comes from a new report from the American Hotel & Lodging Association and Kalibri Labs, which shows that while leisure travel is expected to return to pre-pandemic levels in 2022, the recovery of business travel is expected to take significantly longer.
Regional and metropolitan trends
U.S. metro populations grow minimally — eyeonhousing.org
The Census Bureau recently released its 2021 Metropolitan Statistical Area (MSA) annual population estimates. Between 2020 and 2021, 251 (65%) of the 384 MSAs within the 50 states and the District of Columbia experienced population increases, albeit small on percentage terms. The MSAs’ combined total population increased from 286,195,308 in 2020 to 286,472,775 in 2021.
Environment
The work-from-home climate challenge — www.mtpr.org Companies might have thought a silver lining from the pandemic was that remote work was slashing emissions. They're thinking again.
Planning and design
Density and driving: a second look — www.planetizen.com
A common argument against more compact housing is that increased population density will only reduce vehicle miles traveled at moderate levels of density, as opposed to very low-density and very high-density areas. But this might not be so.
High-density housing addressing the housing shortage
SHW, an architecture firm founded in Seattle, has expanded to Los Angeles. For over a decade, SHW has been a leader in the design of Co-living, Micro/Efficiency units, and Townhouse developments for the Seattle market. Our portfolio includes over 2,000 infill residential units in more than 70 buildings. These housing types have been underdeveloped in markets in Los Angeles where there is potential to densify the city, reduce the overall housing shortage, provide benefits to both residents and developers, and contribute to smart, sustainable urban growth.
Pandemic lessons about shared spaces — smartgrowthamerica.org
Activity-friendly streets, public spaces, and active transportation options has expanded during COVID-19, providing avenues for physical activity, accessing essential needs and being outdoors safely. But vulnerability during and the burden of the pandemic was not spread evenly across communities. This field scan explores how decision-makers did (or did not) account for existing inequities in emergency responses and identifies common barriers and lessons for the future.
Construction
Large Phoenix-area construction projects
Intel Corp.’s $20 billion addition of two new fabs at its Ocotillo Campus in Chandler ranked No. 5 and Kore Power Inc.’s $500 million lithium-ion battery storage manufacturing facility in Buckeye came in at No. 19 on the list of top deals. Each project is expected to create 3,000 jobs.
Arizona’s semiconductor sector continues to grow, and the magazine noted that the Valley is the fourth largest market in the U.S. for employees in the sector. In fact, this is the second year in a row that a major chipmaker project has appeared in the magazine’s rankings. In 2021, Taiwan Semiconductor Manufacturing Co.’s $12 billion plant in north Phoenix — which remains on schedule for production to begin in 2024, was the country’s largest project in the magazine’s survey.