Separately another commenter last year noted
that without public assistance you probably can't build [affordable housing]. Over the weekend I watched a panel of experts talking about housing needs on CSPAN. They made a lot of very interesting observations including that we are way behind on meeting the needs of housing in all categories except high end single family residences. The reason being that it costs about $1.50 per foot to build and middle-income and of course low-income people can't afford to pay more than $1 a sq ft in rent. So, no one will build such housing without government assistance.Comments at the Commercial Real Estate Forum point to this exactly, and show the disconnect between the interests of actors on the supply side, the interests of the broader public on the demand side, and the interests of policymakers in bridging the two via an effective market.
|The forum booklet|
The multi-family sector was firing on all cylinders in 2015. Rents are up, vacancy is low, construction starts are plentiful, and there is still demand in the market. The typical renter profile is changing in our market-it is no longer starter housing for the young and/or lower income demographic. Retirees looking for simpler management of their living expenses and young professionals looking for urban living are diversifying the rental market. Demand for multi-family product remained strong in 2015, with an average time from list to close of just short of four months. Attractive financing packages kept prices up and capitalization rates low.One claim here is a little alarming:
There are over 900 units under construction or in planning stages for delivery in the next two years. Total deliveries to market in 2012-15 was 973 units (243/year). We’ve absorbed all the deliveries over the past four years, and with vacancy continuing to be below 2.5%, there is still demand in the market. Our market has been absorbing an average of 14 units/month, above the industry standard of 12 units/month.
Transaction volume was robust in 2015 with almost $70M in transactional volume in 25 notable sales. The average price per unit in the 18 properties older than 1990 was $75,500 and for the seven sales of properties newer than 1990, the average price per unit was $75,605. Removing outlier Eola Heights (built in 1985) which sold for $110,000/unit, the average price per unit for older properties was $63,000/unit.
From a sales volume standpoint, most experts are predicting a slowdown in the investment market, partially because of the significant market activity over the past four years and partially because of the interest rate tide shifting. Most investors are banking on increased rent to keep values up, but as capitalization rates shift with rising interest rates, it remains to be seen if rent growth will be enough to keep values where they are now. Nationally, as large REIT investors deal with a rising interest rate environment in their portfolios, net operating income may erode and cause cash flow issues, which could cause the market to shift radically.
According to Co-Star, the current multi-family vacancy continues to be below 2.5% in its survey of over 22,500 units. Asking rents continue to rise, and continued new construction should continue to put upward pressure on rents. Per square foot rental rates for new construction are reaching $1.25 per sq. ft. in high-demand areas of town for one-bedroom units. It is not expected that absorption of these newer projects will negatively impact the occupancy of older, lower-priced units, as most renting in older projects won’t be able to afford to trade to a newer property.
"[C]ontinued new construction should continue to put upward pressure on rents." Wait, what? Shouldn't adding supply put downward pressure on rents? That seems like a violation of "classical economics"!
Apparently this is a hot topic right now. Over at the American Conservative they reference an exchange in the Washington Post that:
debates whether new development aimed at the high-end makes housing markets more expensive or less. Market-oriented writers note that high-end construction reduces competition for lower level buildings by the wealthy, whereas others are concerned that the new construction just turns a neighborhood into a magnet for the well-to-doI have no idea what is the truth about this, and it seems that professional economists may not either, but it seems like the way the actual market behaves has to be more complicated than blithely saying "continued new construction should continue to put upward pressure on rents."
At the same time, a healthy and just housing market would have lots of choices at different price points and find an equilibrium that way. It would be possible for suppliers (builders or developers) to respond to demand and offer product at low, medium, or high price points.
But that does not seem possible and it seems like we have a major market failure right now.
In this light, the work plan Council just decided on seems like it might be too feeble to make a real dent in things.
|Outline of Proposed Workplan for amendments from HNA|
Housing is complicated and makes my head spin.
CAN-DO has also been posting quite a bit on housing and the Mid-Willamette Homeless Initiative Task Force.
Here is a discussion of some changes Seattle made in 2011 and the way they had unintended consequences.
And several links from Strong Towns, who have been talking a lot about housing and finance the past couple of weeks.A good way to make housing scarcer & more expensive. What "Design Review" really means. https://t.co/MuUu0zD8wd @danbertolet via @Sightline— Sightline Institute (@Sightline) February 27, 2016
How federal housing policies run downtowns out of business. https://t.co/oo9qdlCzft pic.twitter.com/zY9rSkRRIa— Strong Towns (@StrongTowns) February 24, 2016
R. John Anderson dives into the effects of HUD loan policies on small-scale developers. https://t.co/Efnn5yjILC pic.twitter.com/muEMH0flZQ— Strong Towns (@StrongTowns) February 25, 2016