housing

US Sets New House Size Record in 2012

Wendell Cox — Sat, 15 Jun 2013 10:55:30 -0400

There have been numerous press reports about the expansion of micro housing, and expectations that Americans will be reducing the size of their houses. As the nation trepidatiously seeks to emerge from the deepest economic decline since the 1930s, normalcy seems to be returning to US house sizes.

According to the latest new single-family house size data from the US Census Bureau, the median house size rose to an all-time record of 2306 square feet in 2012. This is slightly above the 2277 square feet median that was reached at the height of the housing bubble in 2007 (Figure). The average new house size (2,505 square feet) remains slightly below the 2007 peak of 2,521 square feet.

There was little coverage in the media, with the notable exception of Atlantic Cities, in which Emily Badger repeated the expectation of many:

“It appeared after the housing crash that the American appetite for ever-larger homes was finally waning. And this would seem a logical lesson learned from a recession when hundreds of thousands of households found themselves stuck in cavernous houses they neither needed nor could afford.”

But she concluded “Perhaps we have not changed our minds after all.” Well stated.

An Economics Lesson from The New York Times

Wendell Cox — Sat, 15 Jun 2013 00:18:13 -0400

The New York Times restates basic economics in a June 9 editorial that should be required reading for planners and public officials who fail to comprehend how restrictions on housing raise prices. The Times expressed concern about the extent to which investor involvement in some markets has raised the price of houses for new homebuyers and others who actually plan to live in the houses that they purchase. The price increasing impact of excess demand on housing markets from institutional investors is no different what occurs when urban planning policies restrict housing supply, as occurs with urban containment policy.

Referring to the recent house price increases, The Times said “Those gains, in turn, have propelled rising home prices nationwide, in part by reducing supply and in part by fostering a shift in perceptions about the housing market that has drawn some potential home buyers off the sidelines.” In this, The Times simply expresses the economic reality that when demand exceeds supply, house prices (or any other prices), other things being equal, will tend to rise. The cause of the imbalance is of no account.

But The Times did not limit its analysis to economics. Venturing into the social dimension, The Times went so far as to endorse home ownership: “Given the traditional role of homeownership in building wealth, fostering communities and driving the economy forward, a lower rate of homeownership is a troubling development.”

The Times editorial board has taken a position challenging the agendas of some of the most prominent retro-urbanist theorists, who favor more renting and less home ownership, clinging to the fantasy that, somehow housing markets constrained by excessive planning regulations are exempt from the laws of supply and demand.

Sydney to Abandon Radical Urban Containment Policy

Wendell Cox — Wed, 20 Mar 2013 09:56:12 -0400

The New South Wales government has proposed a new Metropolitan Strategy for the Sydney area which would significantly weaken the urban containment policy (also called urban consolidation, smart growth, livability, growth management, densification, etc.) that has driven if house prices to among the highest in the affluent New World (Australia, Canada, New Zealand and the United States) relative to household incomes.

According to the Australian Financial Review, the state's Liberal-National government plans to allow the building of more than 170,000 new homes, with the vast majority being on greenfield sites, largely beyond the current urban footprint. Premier Barry O'Farrell and his party had promised in their electoral campaign in 2011 to liberalize land-use regulation and to moderate the previous Labor government's quota that required 70% of new houses to be built within the current urban footprint and 30% on greenfield sites. In fact, however, under the Labor government's administration, new house building had been produced at a well below demand level.

Among the major New World metropolitan areas rated in annual Demographia International Housing Affordability Surveys, Sydney has been the most unaffordable, along with Vancouver, in recent years. Sydney and Vancouver have had among the most stringent urban containment policies in the New World, and the resulting unaffordable house prices under such circumstances are consistent with economic principle.

Premier O'Farrell told the Sydney Morning Herald that the government wanted to "make home ownership a reality again." He continued, "The more blocks of land (lots) we can release, the greater downward pressure we can put on housing because it's been so high for so long." In a press release issued by his office, the Premier recalled that “Before the election, I said I wanted to ensure owning a home wasn’t a fading dream for young families" and noted that the massive housing package "will go a long way to delivering on that commitment."

In the longer run (by 2031), the government intends to provide for a total of 545,000 new homes, while abandoning the practice of allocating locations based upon planning theory. Planning and Infrastructure Minister Bradley Hazzard told the Sydney Morning Herald that the government intended to “look further afield” than the presently planned greenfield suburban growth centers. He continued: "We're trying to [be] less constrictive and restrictive and what we're saying is the marketplace should have far more of a say in what the mix of housing is and where it should be,'' adding that ''it doesn't matter'' what percentage was delivered in greenfield and established suburbs. He concluded: ''No one should be preoccupied by particular prescriptive formulas.''

The government also indicated its intention to encourage one half of employment growth over the next 20 years to be in Western Sydney. Western Sydney is virtually across the urban area from the central business district. This dispersion of employment, along with roadway improvements in the area, is likely to improve the metropolitan balance between jobs and housing.

The plan for greater job dispersion would, if successful, bring Sydney more into line with urban best practices, which are exhibited by the location of most new jobs in edge cities, as well as throughout the entire urban area. Sydney has among the longest work trip travel times in the New World. The one-way work trip travel time is newly reported in the Metropolitan Strategy to have reached 35 minutes. Work trip travel times are worse only in Melbourne, at 36 minutes. By comparison, Dallas-Fort Worth, with a larger population, a much lower urban area density and a mere fraction of the Melbourne or Sydney transit work trip market share has a far shorter one-way work trip travel time (26 minutes).

The Sydney developments are the latest in a trend toward liberalizing urban land use in four nations.

In October, the New Zealand government announced plans to liberalize land-use amid growing concern about the extent to which that nation's urban containment policies have destroyed housing affordability. In the introduction to the 9th Annual Demographia International Housing Affordability Survey, Deputy Premier Bill English said:

Land has been made artificially scarce by regulation that locks up land for development. This regulation has made land supply unresponsive to demand. When demand shocks occur, as they did in the mid-2000s in New Zealand and around the world, much of that shock translates to higher prices rather than more houses.

Recent polling has shown support, by an almost 2 to 1 margin for government action to improve housing affordability, with even higher stronger support in the 18 to 34 age group, where the margin was more than 3 to 1.

The United Kingdom Cameron government is also embarked on a program to liberalize that nation's restrictive land use policies, which former Bank of England Monetary Policy Committee member Kate Barker found to be the cause of severe housing unaffordability in a report commissioned by the Blair Labour government. Planning Minister Nick Boles has characterized the unaffordability of housing as "the biggest social justice problem we have."

In 2011, Florida repealed its statewide smart growth mandate and closed the administrative bureaucracy that had overseen the program. Before that, the government of the Australian state of Victoria substantially expanded the urban growth boundary of the Melbourne urban area.

New Zealand Housing Hits Political Hot Button

Leith van Onselen — Thu, 24 Jan 2013 17:11:49 -0500

The release of the 9th Annual Demographia International Housing Affordability Survey on Monday appears to have caused a political storm in New Zealand. This year’s Survey was particularly controversial in New Zealand for two reasons.

Not only did it show deteriorating housing affordability, as measured by a worsening of New Zealand’s ‘median multiple’ (median house price divided by gross annual median household income), but the foreword of the Survey was written by none other than New Zealand’s Finance Minister, Bill English, who had some stern words to say about the state of housing affordability in New Zealand, brought about largely by the strangulation of supply:

“Housing affordability is an important focus for the New Zealand Government . Last year’s New Zealand Productivity Commission report on housing affordability, relying in part on Demographia affordability data, showed a substantial worsening in housing affordability in New Zealand in the last thirty years…

In its response to the Productivity Commission, the Government agreed with the Commission’s analysis that supply side factors explain the deterioration in New Zealand’s housing affordability.

The Government’s response to the Commission’s report concentrated on land supply, infrastructure provision, costs and delays due to regulatory processes, and improving construction sector productivity…

It costs too much and takes too long to build a house in New Zealand. Land has been made artificially scarce by regulation that locks up land for development. This regulation has made land supply unresponsive to demand. When demand shocks occur, as they did in the mid-2000s in New Zealand and around the world, much of that shock translates to higher prices rather than more houses. It simply takes too long to make new land available for development.

We may be seeing the beginning of a repeat of the mid-2000s demand shock. As interest rates stay below historic norms, expectations are shifting that these rates are here to stay. As a result, demand for real assets has increased, observed in booming equities markets in 2012. Demand for real estate is also increasing, with the median house price in Auckland recently exceeding the highs of 2007.

Costs of other housing inputs contribute to New Zealand’s affordability problem. Building materials cost more in New Zealand than neighbouring Australia. The structure of infrastructure financing, and the timing levies are to be paid, raises the market price for housing. Appeals under the Resource. Management Act, New Zealand’s land use regulation, can hold up developments and city planning for a decade or more in some cases. Time is money because development is risky…

Certainly, the affordability situation in New Zealand has, once again, started to deteriorate, with house prices in New Zealand’s two major markets – Auckland and Christchurch – rising strongly over the past two years (see next chart).

In late 2009, the Reserve Bank of New Zealand dropped the official cash rate to just 2.5%, where it has remained ever since. In turn, the discount variable mortgage rate has fallen to just 5.45%, which has fueled a sharp rise in mortgage finance commitments and house prices (see below charts)

At the same time as credit demand has been rising, the supply situation in New Zealand has also deteriorated. The February 2011 Canterbury earthquakes wiped‑out more than 10,000 homes in Christchurch, New Zealand’s second largest city, adding to the already tight housing supply.

Meanwhile, in New Zealand’s largest city – Auckland – the Council has moved to tighten the city’s already highly restrictive urban growth boundary (called the “Metropolitan Urban Limit” or MUL) into an even tighter “Rural Urban Boundary” that would effectively ban development outside of the rural-urban line and limit the area in which development could take place (see here and here for details).

The Productivity Commission’s Final Report into housing affordability, released last year, was scathing of land-use planning in New Zealand, citing a body of evidence showing that strict policies of urban containment and slow development approval times had adversely affected the rate of new home construction and housing affordability in New Zealand.

In particular, the Productivity Commission’s Report noted that the land value of housing had risen significantly, particularly in Auckland, with land-use constraints a key driver of this escalation (see next chart).

Moreover, the Productivity Commission report showed that the cost of new housing blocks had escalated in real terms, particularly in Auckland:

And that the land price escalation has occurred at the same time as the number of sections sold has plummeted:

The release of the Demographia Survey on Monday appears to have brought New Zealand’s housing affordability problems into the limelight.

Yesterday, in response to the study, the New Zealand Prime Minister announced a reshuffle of Cabinet, assigning Nick Smith to housing in an attempt to improve affordability. The Government has also threatened to take planning control from local councils if they do not improve the supply situation, with the Auckland Council, in particular, in its sites.

For its part, the Auckland Council is holding firm to its Plan to tighten the city’s growth boundary, stating that it doesn’t “agree with the unplanned wholesale release of land which is going to cost the ratepayers a fortune to service”.

Meanwhile, the Opposition Labour Party has promissed to build 100,000 basic homes for first-home buyers, focusing on Auckland, over 10 years, in order to relieve the supply situation and improve affordability.

It looks like housing affordability is, once again, gearing up as a hot political issue in New Zealand.

This piece first appeared at Macro Business.

Single Family Houses Sales Up, Builders Register Confidence

Wendell Cox — Tue, 20 Nov 2012 17:26:35 -0500

A continuing increase in new single-family house sales has fueled the substantial increase in the NAHB/Wells Fargo Housing Market Index (HMI) to 46 in November. This indicates that nearly one half of surveyed home builders are positive about future sales of single family houses. This is a strong increase from the HMI of 41 in October. The HMI had reached its low point in the midst of the housing bus in January 2009 at 8 and is now higher than at any point in more than six years.

NAHB reported that national single-family house sales in September were nearly 30% above the September 2011 rate, though remained approximately one-half the 2007 rate.

The National Association of Realtors also reported that single family houses continued to dominate existing house sales, garnering approximately 88% of sales in October.

The strengthening of the single-family housing market Is to be expected as the economy improves. These developments are further indication that the claimed change in housing preferences from single-family to multifamily is not occurring. In a related development, the latest available data indicates a preference in California for single-family housing on conventional sized lots, which is described in A Housing Preference Sea Change: Not in California.

The Economist on the Costs of London's Green Belt

Wendell Cox — Mon, 02 Jul 2012 00:01:25 -0400

The Economist reminds readers of the economics of housing (or for that matter, oil or any other good or service): constraining the supply of a good or service in demand raises its price. In a 14-page feature on London, The Economist decries the high cost of housing in London. And, for good reason, the 8th Annual Demographia International Housing Affordability Survey showed London to have a median multiple (median house price divided by median household income) 6.9 in the fourth quarter of 2011. This figure, which would be more like 3.0 in a normally functioning market, is exceeded by few other major metropolitan areas, though Hong Kong, Vancouver, Sydney are more unaffordable.

The Economist noted that:

... perhaps the biggest constraint on development in London is the Green Belt. Established after the war, it runs (with perforations) all around London, to a depth of up to 50 miles, and bans almost all building on half a million hectares of land around the city.

Not only has this constraint led to higher house prices, but it has resulted in greater urban expansion and imposed greater costs, in time and money on commuters.

... it has pushed it into the greater south-east, thus spoiling the countryside across a bigger area. It has also raised the cost of housing and forced workers to travel farther. Commuting costs in London are now higher than in any other rich-world capital.

One alternative is to relax the Green Belt controls. The Economist points out that allowing development one mile into the Green belt would add one-sixth to the developable area of London. The Economist also notes that "far more than would be needed to make a huge difference to housing availability" and that opening the Green Belt "might not be an environmental disaster."

The Economist calculates that "the average London worker can buy half an average home." Britain would gain if the interests of those with a stake in a poorer middle class and greater poverty were to finally give way to the general welfare.

Portland Mixed-Use Condo Converts to Rentals, Mixed Use Nixed

Wendell Cox — Fri, 29 Jun 2012 16:56:21 -0400

The Oregonian reports that suburban Hillsboro's first mixed use condominium development is no more. Washington Street Station, was built near the suburb's small but historic downtown (see Note on Hillsboro).

The project was opened in 2009, one block from the Hillsboro Central station on Portland's Max (photo) light rail line. The four floor building, located in a generally low-rise residential area with detached housing, was to have had commercial development on the street floor and owner occupied condominiums on the top three floors. But the market was not there. As 2012 began, none of the 20 units had been sold.

At that point, new owners decided to convert the condominiums to rental units and to convert the first floor commercial space into apartments as well.

Local planning officials indicate no concern about converting the condominium development to rental units, or the loss of the first planned mixed use development in the city. The Oregonian article indicates, however, that a soon to be built development, located just blocks away, will be required to remain mixed use for at least 30 years.

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Note on Hillsboro: Hillsboro is typical for a mid-20th century exurb that has been engulfed by the expansion of a growing urban area. In 1950, the Portland urban area had a population of 500,000 (density 4,500 per square mile or 1,750 per square kilometer ), and Hillsboro was a compact exurb with less than 5,000 population, located outside the urban area. Today, the Portland urban area has approximately 1,850,000 residents (density 3,500 per square mile or 1,350 per square kilometer). Hillsboro, which is inside the urban area has more than 90,000 residents, most of whom are beyond walking distance from downtown and have much more convenient access to the big box stores (including the claimed largest "Costco" in the world), shopping centers and strip malls that do most of the retail business. Hillsboro is also the heart of "Silicon Forest" with its information technology manufacturing (such as Intel). As a result, the jobs-housing balance in Hillsboro now exceeds that of Portland according to 2010 American Community Survey data (1.48 jobs per resident worker in Hillsboro compared to 1.45 in the city of Portland).

84% of 18-to-34-Year-Olds Want To Own Homes

Wendell Cox — Tue, 22 May 2012 22:42:49 -0400

A survey by TD Bank indicates that 84 percent of people 18 to 34 years old intend to buy homes in the future. This runs counter to thinking that has been expressed by some, indicating that renting would become more popular in the future. Much of the "home ownership is dead or dying” comes from short sighted trend analysis in which home ownership data begins with the start of the housing bubble in the late 1990s. The latest data from the Bureau of the Census indicates that the home ownership rate in the first quarter was 65.4 percent, the lowest rate since 1997. In fact, however, before the housing bubble, homeownership hovered generally at 65 percent or below, after having increased strongly from 44 percent in 1940 to 61 percent in 1960. The increase in homeownership during the bubble was the result of profligate lending policies that were not sustainable. The decline from the artificially high housing bubble peak in no way diminishes the successful expansion of homeownership in the nation during the decades that reason prevailed in home lending.

A Free Range Life

Mary Baker — Wed, 16 May 2012 14:32:45 -0400

Some may have never heard of the term exurbia before now. According to the free on-line dictionary it means: The exurbs collectively; the region beyond the suburbs.

Exurbia to me is an expression that defines a free range lifestyle. Where I live there is space, nature surrounds my house, I can play music as loudly as I care to, trails connect me to beautiful places, when a recipe calls for lemons or rosemary, I can walk outside and collect whatever I need, and a seasonal garden provides all the abundance I require to make healthy and organic meals.

Getting around town is easy and I usually find everything I need in one trip. I used to live in an urban area and now feel grateful that I don’t have to cope with the inconveniences of that lifestyle any more. More on that later!

It takes about 20 minutes for my husband to commute to work every day. When the day is over and he comes home, he looks forward to propping up his legs, reading and smoking a cigar. We have neighbors and we like waving to them from across the way. Recently, we have been getting together to make wine.

We did not always have the privilege to live in this atmosphere of peaceful, quiet living. When we lived in the city, we were constantly fighting for parking spaces, we had to traipse up and down stairs to do laundry and then dry clothes on a line outside and risk icicles on the sleeves of our shirts and the bottom of our pants. The traffic was exhausting and the noise from the neighbors below us, behind us, and on top of us was annoying and distracting. Raising kids in this environment was tedious and kept us constantly vigilant.

The day we finally moved into our house in the exurbs was a great day! Unfortunately, our dream of retiring in this home, developing the orchard and the garden, and enjoying our new quality of life, may be directly impacted by a new trend in planning called sustainable development and smart growth.

As I research these new planning trends I have learned that what this force of change really means is a whole life plan. Sustainable development seeks to change the way we live, how we interact with nature, how we choose to use our land and our property (all property–even your own person!!), where we live and how we live! It is a massive propaganda piece to change our behavior and how we think.

We must educate ourselves about the truth behind the ‘green’ agenda, the urban consolidation agenda, the livability agenda, and any and all agendas having to do with sustainable development.

In order to recognize this whole life plan when you see it, you must understand the words they are using and the methods they are using to implement it. The planners, environmentalists, social activists, city, state and federal officials, media, and public relations firms are telling us what these plans are. We are not educated yet.

I want to share my exurban quality of life.

Check out Mary Baker’s new blog, Exurbia Chronicles.

Attack on the Suburbs: California Senate Republican Caucus Report

Wendell Cox — Fri, 27 Apr 2012 20:18:28 -0400

Differing views on the future of California urban areas are the subject of a California Senate Republican Caucus report (Briefing Report: Attack On The Suburbs: SB 375 And Its Effects On The Housing Market).

The report details differing views on the future of California urban areas as described by University of Utah Professor Arthur C. Nelson in a report for the Urban Land Institute with those of newgeography.com authors Joel Kotkin and Wendell Cox in recent editions of The Wall Street Journal.

Nelson's view is largely that the market for detached housing in California is in decline. Senate Bill 375's planning mandates are being interpreted to virtually ban further construction of detached housing in the state's metropolitan areas.

However, if Nelson's analysis were right, there would be no need for legislative intervention since people would not buy detached housing. In fact, however, the demand for detached housing remains strong. Between 2000 and 2010, detached housing accounted for 80 percent of new housing additions in California's major metropolitan areas.

Critics of Senate Bill 375 market interventions that would seek to steer the market toward hyper density housing (20 to 40 and more housing units to the acre) would increase traffic congestion, increase the intensity of air pollution and make California and encumber an already laggard economy.

The report concludes: "Clearly, before the California Legislature decides to take over the community planning duties of local governments and engage in social experimentation with the housing market, it should perhaps look at both sides of the argument to see if the experiment will be successful."