UST/PDD 610Urban 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

• FILTERING: INTERRELATIONSHIPS

BETWEEN SUBMARKETS

• CYCLICAL ASPECTS OF HOUSING DEMAND

HOUSING MARKET ANALYSIS :

OVERVIEW (Cont.)

• HOUSING AFFORDABILITY

• TRACKING HOUSING SUPPLY

• MARKET NICHE ANALYSIS

• ABSORPTION AND MARKETING OF UNITS

• HOUSING TRENDS IN CLEVELAND

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

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

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)

STRATIFYING HOUSING INTO SUBMARKETS

• PLACE

• TENURE: RENT OR OWN

• NEW/RESALE

• UNIT TYPE

• TARGET USER MARKET

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

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

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

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

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

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

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

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

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

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

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

FILTERING

SOURCE: HOUSING POLICY RESEARCH PROGRAM, URBAN CENTER, CSU

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

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

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.

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)

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

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

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

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)

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.

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

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

DAVID SHARKEYPROGRESSIVE URBAN REAL ESTATE

GUEST SPEAKER