STATE OF THE HOUSING INDUSTRY PRESENTATION (TEMPLATE) Presentation should be limited to 10 minutes. This suggested format is merely an attempt to encourage each country to include core housing market information for each country. We encourage the creative use of graphics to enhance each report. IHA Secretariat

STATE OF THE HOUSING INDUSTRY PRESENTATION TEMPLATE…. CONT. COUNTRY: USA NAME OF ORGANIZATION: NAHB National Association of Home Builders 1- ORGANIZATION OVERVIEW: A federation of more than 700 state and local associations, NAHB represents more than 140,000 members who construct 80% of the new homes built in the United States, both single-family and multifamily. About one-third of NAHB members are home builders and remodelers.

STATE OF THE HOUSING INDUSTRY PRESENTATION TEMPLATE…. CONT. 2- HOUSING ECONOMIC STATISTICS: Starts: Percentages: Numbers: - Single Family (SAAR) 783,000 (Sept 2016) - Multifamily (SAAR) 264,000 (Sept 2016) Gross Domestic Product (GDP) $16,570 Billion GDP Growth 2.9% (Q3 2016) GDP Per Capita $51,065 House Price Index 7.6% annual increase (Aug 2016) Consumer Price Index 1.5% (Sept 2016) Unemployment 5.0% Home Mortgage Interest Rate 3.6% Freddie 30YR FRM Home Ownership Rate 63.5% (Q3 2016) Population Growth/Net 0.77% 2,471,000 (Aug ‘15-’16) Multifamily 395,000 in 2016; GDP 1.1% in Q2; Case Shiller 4.9 in July, more in line with L-T trend, near 2006 peak; HO 63.0 in Q2, 2004 peak 69+%, millennials34%

STATE OF THE HOUSING INDUSTRY PRESENTATION TEMPLATE…. CONT. The IHA defines social housing as housing subsidized by governments that is made available to those who would otherwise be unable to afford to obtain suitable and adequate housing in the private market. HOW IS SOCIAL HOUSING ADDRESSED IN YOUR COUNTRY? The following questions are designed to assist you in defining Social Housing in your country: 1. What is the status of social housing? (i.e.; what is the social housing share of total housing units in your country, and how rapidly is the social housing stock growing each year? are new innovations being considered?, etc.) 124,600,000 Households Public Housing: 1.1 million families. Project-based Section 8: 1.2 million families. (Households at 50% of area median income, no more than 30% of income to rent.) Housing Choice Voucher Program: 2.2 million low-income families. (75% of households below 30% of median area income, fair market rents) The one source of increasing social housing stock is the Low Income Housing Tax Credit. 1934, LHAs,80%/50%/30% median area income, elderly, disabled, SF $60K – CA $30, NYC, stained reputation, all funds to maintenance; 1970s demand side

STATE OF THE HOUSING INDUSTRY PRESENTATION TEMPLATE…. CONT. 2. How is social housing being delivered (public/private/combination)? (i.e., what are the current incentives for private developers to produce social housing; what is the role of non-profit government organizations and non-profits in producing and maintaining social housing? are the funding requirements met by the government?, etc.) The Low Income Housing Tax Credit Incentivizes Investors with Federal Tax Credit 2.8 million units since 1986 1,470 projects and 107,000 units annually 96,000 jobs annually 133 million housing units 1.5 million housing units were lost from 2011 to 2013 Depreciation, State HFAs, land use, courts-avoid low-income residential density; 470 demolition/disasters, 212 condemned, 202 to nonres, 98 merged. Half had incomes 30% of median area or lower.

Real GDP Growth Growth lower than 3% since the recession Annual Growth LT avg (‘58-’07) 3.4% 2014 2.4% 2015 2.6% 2016f 1.5% 2017f 2.4% 2018f 2.4% Post recession

US Payroll Employment Total jobs reached the trend Millions 0% However, payroll growth solid. Total jobs above pre-recession peak, nearing prior trend line.

Target Federal Funds Rate Signs of life? Low unemployment risks inflation, so fed must increase short-term. First in Dec 2015, almost assuredly in Dec 2016. Will it ever reach 4-5% again?

Mortgage Rates Expected to rise Higher fed funds rate will increase mortgage rates, but historically low. Challenge is accumulation of downpayment, not rate. NAHB’s goal, dashed by abuse.

Household Formation Average yearly growth of household formations has doubled Thousands Avg: 1.4 million (12% renters) Avg: 1.0 million (109% renters) Avg: 0.5 million (130% renters ) HH formation recovered to 1million annual additions from half million after recession. Increases for sale/multi demand. 109%: movers from HO to renters.

Low Housing Inventory Existing home inventory flat Demand improving, existing inventory flat. Need more new homes, but production modest. New: 4.8 month supply, 235K. Existing: 4.5 month supply 1.8M.

Constraints on Building Growth The Three L’s Why? Supply constraints.

Labor Unfilled construction jobs rising Number of unfilled construction sector jobs rising as labor shortages persist. 2000s labor infrastructure gone, immigration. AGC 48% of builders train, 47% assign overtime, 39% use more subs, 21% use labor saving equipment, 13% use off-site prefab, 7% BIM

Lots Housing Starts (Area) and Low/Very Low Lot Supply (bars) Despite starts level half of 2005 peak. 2/3 of builders reporting shortages.

Lending - AD&C Access Better Worse Was tight, but now in easing territory and easing. Builder loans. Afternoon session. Source: Senior Loan Officer Opinion Survey (SLOOS), The Federal Reserve Board.

Regulatory burdens are rising for home builders. Up 29 Regulatory burdens are rising for home builders Up 29.8% over the last 5 years Building codes Environmental Labor Zoning NAHB research finds that 24% final cost of a home due to direct and indirect regulatory costs 3/5 of that total is associated with land use And don’t forget rising regulatory burdens. Regulatory costs due to land use are primarily local (zoning, local building codes, impact fees).

Home Prices of New and Existing Homes Prices began to diverge in 2008, gap widened more post 2012 Difference 2000-2008: $21,800 Since 2009: $63,300 Since 2012: $71,900 Supply side constraints plus rising reg costs have shifted the new market to higher prices. Beginning in 2007, new home prices increasingly accelerated above existing home prices. Labor, materials, lot shortages, credit, higher income HH demand.

Home Size Market Shift – Over? And shifted to larger homes – although shift has ended and more entry-level construction.

Forecasts

Residential Remodeling Remodeling will expand, but limited by only small gains for existing home sales (due to tight inventory. National Bureau of Economic Research, NAHB

Multifamily Housing Starts Leveling off 1995-2003 331,000  “Normal” 2013 308,000 2014 355,000 15% 2015 395,000 12% 2016 0% 2017 393,000 -1% 2018 376,000 -4% 2016Q2: 122% of “Normal” Trough to Current: 4th Q 09 = 82,000 2nd Q 16 = 404,700 +340%

NAHB/Wells Fargo Housing Market Index The song remains the same Single-Family Starts HMI Signature. Moves markets. Changes in builder sentiment occur at a higher octane that starts at turning points. Builders more optimistic than economists at beginning of cycle.

Single-Family Starts Growing trend 2000-2003 1,343,000  “Normal” 2013 620,000 2014 647,000 4% 2015 713,000 10% 2016 769,000 8% 2017 863,000 12% 2018 992,000 15% 2018Q4: 77% of “Normal” 2016Q2: 56% of “Normal” Trough to Current: Mar 09 = 353,000 Aug 16 = 722,000 +105%

The Long Road Back to Normal Rank Q4 2017 Bottom 20% 20% to 40% 40% to 60% 60% to 80% Top 20% Relative to Normal < 65% 65% - 77% 78% - 85% 86% - 102% 102% < By the end of 2017, the top 20% will be back to 102% or more of normal production levels. The bottom 20% will be below 65% of normal production.

Residential Construction Room for Growth and Economic Impact

Home Building – Economic Growth Potential

Residential Fixed Investment Housing is a bright spot

Rising Population Entering Housing Demand Years Millions Headship rates increase from 15% to 45% Born 1980 or later Born 1967-80 Born 1948-65 Born 1947 or earlier Source: U.S. Census Bureau, 2015 National Population Estimates.

THANK YOU. IHA Secretariat