Housing as an Economic Driver The Potential for Home Building Growth BIA - Hawaii November 15, 2016 Robert Dietz, Ph.D. NAHB Chief Economist

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.

Household Formation Average yearly growth of household formations has doubled Thousands Avg: 1.4 million (12% renters) Avg: 1.0 million (105% renters) Avg: 0.5 million (130% renters )

GDP Growth 2016 weakest year of the expansion Annual Growth LT avg (‘58-’07) 3.4% 2014 2.4% 2015 2.6% 2016f 1.5% 2017f 2.3% 2018f 2.4%

US Payroll Employment Total jobs above the trend Millions 0.1%

Target Federal Funds Rate Gradual increases ahead

Mortgage Rates Expected to rise

Low Housing Inventory Existing home inventory flat 246K as of March for new homes

Constraints on Building Growth The Three L’s

Labor Unfilled construction jobs rising

Lots Housing Starts (Area) and Low/Very Low Lot Supply (bars)

Lending - AD&C Access Better Worse 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

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: $63,600 Since 2012: $72,200 Update New homes median sales price

Home Size Market Shift – Over?

Home Building – Economic Growth Potential

Residential Fixed Investment Housing is a bright spot Update after Friday

Local Solutions Must Lead What Can Be Done to Promote Growth? Local Solutions Must Lead

Many examples of what NOT to do Boston Many examples of what NOT to do Boston 24 to 35 year olds are leaving due to high housing costs California Need for affordable housing reaches down to 120% of AMI

Successful strategies Land-use strategies. Efficient zoning (e. g Successful strategies Land-use strategies Efficient zoning (e.g. allow smaller lots) Make land available for affordable housing (permit accessory dwelling units) Provide regulatory relief Example: Nashville, TN – Urban Zoning Overlay Districts Floor area bonuses for mixed-used buildings with at least 25% space for residential use

Successful strategies Financial strategies Successful strategies Financial strategies Property tax or tax credit relief Provide financing from other sources (sales taxes) Reduce/eliminate impact fees Example: Grand Forks, ND affordable housing district Concessions on tax assessments and land standards Developers construct higher density, smaller entry-level homes

Successful strategies Other strategies Successful strategies Other strategies Policies that encourage housing development Redrafting of Washington DC zoning ordinance (just published) Lessen need for variances/special approvals – saving time and money Made accessory dwelling units easier to be approved e.g. narrowed required width of alleyways

Successful strategies Other strategies Successful strategies Other strategies Policies that encourage housing development Redrafting of Washington DC zoning ordinance (just published) Parking minimums decreases or eliminated in some parts of DC More allowance of retail (small shops) in residential zones

Successful strategies Other strategies Successful strategies Other strategies Policies that encourage housing development Promote pocket communities and urban villages Smaller homes, transit access, walkable, infill

eyeonhousing.org housingeconomics.com @dietz_econ Thank you. Questions? eyeonhousing.org housingeconomics.com @dietz_econ