UST/PDD 610 Urban 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 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 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 SHARKEY PROGRESSIVE URBAN REAL ESTATE GUEST SPEAKER