Last month we spoke about how our current economic environment is going to negatively impact housing supply in the short-term. Now here's some further evidence for this argument (via Bloomberg):
“As rates started ticking up, the faucet started to turn off,” says Jonathan Gertman, senior vice president for development at the NRP Group, one of the largest multifamily housing developers in the country. “The number of projects starting this year already has been cut significantly. Anything that started in 2022, in most of the country, comes online 18 to 24 months later. So by the middle of 2025, you see that new supply start to go down significantly.”
This is also being reflected in Federal Housing Administration (FHA) loan applications for new multi-family housing:
Or put another way: FHA multifamily loan applications are on track to total as much as $18 billion for FY 2023, compared with $29 billion for FY 2022, $51 billion for FY 2021 and $45 billion for FY 2020.
Last month we spoke about how our current economic environment is going to negatively impact housing supply in the short-term. Now here's some further evidence for this argument (via Bloomberg):
“As rates started ticking up, the faucet started to turn off,” says Jonathan Gertman, senior vice president for development at the NRP Group, one of the largest multifamily housing developers in the country. “The number of projects starting this year already has been cut significantly. Anything that started in 2022, in most of the country, comes online 18 to 24 months later. So by the middle of 2025, you see that new supply start to go down significantly.”
This is also being reflected in Federal Housing Administration (FHA) loan applications for new multi-family housing:
Or put another way: FHA multifamily loan applications are on track to total as much as $18 billion for FY 2023, compared with $29 billion for FY 2022, $51 billion for FY 2021 and $45 billion for FY 2020.
The above article is specifically talking about a looming
affordable
housing shortage. But these exact same headwinds are also impacting new market-rate housing. Of course, there's always a lag when it comes to development. So it'll likely be a few years until we really feel the impacts.
On July 1 of this year, a new California bill, called the "Affordable Housing and High Road Jobs Act of 2022", will go into effect. And the goal of this legislation is to significantly increase the supply of new homes in the state by allowing multi-family construction on lands that are currently zoned for commercial uses.
On some level, it is of course curious that there even needs to be this bill. Because what we are effectively saying is, "hey, we should allow people to build a mix of uses on our main streets and with high enough densities that we might actually be able to support transit." Why was this not always the case? (Rhetorical question.)
In the words of architect and planner Peter Calthorpe, who was recently interviewed here in ArchDaily, this is a "landmark piece of legislation" that has "received very little attention." So that's why we're talking about it today.
Calthorpe was actively involved in crafting this legislation, and his work apparently started with different scenario land-use models. The first experiment looked at a 43-mile stretch of El Camino running from San Francisco to San Jose (pictured below). And what they found was that this one strip alone could accommodate somewhere around 250,000 new infill homes.
The above article is specifically talking about a looming
affordable
housing shortage. But these exact same headwinds are also impacting new market-rate housing. Of course, there's always a lag when it comes to development. So it'll likely be a few years until we really feel the impacts.
On July 1 of this year, a new California bill, called the "Affordable Housing and High Road Jobs Act of 2022", will go into effect. And the goal of this legislation is to significantly increase the supply of new homes in the state by allowing multi-family construction on lands that are currently zoned for commercial uses.
On some level, it is of course curious that there even needs to be this bill. Because what we are effectively saying is, "hey, we should allow people to build a mix of uses on our main streets and with high enough densities that we might actually be able to support transit." Why was this not always the case? (Rhetorical question.)
In the words of architect and planner Peter Calthorpe, who was recently interviewed here in ArchDaily, this is a "landmark piece of legislation" that has "received very little attention." So that's why we're talking about it today.
Calthorpe was actively involved in crafting this legislation, and his work apparently started with different scenario land-use models. The first experiment looked at a 43-mile stretch of El Camino running from San Francisco to San Jose (pictured below). And what they found was that this one strip alone could accommodate somewhere around 250,000 new infill homes.
Last year, IKEA went around the world interviewing some 37,000 people in 37 countries about what it takes to "make us feel at home." And one of the things that they discovered was that nearly 50% of people do not feel like their home reality is authentically represented by what they see in the media. In other words, there is a disconnect between how we actually live at home and how the media suggests we are or ought to be living.
To explore this disconnect a little further, IKEA has just announced that photographer Annie Leibovitz will be the company's inaugural Artist in Residence. Leibovitz is best known for her celebrity photographs. But for this assignment, she's going to be travelling to the US, the UK, Japan, Germany, Italy, India, and Sweden, to photograph normal people doing normal things in their homes.
This is a fascinating idea because we know that there are all kinds of cultural biases around housing. Here in North America, for example, there is a longstanding history of hating apartments. If you wanted to properly raise a family, you needed a morally correct form of housing; meaning, a grade-related house. But this reality isn't universally possible in most big cities today, and that is probably one of the reasons why we now have this disconnect:
...why do people feel like they're not represented in the media, that they’re left out? ‘In the same way that there has been a typical idea in the fashion industry about what size a woman should be, there's been a typical idea of what a home is,’ wagers Leibovitz. ‘But now we've opened up in all sorts of ways, and there’s a difference between a home and feeling at home. And the latter can happen in many different places and maybe that's more important now than an actual home.’
On a more basic level, I think people are also just endlessly curious about how people live and what their homes are like. So regardless, this should be interesting.
To put this into context, the state of California is currently building about 140,000 new homes each year, through a roughly equal (1:1) split of multi-family and low-rise single-family. Already this represents a shift, as supply used to be slanted (3:1) toward low-rise. (I don't know when exactly this was the case, but Calthorpe mentions the figure in his interview.)
Moving on from El Camino, Calthorpe and his team then ran a similar exercise for the five-county inner Bay area. And here they found that some 700 miles of commercial land could produce up to 1.3 million multi-family homes at "reasonable densities." This was then expanded to the entire state of California and the number increased to 10 million new homes.
Of course, as we have talked about before on this blog, not all of this land might actually be feasible for development. Sometimes the math doesn't work even at a zero land cost; you might need a negative land cost in order to pencil a new development. Meaning, you might need to be paid, perhaps through some sort of subsidy.
So what Calthorpe and the team did was use MapCraft to quickly run development feasibilities on the above sites. They had it run 6 different pro formas using local rents, construction costs, city fees, and so on. And what they determined was that this 10 million number drops down to 2 million when you apply the economic realities of the world.
As a disclaimer, I'm not at all familiar with MapCraft. But I'm going to take this number at face value and say that this is still a lot of new homes. And this is what people are hoping for come July 1 of this year.
Image: HDR / Peter Calthorpe
Last year, IKEA went around the world interviewing some 37,000 people in 37 countries about what it takes to "make us feel at home." And one of the things that they discovered was that nearly 50% of people do not feel like their home reality is authentically represented by what they see in the media. In other words, there is a disconnect between how we actually live at home and how the media suggests we are or ought to be living.
To explore this disconnect a little further, IKEA has just announced that photographer Annie Leibovitz will be the company's inaugural Artist in Residence. Leibovitz is best known for her celebrity photographs. But for this assignment, she's going to be travelling to the US, the UK, Japan, Germany, Italy, India, and Sweden, to photograph normal people doing normal things in their homes.
This is a fascinating idea because we know that there are all kinds of cultural biases around housing. Here in North America, for example, there is a longstanding history of hating apartments. If you wanted to properly raise a family, you needed a morally correct form of housing; meaning, a grade-related house. But this reality isn't universally possible in most big cities today, and that is probably one of the reasons why we now have this disconnect:
...why do people feel like they're not represented in the media, that they’re left out? ‘In the same way that there has been a typical idea in the fashion industry about what size a woman should be, there's been a typical idea of what a home is,’ wagers Leibovitz. ‘But now we've opened up in all sorts of ways, and there’s a difference between a home and feeling at home. And the latter can happen in many different places and maybe that's more important now than an actual home.’
On a more basic level, I think people are also just endlessly curious about how people live and what their homes are like. So regardless, this should be interesting.
To put this into context, the state of California is currently building about 140,000 new homes each year, through a roughly equal (1:1) split of multi-family and low-rise single-family. Already this represents a shift, as supply used to be slanted (3:1) toward low-rise. (I don't know when exactly this was the case, but Calthorpe mentions the figure in his interview.)
Moving on from El Camino, Calthorpe and his team then ran a similar exercise for the five-county inner Bay area. And here they found that some 700 miles of commercial land could produce up to 1.3 million multi-family homes at "reasonable densities." This was then expanded to the entire state of California and the number increased to 10 million new homes.
Of course, as we have talked about before on this blog, not all of this land might actually be feasible for development. Sometimes the math doesn't work even at a zero land cost; you might need a negative land cost in order to pencil a new development. Meaning, you might need to be paid, perhaps through some sort of subsidy.
So what Calthorpe and the team did was use MapCraft to quickly run development feasibilities on the above sites. They had it run 6 different pro formas using local rents, construction costs, city fees, and so on. And what they determined was that this 10 million number drops down to 2 million when you apply the economic realities of the world.
As a disclaimer, I'm not at all familiar with MapCraft. But I'm going to take this number at face value and say that this is still a lot of new homes. And this is what people are hoping for come July 1 of this year.
