In its "The State of the Nation's Housing 2012
" report, The Joint Center for Housing Studies of Harvard University covers a broad range of topics surrounding the state of the American housing market. It makes for an interesting read if you happen to be the sort of person who actually enjoys being inundated with arcane demographic and housing data.
Sprinkled among accurate assessments like a drop in homeownership among young people and a rise in demand for rental housing, the authors coming to a startlingly misguided conclusion: Sprawl is the future of housing.
The report even seems to contradict its own logic. On one hand it says as baby boomers retire and downsize, housing demand will increasingly be driven by a younger demographic of homeowners who value things like walkability, short commutes, and proximity to cultural centers. This trend, combined with the housing collapse and Great Recession have resulted in homeownership rates dropping most quickly among households under 45.
On the other hand, somehow the folks at Harvard come to the conclusion that exurbs will once again drive housing when the market comes back; "[G]iven that much of the undeveloped land in metropolitan areas is located in these outlying communities, there is every reason to believe that the exurbs will once again capture a disproportionate share of growth once residential construction activity revives."
Homebuilders like Lennar
(LEN), KB Home
(KBH), and Pulte
(PHM) would love to provide this supply, but what about demand?
The report cites homebuying trends during the past decade and extrapolates that they will continue into the next. But this view ignores the fact that homebuyers of the past 10 years look dramatically different than homebuyers of the next 10, and beyond. As the Millennial generation (also known as Gen-Y or the Echo Boomers) progresses into prime homebuying age, their preferences will increasingly drive development. Urbanists have recognized this trend and smart real estate developers are focusing on urban infill rather than suburban sprawl.
And so long as home prices remain depressed, as they are likely to do as long as lenders like JPMorgan Chase
(JPM), Wells Fargo
(WFC), and Bank of America
(BAC) hold bank owned properties from the market, artificially limiting supply and prolonging any real recovery in housing, prices will remain below construction cost. Some homebuilders are already refocusing their energy on infill, as anyone living in New York can recognize if they peek across the Hudson at the Toll Brothers
(TOLL) projects in Hoboken.
How could the eggheads at Harvard be so wrong? How could one possibly write a 40-page report on the state of the housing market and conclude that we are in for more sprawl?
Easy: They are likely talking their book. Or rather, the book of the report's sponsors. A quick peek at the supporters of the report include the pro-sprawl folks at the National Association of Homebuilders and the National Association of Realtors (to find out just how much the NAR impacts housing policy, check out my white paper, "Homeownership at Any Cost
The future is of course yet unwritten, but demographics drive long term housing trends, and a bet on more sprawl is a bet on the past, not the future.
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