ust/pdd 610 urban development process/market analysis lecture #13 housing market analysis
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UST/PDD 610Urban 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 20-30 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 -- 2-3 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 SHARKEYPROGRESSIVE URBAN REAL ESTATE
GUEST SPEAKER