The economy should strengthen throughout the rest of 2015 if May’s building permit numbers hold strong, the University of Southern California real estate director said.
But while there’s plenty of desire among Americans to be homeowners, Richard Green, director of the USC Lusk Center for Real Estate, said many other factors of life have considerably weakened the actual level of homeownership.
“This notion that homeownership is not appealing to people has very little foundation in reality,” Green said.
“But we won’t see the owner-occupied market we saw 10 to 30 years ago unless these fundamentals change,” he said.
Green presented an outlook for housing in 2015 and beyond Wednesday at the 2015 PCBC, a homebuilding trade show representing the West Coast, held at the San Diego Convention Center.
As of July 1, Green will temporarily leave his USC post for a one-year appointment as senior adviser for housing finance with the U.S. Department of Housing and Urban Development.
The homebuilding industry accounts for 5 percent of U.S. economic activity, so when permit numbers pick up for several months, the economy will grow, Green said, adding that the dollar is strengthening considerably, based on world events.
In May, permitting activity reached a seasonally adjusted rate of 1.25 million, up a revised 9.6 percent from April.
“I suspect we would actually see more construction if it weren’t for two things,” Green said. “One, that I’m sure you’re all aware of, which is labor shortages in construction. But I think the more important issue is zoning. In the places where there’s the greatest demand for housing, the zoning least allows new construction of housing.”
There’s tremendous demand in California for new housing, but nowhere near the supply, and the problem — as many associated with the real estate and building industry have discussed — is zoning and land-use policy.
Despite the lack of available housing, Green said, other signs of increased demand for housing are emerging: Young people are again getting jobs, the number of marriages is ticking up and the fertility rate is picking up.
The divergence in education attainment by age and gender will likely have a strong impact on marriage though, Green said.
Older men are more likely to have college degrees than older women, while younger women are more likely to hold a degree than younger men.
The question is, then, whether women will want to marry men who are less educated than they are, Green asked.
“If you’re in the business of building houses, you’ll want to think a lot about marriage,” Green said.
Marriage is a strong predictor of whether people will own a home. Married couples have a homeownership rate of about 80 percent, while about 50 percent of singles own homes.
Meanwhile, the market for apartments is as strong as it’s ever been, and Green said it will have a substantial run ahead.
Housing and rental affordability remains an issue however, which could have long-term effects on a potential buyer’s ability to accumulate a down payment.
Renters whose income is a little higher than the median renter – in the 60th percentile – have seen incomes drop in the past 22 years in three-quarters of U.S. cities.
“In the overwhelming majority of cities — about 75 percent of cities — incomes for renters who would be first-time homeowners have fallen,” Green said. “What’s happened to their rents? They’ve risen in 90 percent of cities.”
Population changes and gentrification will also affect housing.
Hip, urban development and redevelopment may be great for cities, but Green pointed out they can have negative effects on people who are being priced out and displaced.
Young people with college degrees may be moving into urban areas, but those with less education and lower incomes will be forced out.
“When you see this stuff about the city making a comeback, that’s true — the center of cities are attracting college-educated with money — but that’s only about a third of the country,” Green said. “We need to think about that. How do we provide housing for the two-thirds without a college degree?”