Thursday, November 19, 2020

Thoughts informed by the Home Builders Association Economic Forecast

 Last week, I attended the Oregon Association of Home Builders' annual economic forecast.  There are a variety of economic forecasts in late fall and early winter. I usually try to hit a few, from differing organizations and perspectives.   



The two presenters at this event were: Tim Duy, currently a professor of Economics at the University of Oregon and Robert Dietz, the chief economist for the National Association of Home Builders. These presentations are always a "drinking from the firehose" experience. Following are my notes, and stream of consciousness thoughts.  

It's not news to me, but a combination of low inventory, low interest rates and high demand is keeping the housing market brisk.  Part of the low inventory is builders being cautious not to over build, as many were caught with too much inventory when the last recession hit.  We currently have the largest gap ever between the rate of home sales and production.  Also different these days, the median price of a re-sale home is higher than the median price of a new home.  What?

 High labor costs (due to not enough skilled labor) and difficult access to materials (that are expensive when finally attained) are  also slowing construction.  Though prices have eased since then, nationally, lumber prices increased 170% between April and September.  170 %.   While I know many love to hate builders and developers, keep in mind, these forces also effect non-profit housing developers and those building affordable housing.

Oregon, and Portland in particular, is one of the most expensive markets in which to build, in the country.  The combination of our urban growth boundaries (land is expensive), combined with extensive regulation and high system development charges give us that distinction.   According to  the NAHB, regulation accounts for 24% of the total construction and land cost of a new home.  Some municipalities do waive, or lower SDC charges for builders of affordable housing.   It was suggested that, to encourage building, municipalities consider covering the SDC costs, rather than putting them all on builders and developers. 

Oregon (HB2001) and Portland (Residential Infill Project), are both making efforts to increase density within the urban growth boundaries.  At the same time, COVID has soured the market for high rise, common access buildings, with the market favoring townhouse style buildings, along with garden style, attached dwellings. The is essentially the "missing middle" housing both HB2001 and Portland's RIP sought to encourage.  A favorite quote came from Tim Duy; "Oregonians hate density almost as much as they hate sprawl".

Work-from-home orders (and losing commutes), combined with the desire for larger homes (work and school from home take more space) is driving many to the suburbs and ex-urbs. Construction costs and land costs are cheaper, and the potential commute of less consequence. It is thought that 60% of those currently working at home due to COVID, will continue to do so for at least three days a week, post COVID.  That is, the the five day a week slog into the office will be a thing of the past.  This flight from cities may effect the service sector, unless development outside cities adds amenities found in urban areas; restaurants, spas, shopping districts, gyms etc.

Among others, home builders are hoping for an infrastructure bill from the Biden administration.  Such a bill may be one of the few things the Senate, House and Biden administration can all agree on.  The thought is that any such bill must address the skilled labor shortage.  The NAHB economist said 30% of an infrastructure bill should be about work force development in high schools, community colleges and trade schools.  Efforts also need to be made to bring women into the construction trades, as they currently make up only 3% of the construction work force. He indicated builders will need to push for and participate in this effort.  I have long felt our high schools need to get away from the singular focus on college attendance, and offer other, better articulated programs in the building, construction and manufacture trades. 

Builders are looking to the Biden administration to reach trade agreements for more reasonable and steadier construction materials. A soft-wood lumber agreement with Canada was sited as an example.

In general, both presenters thought housing is one of the bright spots of the economy, and could help the economy in a variety of way, especially if supply chain and labor shortages can be addressed.  While movement to the suburbs will effect some of the Portland market (high rise condominiums may be in less demand) we are still seen as a refuge for folks moving from more dense and more expensive cities.

On a personal note, Don and I are at the very early stages of planning a new construction project.  It will involve deconstructing an existing rental house, and building a home for us, with one level living, and a garage with an apartment above. We are about to have some up close and personal experience with SDC charges, and the City of Portland's planning, zoning and permit folks.  Thank goodness for our experienced architect.  And here's hoping those lumber and supply costs come down a bit.  Have you run into any supply or labor shortages around construction and home repair?  Have you had to replace an appliance and had trouble finding currently available inventory?  I'm curious.

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