Thanks to the advances of modern health care, baby boomers are living longer than any American generation before, and more independently. Less seniors in care facilities means less homes made available on the market.
Higher divorce rates mean that more retirees than ever are living alone. In some cases, baby boomers may also choose to simplify by trading down for a more affordable home, putting further pressure on the availability of mid- and low-priced homes. It’s hard for younger generations to compete with these buyers who already have equity in larger property.
All of these factors combine to keep houses off the market that in the past would have been available to homebuyers. For Generation X, who saw savings wiped and credit damaged during the housing crisis, this means entering an already competitive market. Many continue to rent because of this, driving up rents, and passing the problem on to millennials.
Millennials are living with parents longer than any generation before, due both to high rents and the near-impossibility for many to buy first-time homes when competing with previous generations. For those who are renting, their elongated presence in the market drives up demand and rents, which should, in theory, bode well for CRE.
Rent Control and Affordable Housing Policy
Enter rent control. We’ve discussed rent control in New York before, but housing affordability issues in California have revived the concept there as well. This stokes fears about loss of interest from rental housing developers, already a concern in a state with high rates of homelessness. As discussions of rent control continue to pop up in dense states, the likelihood of it becoming a new norm increase.
Rent control aims to help low-income populations, but there is concern that it will disincentivize builders from investing in multifamily housing. Federal housing programs could possibly help, but currently those expenditures focus mostly on mortgage-interest tax deduction.
Low-income housing tax credit (LIHTC) is the largest source of new affordable housing in the country. The current administration’s housing bills have lowered the corporate income tax, which lowers the value of LIHTC, meaning less affordable housing units get made each year.
Community development block grants, public housing funds, and low-income housing tax credits are each given less than a quarter of the funding mortgage-interest tax deductions get. If we want to avoid rent control, that may need to change.
The Construction and Transportation Connection
We’ve touched upon rising construction costs and their effects on the commercial real estate industry before. Lumber is being affected by mountain pine beetles, and the price of land around urban centers has also risen. Because of this, builders are focusing on luxury homes outside of starter home price range.
We also can’t ignore the labor shortage which leads to competitive bidding. It doesn’t help that immigrants make up a large portion of the building workforce and we’re seeing ramped-up deportation efforts. With more workers relocating to more affordable locations, it’s hard to find enough labor to keep building.
When people can’t afford housing close to jobs, they move to the suburbs, but still have to spend money on transportation. This also means more time spent in commute, eroding time for leisure and sleep and lowering quality of life.
Even rental units have shifted to suburbs. As the housing bubble expands to these areas, affordable housing gets pushed further away, meaning 2- or even 3-hour commutes. Workers have to weigh whether a far-away job is worth the life they’re living. Housing near transportation hubs becomes important, and high-value.