I just wanted to share a few of the key takeaways, at least for me, from the Home Builders Association of Metropolitan Portland’s recent housing forecast event.
Portland State’s Dr. Gerry Mildner — who runs the Center for Real Estate at PSU — had a great high-level look at some policy options and considerations about land use and the housing market. He included one of my favorites from urban economics – bid-rent curves talking about demand for land vs willingness to pay. With that being said, my biggest takeaway was the following graph, which shows the type of housing low-income households actually live in across the U.S. I knew there are myriad housing programs available, and too much demand relative to supply (not everyone who applies gets assistance). However I also did not know that essentially half of all low-income households live in purely market rate units.
Dr. David Crowe, the chief economist for the National Association of Home Builders, also gave a really interesting presentation, as usual. His work has really influenced our office over the years, particularly when it comes to demographics and housing (see here from a couple years ago, more recently our peak renter work flows from that earlier analysis). He did touch on stronger household formation, population growth and some demographics. However, I really liked the following graph that shows the housing rebound across states (below) or across metros (shown in the presentation) really is tied directly to local job growth. Historically housing has led the economic recovery — as the Fed cuts interest rates after inflation falls, it unleashes pent-up demand, driving the old v-shaped recoveries. Obviously, as David put it, “this is not your grandfather’s recovery”. Housing did not lead us out of the Great Recession and remains only partially recovered today. Yet the biggest driver in new construction is the strength of the local economy and job growth, which creates the demand for homes.
My presentation really was a summary of recent blog posts, including the return of migration flows into Oregon, much of our household formation on net has occurred at the higher end, and whether the housing market may be reaching peak renter due to demographics. I also discussed some broader economic topics (full-throttle job growth, strong wage gains, job polarization) and our office’s forecast. The one item that was somewhat new, was the following graph. I updated previous work I did with University of Oregon’s Tim Duy on home prices and new home construction across the largest metros in the country. This is updated to include the new 2014 American Community Survey data.
In conversation with Tim he brings up a really good point. This chart is interesting both for what it shows and what it does not show. Specifically, among the 50 largest MSAs in the nation, there is no market that builds a lot of housing and is really expensive. What is missing from the graph is income, or the ability to pay. Price to income trends (affordability) is key, but even so, supply and demand clearly do have an impact on the housing market.