Economic Crosswinds in 2020 - NAHB · 2020-01-30 · Economic Crosswinds in 2020 Multifamily...

Economic Crosswinds in 2020

Multifamily Council Board of Trustee MeetingJanuary 19, 2020

Danushka Nanayakkara,NAHB AVP, Forecasting and Analysis

GDP GrowthEconomy is slowing after strong 1Q19

Source: U.S. Bureau of Economic Analysis (BEA) and NAHB forecast

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21

Q/Q Percent Change, SAAR

Annual Growth

LT avg (‘58-’07) 3.4%

2017 2.4%

2018 2.9%

2019f 2.3%

2020f 1.8%

2021f 1.6%

Payroll Employment – Contraction and Current

US payroll employment contracted to 94% of its pre-recession peak.

It has rebounded to 110% of the peak.

Source: U.S. Bureau of Labor Statistics (BLS).

80%

85%

90%

95%

100%

105%

110%

115%

120%

125%

130%

W

Y

W

V

C

T

M

S

M

I

N

M

A

K

M

E

L

A

V

T

R

I

O

H

K

S

N

J

W

I

I

L

A

L

M

O

P

A

O

K

I

A

H

I

K

Y

I

N

N

H

A

R

M

D

D

E

N

E

M

N

V

A

M

T

S

D

N

C

A

Z

M

A

G

A

N

V

N

Y

T

N

S

C

O

R

D

C

F

L

C

A

I

D

W

A

N

D

C

O

T

X

U

T

Current

Trough

Percent

US

Fed Funds Rate

Source: U.S. Board of Governors of the Federal Reserve System (FRB).

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

Federal Funds – Top Rate

10-Year Treasury

Fed on pause after three rate cuts in 2019

30-Year Fixed Rate Mortgage and 10-Year TreasuryInterest rates slowly rising as recession risks decline and trade deals are debated

Source: Federal Reserve and Freddie Mac data and NAHB forecast.

0%

2%

4%

6%

8%

10%

12%

0%

2%

4%

6%

8%

10%

12%

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21

October 31,

2016

30-Year Fixed Rate Mortgage

10-Year Treasury

Housing Demand

and Affordability

Consumer DebtRise in student and auto loans

Source: Federal Reserve Bank of New York

163%

80%

103%

245%

9/30/2008, 100%

103%

0

1

2

3

4

5

6

7

8

0%

50%

100%

150%

200%

250%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Auto Loans

Student Loans

Credit Cards

Other

Household Formation

1,9

95

1,8

28

1,7

28

1,5

65

599

702

1,0

97 1

,359

990

1,4

23

699

563

1,6

16

1,2

47

1,7

15

1,6

14

1,5

85

1,5

98

1,1

84

1,3

39

0

500

1,000

1,500

2,000

2,500

02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

Y/Y Change in Household Count, Thousands, NSA

Avg: 1.1 million

(77% renters)

Avg: 0.6 million

(131% renters)

Avg: 1.3 million

(12% renters)

Source: U.S. Census Bureau (BOC): Housing Vacancies & Homeownership Rates

18

Share of Young Adults Living with Parents

9%

11%

13%

15%

17%

19%

21%

23%

25%

40%

42%

44%

46%

48%

50%

52%

54%

56%

58%

60%

1990 2000 2005 2007 2009 2011 2013 2015 2017

Ages 18 to 24

Ages 25 to 34

Source: US Census 1990, 2000, PUMS, 2000-2017 ACS, PUMS, and NAHB Estimates

Almost doubled

Household Formation

-1,000

-500

0

500

1,000

1,500

2,000Y/Y Change in Household Count, Thousands, NSA

Owner-Occupied

-1,000

-500

0

500

1,000

1,500

2,000

2,500

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Renter-Occupied

Source: U.S. Census Bureau (BOC): Housing Vacancies & Homeownership

Strong demand for home ownership in Q3 2019

Homeownership Rate

69.2%

2019 Q3, 64.8%

-

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

61%

62%

63%

64%

65%

66%

67%

68%

69%

70%

71%

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

Percentage, Quarterly, NSA

Source: U.S. Census Bureau (BOC): Housing Vacancies & Homeownership

Bounced back after two declines

Lifetime Homeownership Rates – New NAHB ResearchA reminder that most households need access to rental and for-sale housing

Lifetime Homeownership Rate

90.5%

Share Who Have Never Owned a Home9.5%

Source: The National Longitudinal Survey of Youth and NAHB Analysis.

Rising Population Entering Housing Demand Years: 2020

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100+

Avg=4.3

Millions

Gen Z:

Born After 1997Gen X:

Born 1965-1980

Baby Boomers:

Born 1946-1964

Silent

Generation:

Born 1928-1945

v

Only 40% of

young adults

ages 25 to 34

head their own

household in

2017.

Greatest

Generation:

Born Before

1928

Millennials:

Born 1981-1997

Source: U.S. Census Bureau (BOC).

Gen X the majority of new construction home buyers

Here Comes Gen Z: Born 1998 to 2013

Source: Morning Consult, Understanding Gen Z

A smaller, more traditional generation?

7%

39%

39%

46%

51%

56%

55%

60%

59%

59%

60%

12%

37%

39%

43%

53%

55%

55%

58%

61%

69%

70%

Being famous

Traveling

Getting married

Being in a romantic relationship

Buying a home

Owning a car

Having close friends

Having a family

Having time to pursue hobbies

Having a successful career

Making money

Gen Z

Millennials

Rent Growth Volatility

$1,650

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

$1,200

$1,300

$1,400

$1,500

$1,600

$1,700

$1,800Zillow Rent Index (ZRI), USD, NSA Year-Over-Year Change

In November,

median rent was

slightly higher

than a year ago

Source: Zillow, Inc: Zillow Real Estate Metrics

Growing Challenge of Rent Control

Source: Lisa Sturtevant, Ph.D

▪ Rent control and rent stabilization laws lead to a reduction in the available supply of rental housing in a community

▪ Rent control policies generally lead to higher rents in the uncontrolled market

▪ Rent control and rent stabilization policies do a poor job at targeting benefits

▪ Rent control can cause renters to continue to live in units that are too small, too large or not in the right locations to best meet their housing needs

▪ There are significant fiscal costs associated with implementing a rent control program

▪ Rent-controlled buildings can potentially suffer from deterioration or lack of investment

▪ Rent control policies can hold rents of controlled units at lower levels but not under all circumstances

Supply-Side

Headwinds

Top 10 Significant Problems Faced in 2019 and Expect to Face in 2020

40%

44%

45%

48%

50%

56%

60%

66%

66%

85%

41%

39%

40%

47%

47%

45%

58%

63%

66%

87%

Inaccurate appraisals

Negative media reports making buyers

cautious

Local/state environmental regulations and

policies

Difficulty obtaining zoning/permit approval

Development standards (parking, setbacks,

etc.)

Gridlock/uncertainty in Washington

making buyers cautious

Impact/hook-up/inspection or other fees

Cost/availability of developed lots

Building material prices

Cost/availability of labor

Faced in 2019

Expect to face in 2020

Labor - ConstructionSkilled labor shortage persists

-

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

Job openings rate - Construction

12-month moving averageThe number of open

construction positions =

311,000 in October 2019

Source: U.S. Bureau of Labor Statistics (BLS).

Construction Sector ProductivityLagging overall economy

0.4

0.6

0.8

1.0

1.2

1.4

1.6

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Construction Worker Productivity

Overall Worker Productivity

Index, 1993 = 1

Source: U.S. Bureau of Labor Statistics (BLS)

Types of Construction Technology Used in 2019

22%

2%

0%

0%

0%

0%

0%

0%

3%

0%

4%

4%

6%

18%

8%

55%

71%

13%

4%

0%

0%

0%

0%

1%

1%

2%

3%

4%

9%

9%

9%

13%

60%

75%

None of the above

Other

Other on-site robots

Automated brick laying machines

Wearable construction worker monitors

Digital tilt sensors

Other 3D printed components

3D printed concrete forms

Automatic drywall tapers

Remote controlled sitework machinery

Prefabricated floor panels

Geo-fencing

Other prefabricated components

Dust-free concrete and masonry tools

Prefabricated wall panels

Floor trusses

Roof trusses

Single-family Builders

Residential Remodelers

Source: NAHB/Wells Fargo Housing Market Index (HMI) and NAHB Remodeling Market Index (RMI)

Moderate Building Material Price Growth in 2019

-0.8%

1.9%

3.6%3.8%

1.3%

-1%

0%

1%

2%

3%

4%

2015 2016 2017 2018 2019

185

190

195

200

205

210

215

220

225

230

235Year-to-Date Change (January – November) Monthly Index Value

Source: NAHB Analysis; U.S. Bureau of Labor Statistics (BLS)

Regulations - 32% of Multifamily Development Costs

4.8%7.3%

2.3%2.3%4.2%

5.5%4.0%

5.3%3.9%

5.4%5.9%

8.4%

5.2%

7.0%

7.1%

Lower Quartile Average Upper Quartile

Cost increases from changes to buildingcodes over the past 10 yearsDevelopment requirements that go beyondthe ordinaryFees charged when building construction isauthorizedCost of applying for zoning approval

Other (non-refundable) fees charged whensite work beginsCost of complying with OSHA requirements

Others

21.7%*

32.1%

42.6%*

Government Regulations as a Share of Multifamily Development Costs

Note: * For quartiles, all types of costs do not sum to the total.Source: NAHB/Wells Fargo HMI survey

NAHB-NMHC research

Construction

Outlook

NAHB Multifamily Production IndexConfidence in the multifamily market weakened

Source: U.S. Census Bureau (BOC) and NHAB Multifamily Market Survey (MMS).

49

0

50

100

150

200

250

300

350

400

450

500

0

10

20

30

40

50

60

70

03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

Index Thousands of units, SAAR

MPI

Multifamily Starts

Multifamily Housing Starts

December 2018,328,000 SAAR

0

100

200

300

400

500

600

2015 2016 2017 2018 2019

Thousand Units, SAAR

Apartment construction has leveled off since 2015

Source: U.S. Census Bureau (BOC)


December 2018,328,000 SAAR

Current MF Starts:November 2019, 427,000 SAAR

0

100

200

300

400

500

600

2015 2016 2017 2018 2019

Thousand Units, SAAR

Apartment construction increased slightly due to single-family slowdown


0

50

100

150

200

250

300

350

400

450

500

550

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21

Trough to Current:

4th Q 09 = 82,000

3rd Q 19 = 388,000

+373%

Thousands of units, SAAR

76% fall

Avg=344,000

Multifamily Housing StartsLeveling off

Year Units % Change

2016 392,000 -1%

2017 357,000 -9%

2018 377,000 6%

2019f 381,000 1%

2020f 383,000 1%

2021f 399,000 4%

Source: U.S. Census Bureau (BOC) and NAHB forecast.

Growth in Multifamily Permits


National average multifamily starts bottomed out at 24% in late 2009

and were 116% of normal in 2019Q3.

Multifamily Housing Starts – Trough and Current


57

-25%

0%

25%

50%

75%

100%

125%

150%

175%

200%

225%

M

S

N

M

W

Y

S

C

R

I

G

A

L

A

A

K

M

I

W

I

O

H

N

V

O

K

H

I

N

D

A

L

C

O

A

Z

I

N

I

L

M

O

K

S

M

D

I

A

O

R

F

L

N

E

S

D

C

A

M

T

K

Y

N

C

D

E

V

A

W

V

A

R

C

T

V

T

N

Y

T

N

P

A

W

A

M

N

T

X

U

T

I

D

M

A

M

E

N

H

N

J

D

C

Current Trough

Housing Starts / Average 1995-2005 Starts

US

Multifamily ConstructionRental production dominates

0

20

40

60

80

100

120

140

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

0%

20%

40%

60%

80%

100%

120%Thousands, NSA

Built-for-Rent Share

Percent



Multifamily Buildings Completed By UnitsMore concentration in 50+ unit properties

36 28 34 35 32 23 37 40 31 23 14 9 9 9 9 9 10 11 11 9

5650 44 36 43

3538 42

3321

14 10 10 12 11 11 21 15 16 10

200208

179 186151 176 150 145

125134

129

69 81 92 100 118

144 137 143115

43 46

58 66

6675

7097

95 122

117

67 3953

75

127

146 159187

211

0

50

100

150

200

250

300

350

400

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

2 to 4 5 to 9 10 to 49 50+

Thousands

315 323

292310

296

325

284301

274

155138

166

195

264

320 321

358345


334 332

NAHB 55+ Multifamily Rental Production Expected

1816 17

2225

29 28

34 33 32

3734

46

52 53

4643

5255

51 5249

60 61

5356

49

60

44

52

57

61

57

68

5654

58

64

55

0

10

20

30

40

50

60

70

80

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Index, seasonally adjusted

Senior market slowing?

Source: NAHB 55+ Housing Market Index Survey

Single-Family Built-for-Rent a Niche Market

0%

1%

2%

3%

4%

5%

6%

7%

0

2

4

6

8

10

12

14

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

Built for Rent Built for Rent Share 1-Year Moving Average

Thousands, NSA

Share of Single-Family

Year Built for Rent

2015 3.78%

2016 4.35%

2017 4.36%

2018 4.91%

Percent


Single-Family Built-for-Rent Geography

Source: NAHB analysis of U.S. Census Bureau (BOC) datahttps://eyeonhousing.org/2019/08/contrasting-built-for-rent-and-for-sale-new-single-family-homes/

https://eyeonhousing.org/2019/08/contrasting-built-for-rent-and-for-sale-new-single-family-homes/

More on Geography of Rental Housing

Source: NAHB analysis of the 2017 American community Survey (ACS)http://eyeonhousing.org/2019/09/examining-the-spatial-distribution-of-rental-housing/

http://eyeonhousing.org/2019/09/examining-the-spatial-distribution-of-rental-housing/

New NAHB Home Building Geography Index

Source: NAHB Analysis of Census data (Building Permits and ACS)

79.9% of multifamily construction takes place in Millennial Counties

Q3 20194-quarter MA of YOY growth rate:

6.5% Q3 YOY growth rate:

25.5%

Thank youQuestions?

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Economic Crosswinds in 2020 - NAHB · 2020-01-30 · Economic Crosswinds in 2020 Multifamily...

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