Zeitgeist – Sign of the Times

California’s Housing Crisis

PriceA recent analyses by Los Angeles-based Beacon Economics makes the case that California’s rapidly rising housing prices threaten to make much of the state unaffordable – think Malibu or Palo Alto – and is forcing working class folks to move east or out of state. Migration data from 2007-2014 suggests this trend is already occurring with 563,000 families making less than $50,000/year moving out of state and 80,000 families making greater than $150,000/year moving into the state. According to New Census Bureau, California is officially America’s poverty capital with one in four residents barely able or unable to pay their bills.

So how can we solve the problem? Beacon believes that changes to California’s housing policies are the key to incentivizing developers to build more affordable housing and keeping our teachers, policemen and nurses living in the communities they work in. At the heart of the problem is the California Environmental Quality Act – better known as “CEQA” – which makes it difficult and expensive to build new housing and easier for development opponents to bog down developers with lengthy court battles. If these policies do not change, the end result will be worker shortages and increased welfare costs – not to mention a lot of grumpy residents who are forced to commute further and further to work.

Millennials and the Great Migration Back to the City

With high income, even higher student debt and a burning desire to live the urban lifestyle, millennials have been gravitating toward new, downtown apartment communities. Renting allows them to overcome the burden of high student debt, while the location and amenities of their apartment communities provide the
urban lifestyle they desire. In Alexander Snyder’s recent report “The Millennial Effect: Urban Demand Drives Multifamily Fundamentals” the Center Square Senior Analyst evaluates the impact millennials have on urban demand and the multifamily housing market. His findings:


  • High Student Debt: According to a recent Fortune article, nearly 70% of college students graduate with debt, an average of $28,950. This debt hampers the typical millennial’s ability to cobble together a down payment or qualify for a home loan resulting in fewer home sales and increased rental demand.
  • Delayed Life Milestones: Millennials are delaying marriage and, by extension, having kids and purchasing a home, which typically follows closely behind those life events. According to Snyder, in 1970 the estimated median age for a first marriage for men and women was 23 and 21, respectively. In 2015, the median ages were six years higher at 29 and 27, respectively.
  • Urban Drive: The demand for city living is on the rise, particularly in coastal markets. For decades, Baby Boomers drove the explosive growth of the suburbs. For the first time in decades, millennials are reversing this trend and returning to urban areas.
  • Higher Income: The most educated and skilled millennials are seeing a rise in income. The increase in disposable income, combined with a lower propensity towards saving, has led to a growing demand for upscale rental housing. Correspondingly, rents per square foot have been setting new records in urban areas throughout the U.S.

Because millennials comprise 24% of the U.S. population, these trends are contributing to the boom in new, high-end urban multifamily housing. Millennials can’t be ignored and cities should expect to see more downtown cranes in the sky for the next few years.

Housing Experts: Prices to Continue to Grow in 2016

Housing RiseAccording to September 2015 data released by Clear Capital, a provider of real estate data and analysis, home values in 2015 increased in 236 of the 276 cities tracked. Despite strong growth in recent years, U.S. homes still remain approximately 19% below peak 2007 prices.

Interest rates remain at historic lows, employment metrics continue to improve, housing supply is limited and demand is on the rise. These leading indicators are pointing to another strong year for the housing sector in 2016. Here is what a few experts had to say in a recent Barron’s survey:

“The continued rise in home prices will occur because we will again encounter housing shortages in many markets because of the cumulative effect of homebuilders under- producing for multiple years. Once the spring buying season begins, we’ll begin to feel that again.”

– Lawrence Yun, Chief Economist, National Association of Realtors

“If you’re going to make a bet about home prices, the logical one is that they’re going up. A variety of demographic factors are behind that, with a recovering economy.”

– Jonathan Smoke, Chief Economist, Realtor.com

“Except for the energy patch, most housing markets are doing pretty well. It’s reasonable to expect home prices to go up 3% to 5% this year. There’s improved buyer demandforentry-levelhousing,andthefinancingmarket for purchasing a home is pretty healthy.”

– Steven Brown, Portfolio Manager, American Century Global Real Estate Fund