Key Take-a-ways from Urban Land Institutes 22’ Emerging Trends in Real Estate Survey
Single Family: The Tail Wags the Dog
Single-family for-sale real estate trends for 2021 to 2030 will be forged in a simmering cauldron of demand for shelter, constrained by an inadequate supply of new development and construction. Further, single-family build-to-rent purpose-built communities will secure a place as a core magnet of housing preference and could permanently alter the calculus of lifetime homeownership trends among adults. And, as pandemic-era mobility patterns affect land planning, acquisition, and development, “rise-of-the-rest” secondary, tertiary, and jewel-box metro areas will thrive as technology untethers households from expensive urban job centers.
Altogether, what has become crystal clear is the central challenge and pivotal opportunity for single-family property investment through 2030: how to build out of the profoundly deep hole of housing supply while structural demand momentum grows, and how to do it both affordably and sustainably.
A plausible juggernaut of demand over the next 10 years may prove out. The other parts—having to do with building more houses—are, unfortunately, fantasy. Why? Supply simply cannot keep up. “The tail wags the dog,” said the principal of an institutional investment capital adviser whose clients are homebuilders and building technology disrupters. “Constraints on supply—policy, regulation, lost productivity—have more to do with what happens in housing than people’s need for it.”
Top Ranked Real Estate Markets for the Year
This year’s survey of top-ranked real estate markets are in faster growing southern and western regions and away from the coasts. The two top-rated metro areas in the Emerging Trends survey, Nashville, and Raleigh/Durham, each have fewer than 2.5 million people.
But they are growing explosively. And they’ve shown impressive economic staying power even in a pandemic. They regained jobs lost in the downturn much faster than other cities. By the end of 2021, cities like Phoenix, Charlotte and Nashville are expected to regain nearly all lost jobs, while the US as a whole is projected to be down almost 2%.
Meanwhile, the large cities that dominated the list for years are now slipping. Several expensive markets all failed to break into the top 10 ratings for the traditional investor. The high cost of living drives jobs and jobseekers to more favorable climes.
Top 10 cities
- Nashville
- Raleigh/Durham
- Phoenix
- Austin
- Tampa/St. Petersburg
- Charlotte
- Dallas/Fort Worth
- Atlanta
- Seattle
- Boston
Where will all the real estate capital go?
After a pandemic-induced pause in mid-2020, real estate deal-making is back—with a vengeance. Investment cash, domestic and foreign, is surging into US real estate. Several factors are driving this demand, including low interest rates and attractive returns relative to risk.
No surprise that buyers are snapping up housing, both single- and multifamily, a trend that hasn’t wavered in a decade. And we’re seeing a scramble for alternative properties like data centers and self-storage facilities. More investors are plowing capital into these properties because they offer generally higher returns, often at no greater risk.
Is a bubble coming? Only if investors lose their discipline. Fund managers raised huge amounts of cash to pick off a predicted wave of distressed and foreclosed properties as the pandemic raged. But those predictions fell flat. Market fundamentals held up remarkably well. Lenders cut borrowers a lot of slack—and that paid off for the most part. Most investors and lenders maintained restraint during the pandemic, limiting leverage and generally not overbuilding.
The big question: Will that discipline last, especially as more investors turn their capital toward real estate?
High Demand Plus Scarce Supply Equals High Prices
Housing analysts calculate the current level of long-term underbuilding in a range from 2 million to 5 million missing, unbuilt homes. That imbalance of organic, structural supply constraint versus brute increasing demand will define residential investment, development, and construction dynamics for years to come.
Housing’s New Mezzanine Level:
Built to Rent Single-family rental homes—along a bedrock of the housing occupied through the decades mostly by people who neither could afford homeownership nor preferred urban apartment communities—has turned into housing’s sexiest phenomenon.
The pedigree of the property type evolved out of the Great Recession as institutional investors bought large portfolios of single-family properties, mostly out of foreclosure, and kitted them as rentals. In the past five years, as renting either an apartment or a house blended both financial necessity and choice, purpose-built single-family residential (SFR) community living has proved to be a housing type preference for consumer households. This goes for both rent-by-necessity households and rent-by-choice residents.
A macro question— “Does [traction for single-family rental] mean that purchases of homes over the long run are pushed out? Or does it mean that the number of homes that an actual, traditional nuclear family household will own over its life span declines?” asked one homebuilding and building materials’ equity research analyst. “There’s a new mezzanine level of ‘single-family living.’”
Single-Family Property X-Factors
One powerful question has surfaced and begun to infiltrate strategic and scenario planning have gained traction as business and investment requirements.
Do natural hazards—storms, rising seas, wildfires, seismic events, and tornadoes—begin to affect land and property valuations, especially as infrastructure targets places at risk as defunded sites for continued support?
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