Housing Boom Brings A Shortage Of Land To Build New Homes
Builders are looking to expand to meet surging demand, but are constrained by the number of lots ready for construction. Housing Boom Brings A Shortage Of Land To Build New Homes
Amid the biggest housing boom in years, home builders are worried they are running out of land.
The combination of record low interest rates and a new premium on space during the pandemic has generated robust home sales. A shortage of previously owned homes on the market is prompting more buyers to opt for new construction.
Acquiring and preparing land for new-home construction can be a lengthy process. Builders often buy land at least a year before building on it, and they sometimes spend years obtaining permits, installing sewage systems or paving roads before they prepare lots for sale.
Now, with much of their land inventory still in the development process, builders face the prospect of a shortage next year of finished lots, or land that is ready to build, according to Jody Kahn, senior vice president at John Burns Real Estate Consulting LLC, which regularly surveys builders and land brokers.
“You can’t just pour more beans in the top of the funnel and produce more coffee,” said Phillippe Lord, chief operating officer at Scottsdale, Ariz.-based builder Meritage Homes Corp. “The competition for land is extremely high as the homebuying demand grows,” said Mr. Lord, who becomes chief executive on Jan. 1.
The scarcity of developed land means that builders could be unable to meet booming demand. It also means builders would be able to keep raising prices, analysts say. New-home sales rose 19.1% by volume in the first 11 months of 2020 compared with the same period last year, according to the Commerce Department.
Luke Pickerill, owner of MonteVista Homes in Bend, Ore., worries he will miss some of the buying frenzy. His company is selling 16 to 20 homes a month, up from its typical pace of eight to 10 homes a month. He has projects in development, but they won’t be ready for a few months.
“In Central Oregon, I will literally be out of lots and I’ll have nothing to sell” by next month, said Mr. Pickerill. “All of the inventory that we expected to be selling in quarter one and quarter two of next year, we’ve now sold through it already this year,” he said.
Competition is stiff for lots that are ready to build on, said Greg Vogel, chief executive of Land Advisors Organization, a land brokerage based in Scottsdale. “In many markets…we just can’t deliver enough finished lot inventory to satisfy the demand,” he said.
Builders’ rush to buy land underscores their confidence in the market’s continued strength. A measure of U.S. home-builder confidence rose in November to a high in data going back to 1985, before declining slightly this month, the National Association of Home Builders said last week.
Land values can be volatile, and many builders found themselves burdened with large land holdings after the 2008-09 financial crisis, including in exurban locations far from city centers. This time they are hedging their risk in remote locations by buying smaller sites, Ms. Kahn said.
An index that tracks the availability of finished lots fell 9% in the third quarter from a year earlier to a low in data going back to 2015, according to Zonda, a housing-market research firm. The most significantly undersupplied markets in the third quarter included San Diego, Seattle, Nashville, Tenn., Boise, Idaho, and Las Vegas, according to Zonda.
Prices for finished lots rose 11% in the third quarter from a year earlier, according to research and advisory firm Zelman & Associates.
Many builders paused or slowed land purchases when the pandemic caused a shutdown of economic activity in the U.S. in March, amid concerns about a decline in housing demand. That has worsened the shortage they are facing now, said Mr. Lord of Meritage Homes.
The pandemic ended up boosting homebuying demand, as shoppers sought out houses better suited to working or schooling from home. Changes in remote-work policies also prompted some workers to relocate to cheaper areas.
Land projects currently in development are also moving slower than usual as local governments adjust to remote work, Mr. Lord said. Meritage said it spent almost $300 million on land and development in the third quarter, a high for the builder.
Some builders are responding to the demand by limiting sales to ensure they don’t sell more homes than they can construct at one time. Luxury builder Toll Brothers Inc. said this month that it is limiting the number of sales a month in between 15% and 20% of its communities.
U.S. 20-City Home Price Index Posts Biggest Gain Since 2014
The figures show how a lean number of listings and solid demand, fueled by cheap borrowing costs, have given sellers more leeway to raise asking prices. At the same time, the lack of inventory and surge in home prices threaten to slow housing’s momentum and price some buyers out of the market.
Reports last week showed sales of new houses dropped in November to the slowest pace in five months, while purchases of existing homes declined as record-low supply constrained demand.
A gauge of home prices nationwide increased 8.4% from a year earlier, the most since March 2014.
“Although the full history of the pandemic’s impact on housing prices is yet to be written, the data from the last several months are consistent with the view that Covid has encouraged potential buyers to move from urban apartments to suburban homes,” Craig Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices, said in a statement.
The S&P CoreLogic Case-Shiller data showed all cities posted year-over-year home-price gains, led by Phoenix, Seattle and San Diego. Data for Detroit were excluded because of pandemic-related reporting delays.
A separate report from the Federal Housing Finance Agency — which derives its data from mortgages that conform to Fannie Mae and Freddie Mac limits — reported that its purchase-only price index rose 10.2% in October from a year ago, the most since 2005.
For These Medical Workers, Housing Near Hospitals Is Just What The Doctor Ordered
Developers are building high-end condos and suburban homes to cater to healthcare professionals flocking to expanding medical centers.
When Neelofur Ahmad became an empty-nester, the radiation oncologist had one request: a shorter commute.
With that in mind, Dr. Ahmad moved in 2019 into a 3,200-square-foot, three-bedroom, 3½-bath unit at The Mond, a luxury mid-rise completed in 2018. It is 2 miles and six minutes from her work at the Texas Medical Center in Houston—and 30 minutes from a satellite office.
She usually drives but likes the option of taking the light rail that runs past her home in the Museum District. It’s a far less stressful commute than her 75-minute ordeal from the 6,000-square-foot suburban home in the Memorial Villages area where she used to live.
She also was drawn to the one-floor living in her new building, which has just 20 units. But it is the shorter commute that has been most life-altering. It allows her more time to enjoy the parks and museums in her neighborhood. “There’s literally every kind of activity within three blocks,” says Dr. Ahmad, who lives with her husband, Sami Ahmad, a chemical-company executive.
For some working in the country’s hospital systems, a faster, easier trek to work is becoming critical. With job demands increasing, medical workers are choosing luxury homes that require less upkeep in neighborhoods that make it simpler to work odd hours or to spend weekends on call.
Real-estate agents say their physician clients are seeking better work-life balance, and to that end give priority to turnkey properties, proximity to work, and neighborhoods that offer walkability and a community feel.
“They want it to be easy to get door-to-door,” says Jade Luney, an agent with Compass in Houston, who often works with New York and California transplants.
The sheer size of the medical centers where they work means the doctors and their support staff are transforming cities, from the downtown to the suburbs. While some staffers are choosing high-end properties in urban neighborhoods, others are buying new-construction suburban homes that are bigger and more convenient to multiple campuses.
Houston’s Texas Medical Center, for example, has more than 106,000 employees and sees 10 million patients a year. It has helped build a community in the nearby Museum District, says Ms. Luney.
At The Mond, where 11 of the 20 units developed by the Oxberry Group have been sold by Douglas Elliman, Dr. Ahmad and other homeowners have access to private outside kitchens, an amenity that allows homeowners to stay in the middle of a city without missing their backyards, says Ms. Luney. Units cost from $995,000 to $3 million. Dr. Ahmad declined to disclose the purchase price of her home.
In St. Louis, the Central West End has become a popular spot for medical workers, says Lewis Thomas, a urologic oncologist at the Washington University School of Medicine, part of a larger medical campus. He relocated in 2020 after completing a fellowship at Cleveland Clinic in Ohio. Dr. Thomas can walk or ride his bike to campus, which covers 18 city blocks and has more than 25,000 employees.
“It feels like there’s a cohort of people who work [in the hospitals] who don’t want to be getting in their cars,” says Dr. Thomas.
In July, Dr. Thomas and his wife, Kathleen Donovan, bought a 1905 home for $845,000 next door to two other physicians. The five-bedroom, four-bath home is 4,400 square feet with vintage touches, including custom stained-glass windows, a claw-foot tub and original wood trim. “It’s a historic district and the house has that feel to it,” says Dr. Thomas, who has two children.
Amy Mittelstadt, a real-estate agent who specializes in the area, says many of her clients are young medical professionals arriving from pricier parts of the country. They are drawn to the Central West End because it is a walkable area with a city feel that has larger homes for young families needing more space, she says.
Historic homes in the neighborhood cost just under $1 million, she adds. “When you’re coming from San Francisco or New York, these amazing old historic houses are a relative bargain,” says Ms. Mittelstadt, who worked with Dr. Thomas.
In Rochester, Minn., where Mayo Clinic has continued to expand, there is a demand from staffers for new-construction homes, says local developer Mark Hanson.
One popular destination is the city’s hilly southwest side, where he built the Scenic Oaks West subdivision, a 10-minute commute via the town’s back roads. “Most of our homes are built for clinic employees,” he says.
In 2018, Mr. Hanson started sales on Millie Meadows Estates, a new-construction, 30-lot subdivision built near Lilly Farms, a 220-acre subdivision with 61 multiacre lots that he opened in 2016.
Offerings for his latest development range from $900,000 to $2.4 million for new construction, and are some of the most expensive homes in the area. Physicians like its countryside feel without sacrificing proximity, he says.
Michelle Smith, a pediatrician with the Memorial Healthcare System in Hollywood, Fla., who also has a private practice, relocated from New York in 2015. She says finding a home that allowed her to commute between the two offices took time.
After owning a home nearly an hour from work, Dr. Smith and her husband, Edwin Smith, eventually settled on a property in the Long Lake Ranches subdivision in nearby Davie, which keeps her driving time to under 20 minutes in either direction.
“My doctor friends told me about it,” she says.
After a yearlong search, the couple bought the five-bedroom, three-bathroom home for $935,000—one day after it hit the market. Since moving in this past summer, they have been working on exterior renovations, including installing a basketball court, an outdoor kitchen and a hot tub near the pool.
“The mixture of rural living and a suburban lifestyle was a big draw for us,” she says.
In Lake Charles, La., anesthesiologist Richard Roe IV purchased a waterfront lot seven minutes from work at the Lake Charles Memorial Health System. He built a four-bedroom, four-bath home and a one-bedroom guesthouse for about $2 million. The property, completed in 2019, features a pool overlooking the bayou, an outdoor kitchen and a wine cellar.
The home has antique pieces throughout. “I like collecting pieces of art, and wanted to make this place feel like it wasn’t just done overnight,” says Dr. Roe.
Interior designer Lance Thomas, who worked on Dr. Roe’s home and guesthouse, says he wanted to design a space that felt relaxed yet sophisticated. That meant balancing Dr. Roe’s request for clean, white spaces with darker, more masculine walls and reclaimed-wood beams.
“You don’t want a space to feel sterile,” he says. “For a doctor, that’s sort of the irony.”
In This Housing Boom, Mortgages Are For Losers
To boost entry-level homeownership for lower-income buyers, the government needs to make the market less appealing to the cash-rich Wall Street investors who have taken over.
Scarce supply and bidding wars have kept many entry level homebuyers out of the market for years. The government is trying to address this by ensuring a higher percentage of federal-backed mortgages go to low-income households, or for houses in communities with a large share of minorities.
Expanding mortgage availability is a worthwhile goal, but in a housing market now dominated by cash offers from big investors, it’s unlikely to move the needle. A more effective approach would start with the homestead exemption.
What the government is trying to do makes sense given the demographic changes in the market since the 2008 financial crisis. While housing has spent more than a decade recovering — and more recently, booming — the gains of that expansion haven’t been shared equally. Black and Latino homeownership rates have lagged.
Most mortgages are awarded to borrowers with the highest credit scores, so anyone with lower credit scores and incomes is at a disadvantage. Home-buying could be made more equitable if the government could expand mortgage access for quality borrowers who are getting squeezed by current underwriting standards.
The problem is that entry-level housing is the market segment with the least inventory, and where investors and cash buyers have been most active. Anyone in need of a mortgage to buy a home starts out at the back of the line.
After surveying various local housing markets, Rick Palacios Jr. at John Burns Real Estate Consulting noted on Twitter last week that in many markets buyers with federal loans have almost no chance of winning bidding wars given soaring prices and demand from cash buyers. Building more homes would help, but yield-starved investors could always gobble up any additional supply.
When crafting a strategy to boost entry-level homeownership, the Federal Housing Finance Agency needs to be taking the proliferation of cash buyers into account. The policy change that’s needed is something that makes ownership more attractive for individuals than for investors.
The mortgage interest deduction won’t do it. It’s a policy tool that’s not particularly relevant for the buyers and homes in question because interest rates are already so low, and because the selling price of affordable homes is generally below the threshold for mortgage interest deductions. Plus, it’s a policy tool that’s out of favor with legislators.
What might have more impact — albeit at the local government rather than the federal level — is the homestead exemption. The exemptions shield a certain amount of the assessed value of a house from property taxes, but only for those who own and occupy the home.
Local governments could increase the amount that’s covered by the homestead exemption, which would allow them to raise property tax rates without harming the homeowners. That would make owning these houses as investment properties less attractive, while giving would-be buyers less competition for the limited number of affordable units that come for sale.
There would be political blowback on this: it would probably mean higher property taxes for wealthy homeowners and local real estate investors would hate it. But to the extent politicians have an interest in entry-level homeownership, as opposed to letting investors gobble up that segment of the market, it’s a policy choice that could make a difference.
The reality for policymakers right now is that there’s going to be no simple solution to this problem. The shortage of affordable homes, cash-rich investors that have flocked to the asset class, and low interest rates that make fixed income investments unattractive, all make it harder for working class people to buy homes.
Expanding the availability of mortgages to low-income buyers might be a familiar policy tool, but it’s not likely to have much impact unless the supply problems and investor dynamics are addressed as well.
The American Housing Market Is Stifling Mobility
Prosperous cities use a range of policies to keep home prices high, shutting out newcomers and limiting economic opportunity.
Migration has been central to the American story since the beginning. In the early 19th century, New Englanders left the rocky soil of Massachusetts for the more fertile Ohio River valley. During the Dust Bowl of the 1930s, farmers fled Oklahoma for California.
In the early 20th century, millions of African-Americans left the Jim Crow South to find work in the factories of northern cities. Through the 20th century, mobility was an American tradition: In every year between 1950 and 1992, according to the Current Population Survey, more than 6% of Americans moved across county lines.
In recent years, however, the engine of American migration has been grinding to a halt. People often move to get ahead, which makes mobility a reasonable measure of economic dynamism. So it’s a troubling sign that since 2007, geographic mobility has dropped by one-third, with fewer than 4% of Americans changing counties annually.
The reason is clear: In the most prosperous cities and regions, insiders have figured out how to use regulations, laws and institutions to make life easier for themselves and harder for everyone else. In the process, they have made the U.S. a far less dynamic society.
For the first time, Americans are no longer moving to places where they can get ahead.
The 2020 Census shows that people continue to move to urban areas: The population of counties with 100,000 or more people in 2010 grew by an average of 8.4% by 2020, while the population of those with fewer than 100,000 people fell. But for the first time, Americans are no longer moving to places where they can get ahead.
The economists Peter Ganong and Daniel Shoag found that before 1960, Americans followed the money, finding opportunity by moving to states with higher incomes. Between 1990 and 2010, however, poorer states added population more quickly than rich states.
The 2020 Census shows that only three of the 20 fastest-growing large counties between 2010 and 2020 had per capita incomes over $50,000 in 2010. Population growth was higher in large counties where the average annual income is under $30,000 than in counties where it is over $50,000.
The pandemic offered more continuity than change. Post office data on address changes show a definite uptick in mobility in March and April 2020, when the pandemic was beginning, but a smaller than normal change in May and June. There was a flow out of major urban areas, but the exodus from New York and San Francisco is more likely to portend slightly lower housing and rental prices than empty apartments. The fundamental demand for those cities is just too strong.
Silicon Valley is a perfect example of the long-term problem. According to the Bureau of Economic Analysis, four counties in northern California—Marin, San Francisco, San Mateo and Santa Clara—have per capita incomes over $100,000. Given that extraordinary prosperity, you might think that people would be flooding into the region, as they did after gold was discovered at Sutter’s Mill in 1848. Yet they are not.
Taken together, those counties’ population grew by only 6.5% between 2010 and 2020, below the average growth rate for large counties. For comparison, Harris County, Texas, where Houston is located, has 35% less land than the four California counties, but in the 2010s its population grew 175% faster.
The reason for this is not hard to find. House prices in Silicon Valley make living there prohibitive for all but the very wealthy. Data from the National Association of Realtors show that in the second quarter of 2021, the median sales price for a new home was $1.7 million in San Jose and $1.4 million in San Francisco.
In Houston, the median sales price was $307,000. Given the ease of building in greater Houston, house prices there may actually decline once we get through the pandemic. There is little chance that prices will fall in Silicon Valley.
Harris County is growing so rapidly because it is a place where housing and entrepreneurship are still largely unfettered. In contrast, coastal California is the capital of insider privilege. In 1982, the economist Mancur Olson published “The Rise and Decline of Nations,” in which he argued that in every society, cliques and special interest groups pass laws that limit competition and prevent change.
His examples included Britain’s labor unions, which effectively shut down much of the country during the 1978-79 Winter of Discontent, and Tokugawa Japan, ruled in large part by trade guilds.
In California today, property owners consolidate their power by means of land-use regulations. Large parts of Marin County are essentially off-limits to development, sometimes requiring a minimum lot size of 20 acres. Nowhere in Marin is it permitted to build higher than 30 feet.
And California’s Proposition 13, the property-tax measure passed in 1978, means that current homeowners, especially those who have remained in the same house for decades, pay vastly lower property taxes than newcomers, because their homes are assessed based on historic prices.
Fighting to make sure you pay less than a newcomer who lives in an identical house is pure insider privilege.
Resisting government overreach is fair; fighting to make sure you pay less than a newcomer who lives in an identical house is pure insider privilege. Yet California’s insiders have successfully cloaked themselves in the mantle of public service.
“Save the Bay,” a nonprofit dedicated to environmental preservation of the San Francisco Bay, was founded in 1961 by three impeccably upper-class women, including the wife of Clark Kerr, the Chancellor of the University of California, Berkeley. The organization succeeded in limiting development through local ordinances and a 1972 California Supreme Court ruling that required all significant new projects to undertake an environmental impact review.
Ironically, from a carbon-emissions perspective, building in coastal California is about the greenest form of development in the U.S. Since coastal California has a mild Mediterranean climate, it requires little cooling in the summer and little heating in the winter. Public transportation is plentiful as well. When environmentalists stop construction near Berkeley, they encourage more building in Texas and Arizona, which have far harsher climates that lead to far greater home energy use and use of cars.
Limited construction leads to high housing prices that push people into far-flung exurbs. In the second quarter of 2021, the median condo price in Los Angeles rose above $600,000. So it’s not surprising that the population of Los Angeles grew an anemic 1.2% between 2010 and 2020, while neighboring Riverside County added almost 300,000 people.
How can America once again become a nation for outsiders? With housing, the key actors are state legislatures, because they can rewrite the rules of local zoning on a dime. Last month, the California legislature passed a law that could make the permitting of two-unit projects far more automatic.
It’s a good beginning, but states should go further and only allow localities to impose regulations and rules that have gone through rigorous cost-benefit analysis. They can institute one-stop permitting that allows new businesses to deal with a single authority instead of many overlapping government offices. The federal government can help, too: There is no reason why infrastructure dollars can’t be directed to communities that permit the most new construction.
Most important, we need to stop thinking of growth as a zero-sum game. Today, insiders worry about getting their share of the pie instead of growing the economy for everyone. The best recipe for economic growth is the traditional American one: freedom, combined with robust investment in opportunity for the least advantaged.
Wall Street Can’t Get Enough Fixer-Upper Houses
High-interest loans to house flippers are a hot commodity on Wall Street, but inventory is scarce.
Wall Street has made a mountain of money available to house flippers, and selling move-in-ready rehabs has rarely been easier. The challenge is finding beat-up and out-of-date properties that can be renovated and resold for a profit.
“Investors like me, we’re like ants on a sugar hill all fighting for the same projects,” said Ed Stock, who started fixing and flipping houses on New York’s Long Island after the 2008 mortgage meltdown. “It’s the greatest time to be in this market; it’s just hard to find the inventory.”
Foreclosure moratoriums have shut off a big source of fixer-uppers since last spring’s lockdown. Meanwhile, competition is stiff from regular home buyers armed with superlow mortgage rates and inspired by cable-TV renovators. Rising costs and limited availability of labor and building materials, such as lumber, cut into profits and stretch out jobs.
Just 2.7% of home sales were flips—sales within a year of a prior sale—during the first quarter, according to property data firm Attom. That is the lowest portion of sales since at least 2000, when Attom started counting flips. The number of flipped houses and condos were the fewest in a quarter since 2003.
That was two housing booms back and long before measured-in-months loans to house flippers became some of the hottest properties on Wall Street. Mortgage trusts, pensions, hedge funds, private-equity firms, investment banks and insurance companies all want so-called flip loans, drawn by yields in the range of 8% to 12% at a time when one-year Treasurys pay less than 0.1%.
Mr. Stock’s lender, Roc360, last week received a $2 billion infusion from insurer Athene Holding Ltd. to make more loans to house flippers as well as landlords, who buy a lot of rehabbed houses. Arvind Raghunathan, Roc360’s chief executive, said his firm would have little trouble raising several billion more given the hunt for yield that has sent investors into less-familiar pockets of fixed income.
“These notes have done extraordinarily well the last eight years,” Mr. Raghunathan said. “There have been hardly any losses, and 8% for one-year paper is extraordinary.”
Many flip loans are repaid even sooner, allowing investors to recycle their capital by lending anew or buying additional loans to boost returns.
New York Mortgage Trust Inc. said it ramped up its investment in flip loans last fall and ended June with $622 million worth, carrying an average coupon of 9.33%. The firm bundled $167 million worth of loans into two-year securities, sold them to other investors and expects that replacing repaid loans with new notes before the securities mature will produce returns in the high teens or low 20s.
“There’s not many markets where you could achieve that type of return,” the firm’s president, Jason Serrano, told investors last month.
Toorak Capital Partners, which has been buying flip loans and pooling them into securities since 2018, in June sold a $339.5 million security, its first deal since before the pandemic. To supplement the scarcer house flips, CEO John Beacham said Toorak has been buying loans that fund renovations of small apartment buildings.
There is much less competition for these than houses. Additionally, the firm is bundling longer-term notes to rental-house investors, who have accounted for more than 1 in 5 home sales in some of the country’s hottest markets.
“We’ve seen a lot of competition come into the space,” Mr. Beacham said. “It’s hard for investors to find deals in a lot of places.”
On Long Island, Mr. Stock works his real-estate connections and estate-sale scouts to find deals before they hit the market. He looks for houses that need so much work that they won’t qualify for typical government-backed mortgages. Such homes have become hard to come by in the working-class neighborhoods where he used to do most of his flipping. So he has moved up market and into new areas, such as the Hamptons, where more people are living year-round, and even Florida.
Mr. Stock expects to do about 15 flips this year, well below the 53 he undertook in 2014 when foreclosures flooded the market. Most houses he buys are gutted to the studs, windows and roofs replaced, plumbing and electrical systems brought to code, mold remediated. Walls are knocked down and floor plans opened. Marble countertops, stainless steel appliances and other modern trappings are installed.
Roc360 finds flippers such as Mr. Stock with a team of data scientists who sift through public property records for houses that have been bought and quickly resold for gains. Once the people behind profitable flips are pinpointed, Roc360 targets them with advertisements and on social media, offering cheaper financing and deals on property and casualty insurance, appraisals and at home-improvement retailers.
“These are highly entrepreneurial crews,” Mr. Raghunathan said. “People who have really learned to keep their costs down and keep churning.”
Mr. Raghunathan, who has a doctorate in computer science, and others started the firm in 2013. It seeks to adapt the sort of technology his team at quantitative-trading hedge fund Roc Capital Management used to pick stocks and bonds to find the best borrowers in the realms of flip and rental houses.
Since it began, Roc360 has funded about 15,000 loans, which average roughly $350,000. This year, the firm expects to lend $3 billion and with the Athene investment plans to boost its output to more than $4 billion in 2022, he said.
Students Are Going Back to Class, And Property Investors Want To House Them
Companies are pumping billions of dollars into buying and developing off-campus housing.
With millions of students heading back to college campuses this month, some of the world’s largest property investors are pumping billions of dollars into buying and developing off-campus housing.
Blackstone Inc., Brookfield Asset Management Inc. and other investors are offering student housing facilities that feature game and video rooms, fully loaded gyms, speedy Wi-Fi, and even swimming pools in some cases.
These companies are raising their bets on the sector as more universities plan to offer in-class learning again this fall. Yet even last year, demand for student housing only fell slightly when most colleges were closed for in-person learning because of Covid-19.
“Now that we’ve seen the asset class through a global pandemic, it really shows the resilience,” said Christopher Merrill, co-founder and chief executive of Harrison Street, the investment firm that is the largest private owner of student housing.
In August, Blackstone Real Estate Income Trust agreed to pay $784 million for a majority stake in a portfolio of eight student housing properties with 5,416 beds developed and managed by Landmark Properties, of Athens, Ga.
Preleasing of the amenity-rich portfolio, near such schools as Florida State University and Georgia Institute of Technology, is back to 2019 levels, according to Jacob Werner, a senior managing director of Blackstone Real Estate.
Meanwhile, Brookfield is in talks to form a joint venture with Chicago-based student housing developer Scion Group LLC that would acquire at least $1 billion in student-housing properties, according to people familiar with the matter. The deal would be Brookfield’s first move into the property type in the U.S., these people said.
Smaller investors also are getting into the action. In the first half of the year, student housing deal volume was $2.52 billion, up from $1.68 billion in the first half of 2020 and close to the $2.96 billion in deals in the first half of 2019, according to JLL.
When Covid-19 first hit the U.S., investors worried that student housing values and profits would sink because of the large number of schools moving to remote learning. But rent collections remained surprisingly high even at schools that eliminated most in-person classes. Many students opted to live in their campus housing even while doing remote learning.
“Students showed up,” said Al Rabil, chief executive of Kayne Anderson Real Estate, which has developed 50 properties with 34,000 beds in 23 states. “They said, ‘Who cares if it’s remote learning? The last thing I want to do is stay in the room I lived in since eighth grade.’”
Kayne Anderson Real Estate is scheduled to close this month on sales of new properties it completed in 2020 near the University of Florida’s Gainesville campus and Rutgers University. Both were more than 90% occupied last fall, even though Rutgers was completely remote learning, Mr. Rabil said.
Major investors say they tend to invest in complexes near the largest schools in the U.S. where enrollment has been high. Student housing properties near smaller and less popular colleges have struggled more during the pandemic partly because their tenants tend to be less affluent.
Last fall, overall enrollment at public two-year colleges fell 9.5%, according to the National Student Clearinghouse Research Center, a trend some expect to continue. “I don’t think you would find a lot of people who think the U.S. needs 5,500 universities,” Mr. Rabil said.
But student housing at bigger schools saw some benefit from the pandemic because it put a damper on new supply, which was becoming a concern in the sector. An average of more than 40,000 beds a year were added between 2012 and 2019, close to double the rate earlier in the decade, according to Moody’s Investors Service.
Enrollment trends also have been more positive at many larger schools, which aren’t seeing a major impact from the highly contagious Delta variant. According to the Chronicle of Higher Education, more than 1,000 colleges and universities are mandating student vaccinations to put them and their parents at ease.
Such mandates also have helped demand for student housing, investors say. Occupancy is up about 3% to 4% over last year and is only down about 2% to 3% from 2019, according to Alexander Goldfarb, an analyst with Piper Sandler.
“That’s pretty darn good given everyone’s fears when you remember back,” he said.
The Pros And Cons Of Buying An Older Home
They come with character and charm, but repairs, insurance and historic commission rules can make the purchase of an older property more complicated than new homeowners realize.
Brian Sanders, 47, co-owner of a McMinnville, Ore., car dealership, and his wife, Heather, 29, didn’t set out to purchase a 90-year-old home, but when they began their search last year, the options were limited. They wanted to be close to their children’s schools and few homes were on the market.
So the couple purchased a six-bedroom home in Vancouver, Wash., last summer for $2.95 million. The Old Portland-style home, which was extensively remodeled, has a sitting room, formal living and dining rooms, hardwood floors and a $250,000 home theater.
He loves it, even though two bathrooms need remodeling and his four air-conditioning units and four furnaces may need replacement soon. “The wainscoting has character, and the quality of the craftsmanship is phenomenal,” he said.
Whether it is because of a preference for the charm and character of a historic property, a lack of inventory, or rapidly rising home prices, Americans are increasingly purchasing older homes.
According to property-data firm ATTOM, the median age of a home purchased in 2000 was 20 years. That number increased to 24 in 2010 and 33 in 2020. In 2021, through the third quarter, the median age of a home sold was 36 years. This data includes single-family home and condo sales.
Homes built more than 30 years ago often offer unique architecture, mature landscaping and, often, lower purchase prices and better craftsmanship, but the roof and windows may need to be replaced, the foundation may require repair or the bathrooms, kitchen and appliances may need updating. Ongoing maintenance costs are often higher as well.
Elizabeth Gomez, co-owner of Bridge City Contracting, a building and remodeling firm in Vancouver, Wash., said every buyer of an older home faces issues caused by the age of that home and that the cost of repair increases with age.
The buyer of a 30-year-old home might face problems with the roof, HVAC system, windows, chimney and crawl space, and many homes that age are also built with vinyl siding, which can be susceptible to moisture problems, warping, cracking and fading, she said.
With a 50- to 100-year-old home, the foundation may be starting to fail, requiring the home to be lifted on jacks to repair or replace it, Ms. Gomez said. The HVAC ducts may need replacement, and there could be asbestos, lead paint or mold issues, all of which are expensive to remediate.
Liz Hogan, vice president of luxury sales for Compass Florida, said that cast-iron pipes are a big issue in older homes in South Florida. “These pipes have a lifespan of about 50 years, and many are now rusting out and deteriorating to the point where they need to be fixed,” she said.
The typical cost to repair or replace: $30,000 to $50,000, depending on the size of the home, although less-pricey alternatives exist, such as inserting a sleeve into the pipes to avoid drilling and rerouting the piping to the exterior of the home, she said.
Still, there are those who love the character of older homes and are willing to deal with the hassles to get unique architecture and better craftsmanship.
Here are some things to consider if you’re thinking about buying an older home.
Prepare for unexpected expenses. Buyers who may have exceeded their budgets after engaging in a successful bidding war may be in for a surprise if they purchase an older home. Ms. Hogan said that even if a home inspector gives her buyer clients a cost estimate for repairs, she tells them to plan on doubling or tripling that number.
She recently worked with buyers who purchased a 20-year-old home where the inspector quoted them $8,000 to fix an air-conditioning unit that leaked and caused mold. After opening the wall, they discovered a much bigger problem that ended up costing $16,000 to remediate. You may be required to bring the house up to code if you remodel.
Be wary of historic properties. Buyers of older homes with historic designations may find that the alterations they hope to do may be prohibited or that it may take months or more to have their proposed alterations approved by a historic district design review board. Make sure you understand what historic restrictions apply to a home before you purchase it.
Secure homeowners insurance early. According to Loretta Worters, a vice president of the Insurance Information Institute, an industry trade group, insuring an older home can be challenging. These homes often have unique architectural details, such as original plaster walls or moldings, that are not covered by a typical homeowners policy, although some insurers may offer replacement-cost coverage at a higher premium or a historic-home policy that includes restoration coverage, Ms. Worters said.
If a home’s roof is nearing the end of its useful life, or an electrical box isn’t up to code, an insurance company may require replacement before it will cover the home, she added. In addition, due to the increased risk of fire from old wiring, or flood and mold from deteriorating pipes, the cost to obtain insurance may be higher for an older home as well.
Chicago’s Bungalows Are Where The City Comes Together
Transplanted from afar, these modest-but-stylish brick homes embodied the middle-class dreams of a blue-collar boomtown.
In Chicago, there are plenty of reasons for South Side residents to keep Northsiders at arm’s length. This includes the North Side’s nonsensical lack of numbered streets, opposed baseball fandoms, and the outsized power of the city’s wealthier half — an imbalance that has created one of the most striking geographic divides between rich and poor, white and Black, in American urban life.
But for Chicago historian and native Southsider Shermann “Dilla” Thomas, there’s a quick way for a Northsider to break through this legacy and offer at least one piece of common ground: Say that you live in a bungalow.
“We have bungalows on the South Side too,” Thomas says. “If you’re good enough for a bungalow, then you’re cool with me.”
All over the city, these humble houses are a remarkably consistent presence. It’s estimated that Chicago boasts 80,000 original bungalows — a third of the city’s single-family housing stock — located across a U-shaped band four to seven miles from the city center called the Bungalow Belt.
In a city riven by inequality and resentment, bungalows are one of the few things that white, Black and Latino Chicagoans all love together. “The Chicago Bungalow is a unifying thing,” says Thomas.
Featured in Thomas’ indispensable TikTok videos on history and urbanism, Chicago bungalows share several characteristics. Made of brick with Arts-and-Crafts-style detailing, the standard example is a one or one-and-a-half story home with a low-pitched or hipped roof and dormer windows. Steps ascend from street level to a front porch or sometimes a side entrance; large windows and a prominent front bay face the street.
The houses have a rectangular footprint, with long sides to match Chicago’s narrow lot lines. Inside, the front door leads to a large living room, with kitchens and dining rooms tucked toward the back, often across the hall from a bathroom wedged between two bedrooms.
Chicago’s surfeit of bungalows remains because their rise coincided with an explosion of growth. The city’s population doubled in the first three decades of the 20th century, and half of city’s housing stock was built from 1910 to 1930, with bungalow construction tapering off through the Great Depression. Their signature brick was a response to the 1871 Chicago Fire, which tore through timber-frame neighborhoods, as well as a sop to the city’s massive brick industry.
The uniformity of bungalows — often the first home a family owned — helped to moderate the sectarian identities of the immigrants pouring into the city. No matter if they were from Italy, Ireland, Poland, or Ukraine, once you’ve trimmed your hedges and lofted a spare bedroom into the attic, “the bungalows really did help people to feel like Chicagoans,” says Mary Ellen Guest, executive director of the Chicago Bungalow Association.
Built For A Middle-Class Boom
Chicago’s bungalows came a long way from their roots in India. The word is derived from “bangla,” referring to a house in the Bengali style. These houses were huts with mud walls and thatched roofs; encountered by Westerners via British colonialism and adapted, they became sprawling country estates.
Once in Britain, bungalow-style houses were typically built as seaside holiday homes for the burgeoning middle class.
When it came to North America, the bungalow landed first in California before spreading eastward — likely the first architectural trend to blaze such a path. In Chicago, the style succeeded the Workers Cottage, most built from 1870 to 1910, and recognized by their gabled roofs and wood frame construction.
These were more utilitarian structures that often lacked not only plumbing and electricity but amenities like parlor rooms for entertaining. “The Workers Cottage was based on a need. Bungalows seemed to be more aspirational,” says Chicago architectural historian Elizabeth Blasius of Preservation Futures.
The average bungalow of the 1920s cost about $6,000 to build, and sold for $8,000 to $9,000. In the South Shore neighborhood, you could buy a bungalow for a few hundred dollars down and secure your stake in homeownership with monthly payments of $20. Bungalows “were the first homes that were built for the emerging middle class in the city,” says Guest.
Though the factory line workers and slaughterhouse unionists that moved in lived urban lives, bungalow designers still promoted a rural ideal. In his 1911 book Bungalows: Their Design, Construction, and Furnishing, with Suggestions also for Camps, Summer Homes, and Cottages of Similar Character, Henry Saylor wrote that the bungalow is “far better suited to employment for the temporary home, the shooting-lodge and the weekend retreat in the woods or along the shore, than it is to use for permanent homes in suburban communities.”
Homebuilders kept up this pretense. Drawings in contemporary bungalow catalogs never showed two bungalows next to each other, showing them instead surrounded only by trees and lawn.
Certainly, the inside/outside elements of bungalows (their small yards, porches, and large front windows) that gave residents passing connections to the land were key to their appeal. But in practice, these houses were deployed in a purely urban way to maximize saleable volume on narrow lots.
Lots of Savings, a Bit of Style
The bungalows’ materials and detailing were equally tied to economic and industrial realities. Their brick and stonework accents are less premium flourishes than evidence that mason labor was cheaper than now. “If you were to build something affordable today with [similar] intent, a lot of the details in the bungalow wouldn’t exist,” says Manuel Hernandez, of Design Seed, a Chicago architecture firm that specializes in bungalow renovations.
“You can go to the suburbs to find perfect examples of what a speculative, affordable, mass-produced house looks like, and it looks nothing like a bungalow. It’s wood-framed, there’s no decoration. It’s very minimal.”
The building process was similarly pragmatic and piecemeal. A few architects were fairly prolific at designing bungalows, such as Ernest Braucher and F.A. Fielder. But most bungalows didn’t get the level of consistent detail you find in, say, the delicate terracing surrounding Fielder’s front doors in the Chatham neighborhood’s Yale Avenue.
Builders would more typically construct using book-building kits by Sears and Roebuck or Montgomery Ward, and might build a half-dozen homes on one block and a half-dozen on the next.
Concern about austerely repetitive designs rattled neighborhoods from time to time. One group of neighbors in the Morgan Park neighborhood offered to pay builders a premium if the new bungalows looked less uniform. Only a few high-minded design ideals got wrapped up into bungalow building.
The style was a meeting place for the remnants of the Arts and Crafts reverence for bespoke detail and the Chicago-centric and Frank Lloyd Wright-led Prairie Style, as both emphasized the flat horizon of the Midwestern landscape, seen in the compact horizontal layering of single-story bungalows. (Early boosters praised bungalows’ “low earth-hugging masses” and horizontality, as if they were Wright houses themselves.)
The Bungalow Grows Up
When the post-WWII housing boom took off, it did so without bungalows at its forefront. Price increases for building material meant other housing styles (like Georgians and Cape Cods) could be built with fewer materials and more efficiency. Stylistic preferences began to shift, too, as American home buyers became more comfortable with streamlined Modernism. Bungalows’ art glass windows and fireplaces came to look old-fashioned and fussy, an image they have never fully shaken.
The now 25,000-member Chicago Bungalow Association (CBA) was founded to make sure that bungalows weren’t, according to Guest, discarded as “your grandma’s house,” but still relevant to the city. Their durability is one asset. Because they’re made of brick, these houses age well. “There’s no planned obsolescence,” she says.
But bungalows can be energy hogs, offering so little insulation that residents sometimes added their own homemade solutions. “To this day, bungalow owners will find a couple of layers of newsprint in their attics,” she says. Much of the CBA’s programming is focused on making bungalows more weatherized.
Maintaining both the bungalows’ suitability as contemporary housing and their original form can prove a challenge. Accommodating new growth and consumer demand within historic buildings is always fraught, hence the CBA’s #StopthePop campaign, which took aim at the second-floor additions many owners build.
These usually arise when residents, or speculative developers, desire larger kitchens, which requires the deletion of a downstairs bedroom that often get a relocated to a new second floor.
To the CBA’s eyes, these alterations are awkward aesthetic violations of bungalows’ most iconic elements, and a tool used by house flippers to usher in top-dollar buyers. They’re often built with low-quality materials, says Guest, adding contemporary frame construction onto legacy brick — a clumsy seam that can invite water infiltration.
Pop-tops can be emblematic of the home-renovation-show-inspired churn of bathroom remodels and blown-out walls, but some preservationists are less concerned about the trend. “It’s likely better to pop a top on a bungalow than to demolish the whole thing and build a new single-family home,” architectural historian Blasius says.
“I’m happier to see someone living in a bungalow and enjoying the neighborhood and less concerned with what they do to an individual property. I think that preservationists should look at residential architecture in different ways than it looks at governmental or commercial buildings.”
That’s also the view of Joseph Altshuler, a Chicago architect whose 2017 exhibition “Bungalow Futures” looked for mischievous ways to make bungalows flexible and exuberant. The design guidelines suggested by the CBA warn against any changes perceptible from the street, preserving the “scenography of historic character,” says Altshuler. His question: Can we respect the historical precedent of the bungalow while still embracing change that retains essential bungalow-ness?
“Maybe the typology gets violated by addition, but the character doesn’t have to be,” he says.
With his partner Zack Morrison at Could Be Architecture, Altshuler designed mutated bungalows with elements exaggerated to the point of hilarity: stacks of dormers as tall as lighthouses, second-story porches crowned like grand atria. The exhibit coined an alternative hashtag for this campaign: #OnceYouPopYouCantStop.
For Thomas, the Chicago historian, pop-tops can also be the lesser of two evils. “If blowing out the top of a bungalow keeps you on the South Side and keeps you giving back to the neighborhood that raised you, then blow the top out of the bungalow,” he says.
Certainly, neighborhoods on the South Side have struggled to keep people in buildings and historic buildings intact, and there’s evidence that bungalows here and elsewhere have been particularly vulnerable.
According to data from the DePaul Institute of Housing Studies, a quarter of all foreclosures during the 2007-2011 real estate collapse and recession were single-family homes in Bungalow Belt neighborhoods, hinting at overrepresentation of urban bungalows in foreclosure rolls.
Thomas’ Auburn Gresham neighborhood had nearly 2,000 single-family-home foreclosures between 2007 and 2011. He’s lived in a bungalow there for most of his life; first the one his parents bought, then his own. Those Baby Boomers were among the first Black Chicagoans to live in bungalows, which were built far from the South Side lakeshore Black Belt, the only place the city’s first Black residents could live.
In the 1960s, African-American households moved into the Bungalow Belt, becoming the caretakers and de-facto preservationists of historic homes that they were explicitly barred from buying when they were new.
Thomas’ family watched white flight unfold around them, marveling at those who decided to leave their bungalows behind.
“They left brick structures to go to the suburbs to buy [wood-]frame structures,” says Thomas.
“It was really silly to give up.” For him, bungalow preservation is a way to “rekindle and reach out to the white flighters that left Chicago,” he says. “That’s something that they remember and cherish — their upbringing in that bungalow.”
The reasons such people give for having fled the city — crime, vacancy, ruptured social fabric — often have relatively few outward signs in bungalow neighborhoods today.
The presence of bungalows may not guarantee against creeping systemic deprivation. But as the Thomas’ South Side is endlessly exoticized by stories of wrath, precarity and perseverance, its bungalows remain, as they always have been, images of home and middle-class propriety.