Special Report NATIONAL ASSOCIATION OF HOME BUILDERS N. H. ROGG-DIRECTOR OF ECONOMICS AND POLICY PLANNING MICHAEL SUMICHRAST-ASSISTANT ECONOMICS DIRECTOR NORMAN FARQUHAR-ECONOMIC ANALYST A NOTE ON THE MAIN FINDINGS An outstanding but not unexpected phenomenon of the early part of the 1960s has been the rapidly rising rate of rental housing production in new home building. From a decline to as low as 8% of total new units in 1955 rental housing has moved upward to a post-war peak in 1962 of 464,000 units, or 32% of the total. The 1963 record bids fair to be even higher and is running, in the first half of the year, at 37%. This shift has raised all sorts of questions about the strength of the market for rental housing. In this study, for the first time, NAHB's Economics Department has undertaken an in-depth analysis of the potential during this decade for rental housing. Basically responsible for the study was David Gillogly, Associate Director, who prepared the material with the aid of Michael Sumichrast, Assistant Director. The study reflects the very strong underpinning for a continuing high volume of rental housing during the rest of the decade. As a matter of fact, the projections show a far higher rental housing potential than had previously been assumed, in the absence of any probing analysis. Procedurally, this study is based upon an examination of the propensity of households in various age groups to consume housing of various types. These propensities, as exhibited by past historical rates with appropriate adjustments, have served as the basis for projection into the future markets. They may well be, of course, subject to other influences which would change the pattern in either direction. For example, the possibility of lower prices, better suburban transportation, or better land use patterns in close-in areas may make ownership gain even more desirability than now enjoyed, as may new types of ownership, including the condominium. However, these figures suggest both the potential for rental type structures and the challenge to the producers of single family housing in today's competitive housing market economy. iii Despite the need to revise our notion of the expected mix between rental type structures and single family housing structures, it should be emphasized that the market for single family housing, as visualized in this study, is still very strong. Home ownership in the United States has risen from 44% in 1940 to 62% today. This study does not project any significant decrease in the total proportion of home ownership, but suggests that unusual shifts of age distribution toward those least inclined to home ownership will probably inhibit further increases in the ratio of home ownership during this decade although such inhibitions could still be overcome. Of some particular significance are the findings that the supply side of the market appears more or less dominated by artificial stimulants. Only after this in-depth analysis was it possible to conclude that the demand strength is adequate to sustain the rapid growth of supply so far achieved. as it And an On the other hand, artificial stimulants raise the prospect that supply can still overrun demand already seems to be doing in some cities. overbuilt market could obviously damage both our industry and the national economy. To prevent such occurrence the report lays stress on the need for better and more intensive market analysis of the supply side of the market, as well as demand. Though this is essentially a study of housing by tenure (owners or renters), its primary and perhaps most meaningful conclusion is its demand projection by type of structure (one family homes vs. multifamily units). But the study does also provide a demand projection by type of tenure as a secondary but also useful conclusion. Though the concepts are closely allied they result in differences that require explanation. iv In practice, there are two definitions of rental housing: (1) one which reflects actual tenure (renter occupancy irrespective of structure type), and (2) one which reflects the type of structure (multifamily, including 2-4 family and apartment structures) which normally is specifically built to accommodate the renter. As one-family homes are increasingly utilized in the rental market, and apartment units are increasingly sold rather than rented new definitions will be needed to enable reconciling the diverging trends. 1/ Meanwhile, the bothersome differences of the two projections are easily explained in that a substantial part of the rental demand will be satisfied by the many new households who will be renting one-family houses, currently owner occupied. In terms of actual numbers, the following should be borne in mind: Of the sixteen million additional units which will be built during the decade: Approximately 9.1 million will be in structures Approximately 6.1 million will be in structures But, There will be substantial shifts in tenure during the decade, both in the existing stock and in the units which will be built. 17 Note: Additional clarification of the definitional issue appears on page viii. V |