... RENTAL HOUSING BOOM PERVADES ALL AREAS The fact that half of the rental housing is built in these six city areas may tend to conceal the fact that the rental housing boom is pervading nearly all areas. NAHB Special Report 63-4 dated June 5, 1963, provides data on 42 metropolitan areas and it should be noted that rental housing permits increased from 1961 to 1962 in 34 areas while declining in only 7. Some areas reached an earlier peak in rental housing construction, but nonetheless participated in the boom, by comparison to their experience in the mid-fifties. Only 14 of the 42 areas failed to reach a 30% rental mix in at least one of the three years 19601962; and only 9 failed to reach 25%. OWNER OCCUPANCY TRENDS ... In historical perspective, the current rate of home ownership is a record high. It should be noted particularly that while the home ownership rate from 1890 to 1940 remained at a fairly consistent level, the rates for 1950 and 1960 each represented substantial increases in the rate. * - Home ownership rates are percentages of occupied dwellings. - 4 WALK-UPS VERSUS ELEVATOR BUILDINGS From AN UNANSWERED QUESTION the viewpoint of both the builders who are building them, and the materials manufacturers and distributors, the kinds of buildings which house new apartment units are an important issue in the apartment house boom. In a general sense the buildings of three stories or less tend to employ the same types of building materials and construction techniques as 1-family housing. It is relatively easy for a 1-family house builder to participate in this market. It is less easy for him to enter the market for high-rise elevator apartment buildings. The three-story level is only an approximate dividing point between two basic types of construction, as this would vary from one locality to another according to building code requirements. But at one point or another, there is probably a division which is meaningful and real. Engineering requirements for taller buildings require different and heavier materials, and fire regulations also have a major impact on materials, design, the number of exits, etc. The need for elevators is also an important difference affecting design, materials and costs. Unfortunately, no reliable information on the structural mix of multifamily buildings yet exists. Insofar as FHA programs are concerned, there has been a shift toward a higher and higher percentage of elevator buildings. In the early postwar years, only about one-fourth of FHA multi-family units were in elevator buildings, contrasted to about three-fourths through the 1958 to 1960 period. However, there is a serious question as to whether or not the FHA programs are representative of the total market. In the earlier period, FHA programs represented about two-thirds of apartment construction, whereas they recently account for only about one apartment unit in seven. Some indication of the existing inventory will be available in Volume I of the 1960 Census of Housing. But this data covers only cities with 50,000 population or larger, and will thus provide little indication with respect to the nature of recent apartment building in the suburbs. Likewise, the information will be more than three years old when it finally becomes available. On the other hand, Census Bureau is studying the problems involved in reporting this kind of information with respect to new housing starts, and baring unforeseen problems, may soon begin publication of housing starts data of this type (possibly by fall of this year). This will be a welcomed addition and NAHB has been urging the filling of this data gap for some time now. Differences appear to be largely local or regional. For instance, firsthand observation indicates that walk-ups dominate the California markets, in contrast to high-rise dominance in the New York City markets. PART II REASONS BEHIND THE BOOM ... A long MAJOR SHIFT OF AGE DISTRIBUTION--THE PRINCIPAL DEMAND FACTOR list of causes behind the upsurge in rental housing construction would be easy to compile. They could be defined as major or minor, natural or artificial, or by supply or demand, but the latter may be the most important way of distinguishing them. The most important single cause behind the rental housing boom appears to be the major shift occurring in age distribution of the population. Population might normally be expected to distribute itself according to some sort of systematic pattern with increasing life expectancy progressively extending the higher age brackets, and increased birth rates adding progressively larger age groups at the bottom. The fact is that population growth does not progress this smoothly. We have seldom had a really sustained period of "normal" conditions. Wars, waves of immigration, and major economic depressions have had a selective impact on various age groups. The table below and the chart on the next page dramatically illustrate the wide variations in population growth of various age groups--contrasting the 50's and the 60's. During the 50's, the 20 to 29 year olds lost a net of 2.2 million persons, but the 60's will see an 8.7 increase in this age bracket. On the other hand, the group from 30 to 49 years of age gained over 4 million persons during the 50's, while the same group will be losing nearly 1 million net during the 60's. The main cause of this important shift was the very low birth rate during the depression and World War II period, and in contrast the very high birth rate following the surge in new family formations after World War II. Footnote: Data are based on Census Bureau projections (Series II) in report P25-187, adjusted by NAHB Economics Department to the 1960 census benchmark. (Estimates are preliminary as data to adjust for the effects of Armed Forces and other Americans overseas is not yet available.) -6 Household formations are ordinarily at a high rate among persons in their twenties, compared to those in later stages of life; but household formation is a cumulative process, so that the proportion of population heading households is progressively higher at higher age levels. Those in their twenties tend to be largely candidates for the rental housing market, while those in their thirties and forties tend to be the main source of first-time home owners. The shift in age mix, then, is the primary demand factor which appears to assure a substantially increased market for rental housing. There are other factors which might also be argued but this one seems dominant on the demand side. (Some of these other factors are described briefly, later on.) MONEY, PRODUCTIVE CAPACITY, AND TAX SHELTER COMBINE AS THE MAIN FAVORABLE SUPPLY FACTORS It would be difficult to rank the relative importance of any one part of the three-way combination which has been the major stimulus to the high rate of rental housing supply. Without an especially favorable money market, or excess productive capacity in the home building industry, or the incentive of a tax shelter for investors, it would be difficult to assume that the rental housing market would be currently supplied at anything near its present rate. Other factors of course contributed, but seemingly with less significant impact. Demand conditions, of course, had to be present but the recent past history suggests that demand alone is insufficient to assure an adequate supply. That these factors may seem of somewhat artificial or transitory nature does not in itself warrant a conclusion that the market will inevitably be oversupplied, though it does increase that risk. MONEY MARKET ABUNDANCE ... The FRB-FDIC decision late in 1961 to raise the permissible dividend rate on commercial bank savings from 3% to 4% touched off a round of competitive savings rate increases among financial institutions--at a time when long-term interest rates might otherwise have declined. This applied a cost-push pressure on the savings institutions which undoubtedly tended to increase resistance to reduction of mortgage lending rates--a factor which might have otherwise increased effective demand for 1-family homes. While the question of whether higher savings rates actually stimulated increased saving is a controversial one, there is little question that the form of savings was altered with a greater inflow into thrift accounts. One solution for employing large sums of new savings capital without loss of margin between money cost and lending rates was obviously investment in apartment mortgages. For one thing, large quantities could be lent in a single package, and for another the cost of servicing a large mortgage is not significantly greater than for a small mortgage. There is some room for argument that the risk of apartment mortgages is greater and that the overall tendency of financial institutions has been to extend risk rather than sacrifice yield. Rumors have persisted that in some areas lenders were seeking out builders and investors, and even encouraging them to build apartments--a decided switch from the relative tight money conditions that prevailed through most of the 50's. |