Real Estate Updates

Greetings,

I would like to share a few headlines and brief analysis in Real Estate and [Housing] Development industry from the past few days. I hope you find them insightful:

• While the [already large] affordable housing deficit is widening, the rising construction costs and inflation are only worsening the matter. Developers are finding it harder to capitalize the deal and looking out for more “Soft Sources“ to fill the gap.
• The existing systems (LIHTC, NOAH, etc.) are not effectively addressing the affordable housing crisis, a “let the market go where it will” mentality or government programs alone will not solve the problem; we need a combination of the two.
• Watch Rob Speyer's interview with The Real Deal and affordable housing development challenges facing developers. Interest hikes, Rising Construction Costs (including Lumber Price volatility, etc.), and pandemic-induced supply chain complications are just a few to mention. Read NY Times article on Parking Requirements as well.
• Read about the sustainability challenges and strategies for affordable multifamily housing that are ripe for adoption now.
• According to researchers at Florida Atlantic University and Florida International University, four US housing markets are overvalued by more than 60% and 11 others are overvalued by more than 50%. Per S&P Capital IQ report, the 20-City Composite index posted 21.2% year-over-year growth in March, while the 10-City Composite index increased 19.5% during the same period. 
• Is it premature to use the term "Bubble"? A bubble would require both speculation-driven price growth and overvaluation; we do meet at least one element of a bubble currently: overvaluation.
• In real terms, house prices are now above the previous peak levels. On a price-to-rent basis, the Case-Shiller National index is at a record high, and the Composite 20 index is back to November 2005 levels. 

• The Green Street Commercial Property Price Index declined by 1.2% in May for the first time in two years while reports on real estate in 11 of 12 Federal Reserve districts suggest that things are broadly cooling. See also The Real Estate Frenzy is Over.
• Rents in Class C multifamily properties are rising, but they aren't climbing at the same rate as in higher-end buildings, and the gains aren't keeping up with inflation in the broader economy. Vacancy rates are low in Class C properties, it can be difficult to build these apartments without government subsidies.
• WSJ article highlights the data that found cities with shorter commutes have higher return-to-office rates. For instance, the New York City area, which had the longest pre-pandemic commute time, has seen a more severe impact on office occupancy than cities such as Minneapolis and Austin, Texas.
• The high office vacancy rates in major U.S. cities in addition to the housing supply shortage has created an opportunity for potential office-to-residential conversion in dense urban centers with strong housing demand tends. Read the full article here.