Durham Development Watchlist - November 2019

Original Post: https://www.buildingbullcity.com/2019/11/durham-development-watchlist-november.html

Appreciate the updates! I'm excited about the wayfinding - I hadn't heard anything about it. I like the aesthetic choices, and it feels "Durham" to me.

Interesting point about a potential slowdown in building announcements. In the most recent housing data released (Oct 2019), the West and Midwest census areas showed big increases in new housing starts, the Northeast fell a lot, but the South was flat. They've all been up since ~2009 and the South the most of them all, so things seem good right now at least by the numbers, but if you look back at the historical data new housing starts are still nowhere near previous peaks which is kind pretty concerning this deep into an economic expansion.

https://fred.stlouisfed.org/series/HOUSTS 

Thanks for posting this Mitch. That is REALLY concerning from a macro standpoint, especially since the sun belt is seeing so much growth/migration.

Mitch and Dave -- I'm not immediately seeing the same problems you are. Would you please expand on what you find concerning in this data?

Sure - from a macro level, if you agree that there is a housing shortage then if we are building fewer homes now, it means in 20 years, we will have fewer homes that age and become naturally affordable, so it puts even more of a housing squeeze on low and middle income residents than we already have.

Of course, this is only one piece of the puzzle, but it is a concerning indicator.

I just think we're a little ways off from a concerning situation. Could be better, but it's still really, really good in my opinion. The last six months cumulatively saw more housing starts in the South than any period in the last 12 years. I'd argue that's a pretty good macro story actually. I'm optimistic until we see an actual decline in starts. Steady growth seems okay to me.

Agree with you that it would be nice to see more housing to address urban inventory and affordability though. We had tons of starts 15-20 years ago and still have affordability issues.

I would also add that the slope of the trend line coming out of the last "valley" (not a term of art per se) of housing starts in 1991 is pretty similar to the trajectory we're currently on, and things started from a deeper hole in 2009.

That is true, but it also means that there is even more ground to be made up to get back to where we need to be. There were more units being built in the 90s than there are today despite that we have more people, and starts already seem to be attenuating despite apparent demand and continually increasing housing prices. It could be that just not very many people can afford to buy housing at the prices developers are expecting to be able to sell at.

But you're right that the data doesn't necessarily look bad yet. I could see the trend as being bad: high prices, relatively low amount of new starts based on how long it took us to get to this amount, stalling GDP growth. Or I could see it as being good: lenders and buyers are both being more cautious since 2008, and maybe housing still won't stall out even if we do have a small recession, due both to that caution and to pent-up demand.

Another factor: we lost a TON of people from the industry during the housing crisis. A lot of those people found other work and it takes time to train their replacements. That's an unavoidable obstacle in getting more houses built.