Everyone alive and breathing in America today has heard about “The Housing Crisis”. Doorify MLS closely monitors the housing market in 16-counties around Raleigh, North Carolina. The MLS is the hub for listing information and comps and delivers critical market statistics to policy makers, developers, builders, and academia as well as to Realtors. A top goal is to inform people who can make a difference in the quality of life in our area. Where we put new houses and how will determine if Cary, and Chapel Hill, and Garner, as well as Raleigh are still nice places to live in twenty years time.
Doorify partners with the University of North Carolina’s Kenan Flagler Business School to measure the housing market. Some of this material came from our recent Quarterly Podcast unpacking the market so far this year. Watch for that episode to come out wherever you get your Podcasts.
This chart from the data visualization people at Visual Capitalist shows the statewide affordability index to be 0.59. That means that Household income is 59% of the income necessary to qualify for a median priced home at prevailing mortgage rates. Montana is the least affordable at 40%, Iowa the most at 92%.
So affordability is very low in most of America today. The Carolinas are near the middle of the scale. But, the most striking part to me is that housing WAS affordable for so long, until it wasn’t. This chart from Doorify shows the trend going back before the Credit Crisis in 2008. Affordability had never been below 100, the line that marks “affordable” until March 2022. Since then, now over three years, it has not come back.
UNC Profession Jim Spaeth put together this table illustrating the last five years in a few area School Districts. The increase in value in those five years was dramatic. During that time, most of the districts have lost enrollment. Anecdotally it may be at least in part caused by the dramatic reduction in affordability.
Today we are focused on one aspect of affordability: land. For new homes to be built there it all starts with the lot. Lots begin as larger tracts that are subdivided into building lots. Not very much of those kinds of properties come through the MLS. Many are listed on Commercial Exchanges like LoopNet and not included in our compilation. It is possible to find information about lot availability and how it impacts affordability.
This chart illustrates a long stretch of time, back to 1997 and shows in blue the level of housing starts on the left axis. On the right axis the results of a long-running opinion poll by the National Association of Homebuilders measuring builder’s opinions of land scarcity. Almost 70% of builders today say there are not enough lots and it’s been that way for over a decade.
Next is a table from research firm Zonda that Dr Spaeth shared on our Podcast shows Charlotte and Raleigh near the bottom. The list shows an index that ranked cities by the degree to which they are undersupplied with building lots. When Raleigh scores less than San Francisco, someone needs to waive a red flag, so that’s what we’re attempting to do with our post today. Raleigh is coming in at 48.5, Charlotte at 59.6.
Economists describe this market as “constrained”. What are the drivers of that constraint? We see that a lack of building lots plays a factor, we are Significantly Undersupplied. While land costs and availability play a role, there is also the cost of expanding utilities, water and power and in most places, sanitary sewer. In some places the local government pays to install this infrastructure and pays for it with bonds. In other places local governments rely on Developers to pick up the tab, rolling those costs into the price of the house instead of distributing that liability across government.
There is a public interest in having affordable housing for our front line workers, caregivers, and other moderately salaried people. That’s why cities take creative approaches to incentivising builders and developers to build more affordable units. ADU’s, zero lot lines, removing parking requirements, one-stair egress, all those things add up to lower the barriers to building.
Houston is widely known as a large but affordable city. Years ago they began a process of encouraging building of small homes and townhouses. The impact has been significant.
In 1998 they allowed small lots to be built inside the urban core, meaning, inside the freeway that encircles the city of Houston. Then again in 2013 when they expanded the program citywide. As the Minott Study shows, there was a measurable impact.
So with measures like this lot size reform, policymakers really can make changes the positively impact the quality of life. Next up in our series we are going to talk about how developers find land for sale and who they compete with for those tracts. It’s a challenge since one recent study showed that 66% of available lots were bought by big, publicly traded construction companies. As always, watch for more housing stats at DoorifyMLS.com. Special thanks to the UNC professors for helping us compile this quarter’s analysis.
