Tuesday, April 5, 2016

Why Supply Solutions Fail to Provide Affordability

A lot of talk has been had lately on how housing supply needs to catch up with demand in order to lower housing costs. But, in the world of big and frequent data it’s nearly impossible for affordable housing providers to get financing for more affordable housing, especially when the building cycle begins to turn and the market genies begin to talk about oversupply. Here in Texas two articles in the past 24-hours have raised the question: Do we have too much Multifamily in Houston?

Yesterday the Houston Chronicle published an interview on how the Houston MF market has gone past the tipping point and will begin to slow down due to oversupply. While the developer, Worthing Cos., focuses on high-end MF rental, the fact of the matter is that market watchers have read the tea leaves and feel that the Houston Market needs to cut back on supply.

This sentiment was reiterated on the news clips from the Texas A&M Real Estate Center’s RECON report, today. Taking information from market analyst Marcus & Millichap, RECON notes that there just isn’t enough demand for the units currently in the pipeline.

Just a couple of weeks ago Joe Cortright, over at City Observatory, had a nice piece on the impacts that sunken oil prices have meant to the housing market in North Dakota. Texas A&M also did some great work on analyzing the effects of low oil on housing markets in Midland and Odessa, Texas. It’s clear from the data that low oil prices = fewer jobs = lower housing costs.

While it’s certainly true that more supply certainly leads to lower cost, it’s important to remember that market analysts, builders, developers and housing financiers are keenly aware of what’s going on in the macro and micro economies where they work and invest. They are quick to pull out or at least slow down on what and where they build. This is what makes it so hard for supply to be the simple answer to our housing affordability needs.

Let’s keep looking though, cause lord knows we need more affordable housing.

Dave