The gates of an ancient Roman building named after Janus opened by decree in a time of war, and closed when peace--so rare in those times--prevailed. Janus--god of beginnings, gates, transitions, time, duality, doorways, passages, and endings--comes to mind at moments like these.
Moments such as these humble us. How can people, experts or not, predict what will happen by 2030, when what occurs in the next 20 minutes could alter so much? Today, an incalculable voltage of various plausible futures by far eclipses the meager potency of all we've come to know about what comes next. Are we at war? Or is what's going on in the world--the big world of which housing and home building are but infinitesimally small parts--leaders taking firm steps to prevent one?
Are we on the brink? A precipice? Or are we on the trail-head of a great new adventure in which the power of humans, aided as never before by data, automation, artificial intelligence, nanotechnology, and quantum computing may render today's thorniest challenges of cost and household means solvable? Is now--unbeknownst to us--more an ending or a beginning?
Janus' duality--in a sense a limbo within which we may dead-reckon forward and hope, or check up on plans and stay tuned for what may come in the days, weeks ahead before we chart a course--reminds us of nothing so much as our very, very human condition.
January 6, 2020. We may look at the date today as business leaders, as organizations with competence and purpose, as producers of regenerative value, as makers of places. Still, our circumstances and events of the moment--whether it's a newly ticking time bomb in the Middle East, the almost surreal tragedy engulfing South Australia, or the latest cyber invasion across our sense of privacy, identity, peace-of-mind--tug us. They reduce us to a single shared--vulnerable--state of being. We are mothers, fathers, brothers, sisters, children, and grandparents, and cousins, and friends, and fellow community members.
We trust. We, almost invariably, lose it to betrayal. We re-forge it. We have to. Because trust is a passageway from ignorance and fear to meaning, to mending. We forgive because not forgiving is a poison worse than betrayal.
We are humbled to take stock of how the shock of a single event, thousands of miles from our shores, creates such instantaneous force of repercussion. Such consequence. No business that draws--as housing and construction most emphatically do--on resources of capital, human labor, brain power, materials from here and around the world, etc. operates independent of its calculus, its collateral impact.
Knowns, unknowns, unknown-unknowns, and the unknowable--these Four Horsemen leave us short of evidence as to how, where, and when to move confidently forward.
Januaries--in home building, and for its tens of thousands of operators, its thousands of business leaders, and the counted and uncounted 2.9 million-plus men and women whose livelihoods derive directly from residential construction's trillion-dollar ecosystem--also come as passageways.
When things run relatively normally--which, like peace in ancient Roman times, is a rarity-- seasonality, budget and financing cycles, the cadence of the market for sellers and buyers, etc., tend to make Januaries a threshold. For most, a fresh calendar year puts prior-12-month challenges and achievements behind, and rings in a new order of promises, risks, uncharted opportunity, and, possibly, peril.
National Association of Home Builders chief economist Robert Dietz offers a must-read accounting for what worked and what didn't in the post-Great Recession decade of 2010 to 2020. In a nutshell, builders and developers delivered between 1 million and 2.5 million fewer homes between January 2010 and December 2019 than the nation required, and had reason to expect of the time period. Dietz writes:
Home building in the 2010s was a story of the Long Recovery. After the Great Recession, the number of home builders declined significantly, and housing production was unable to meet buyer demand. This deficit of housing in the United States continues to exist because of persistent supply-side headwinds for builders, creating a critical housing affordability challenge for renters and home buyers. Yet despite these challenges, residential construction is set to evolve and expand throughout the decade ahead.
Between 2010 and the end of 2019, there were 6.8 million single-family housing starts.
That total included:
- 1.53 million custom home building starts
- 827,000 townhouses starts (single-family attached)
- 300,000 single-family built-for-rent (SFBFR) starts
Rob's piece illustrates how dramatically investors, developers, and builders underbuilt in the past decade--compared with other decades, compared with population growth benchmarks, compared with need--and why. He sheds clear light on the cost curve that has decoupled the expense to bring on new housing units from households' earnings, and why something needs to bend that cost curve back into sync with household wages.
He looks in the unsparing light of day at the tenuous balance housing's market-rate players operate in vis a vis the cost of mortgage financing. He notes:
There were eight 25 basis point increases in the federal funds rate from the start of 2016 until the fall of 2018. A number of economic variables indicated that this rapid tightening in rates was a policy mistake, including a large decline in the NAHB/Wells Fargo HMI at the end of 2018, as well as the following stock market sell-off at the end of that year.
Fortunately, the Fed reversed course and cut rates three times in 2019, and signals strongly indicate the Fed is now on pause. This financial setting leaves rates averaging around 3.7% for the 30-year fixed rate mortgage. This is a considerably more favorable environment for housing with respect to rates compared to the end of 2018, when housing sales and construction softened. The Housing Affordability Crunch of 2018 has largely subsided as single-family construction rebounded in the second half of 2019.
Rob's piece points to supply constraint culprits, all conveniently starting with the letter "L." Labor. Lots. Lending. Laws and regulations. Lumber and materials. Each is a force factor a home builder must both accept and manage--what he or she can control and what he or she can not---and reconcile repeatedly for there to be a future.
Time will tell as to whether just shy of 7 million single-family starts in the decade following the Great Recession was a forgettable asterisk patch, a glaring embarrassment, or a feat of magnificence, given the circumstances operators contended with during the period.
Less square footage, more density, greater productivity via automation and technology, single-family built-for-rent, infill redevelopment, new household typologies (co-living), and locality-developer partnerships rank among the logical trends we can expect in the near- and longer-term future, based on the models, innovations, and investments we see already in the works.
Here's another scorecard of seven key priority items, both to look back on the 2010s and forward to the 2020s, in hopes that learning and discovery will prevail over set ways and outmoded assumptions we tend to fall back on as we'd reach for a comfort blanket. Consider them opportunity areas. Or, if you're a glass-half-empty type like me, consider them areas of existential risk.
- Money -- we're quick to blame local, regional, and national regulators for layering costs that don't translate into what home buyers value into the price of homes. But, what about capital itself, and the layers upon layers of cost that redound to fewer and fewer shareholder beneficiaries, while tax payers, builders, and home buyers bear the risk? What have we learned about access to capital in 10 years?
- Diversity -- we've talked ourselves blue in the face about "labor shortages." What have we learned between 2010 and 2020, and how have we acted to make residential construction--at every level--a talent-rich, diverse, inclusive workspace?
- Sustainability and Resilience -- The 2010s made it clear that that buildings can get built and operate with less environmental detriment and greater fitness--at a cost. How much did we learn about who will pay and why, and whether it's an option or a necessity?
- Well-being -- Early last century, clean running water, electricity, and telephone service cropped up as technologies that changed the way we think today about a healthy home. The past decade introduced a new array of well-being-related technologies--for security, for room comfort and air quality, for water purity, for leaks and inefficiencies, for privacy and peace-of-mind whether we're home or away, or health-related sensors and monitors. What have we learned about what's a must-have versus a nice-to-have? What can we learn--from the indoor-outdoor trend--about homes that deliver both timeless value and an environment so nimble that it adapts to life-speed change?
- UX -- This past 10 years, builders, investors, developers, and their partners came face-to-face with an existential riddle. Which is more important, first-cost or total-lifetime-cost? The next 10 years need to go far toward making users--residents, purchasers, owners, and renters--answer the riddle: neither or both.
- Vertical focus -- The 2010s clarified for all but a few enterprise high-volume home builders that cycle-timing real estate investment and production home building are two discrete--and sometimes self-canceling--business models. In the 2020s, productivity gains will derive from fanatic focus on vertical construction, its processes, and its sustainable value-generation potential, to the exclusion of investment or expense on anything non-value producing.
- Home as a service -- Property value, we learned as we saw the emergence on the fringe of tiny homes, co-living, single-famiy for-rent, adult kids in their parents' homes, multi-generational combos galore, and new housing typologies, not to mention flood-plain changes, fire zones, tornado alleys, and hurricane-prone coasts, is in flux. How will technologies, structure, solutions-orientation, and data re-model property value generation in the next 10 years?
Lastly, allowing for a moment the notion that Janus' new beginnings may render possibilities we could hardly imagine but must do so if they're ever--implausible or not--going to come about, I hope that we'll have learned by 2030 how to do the real calculus on housing opportunity. This is not to say that all Americans should be able to own a home. It's to say that every child born in America might believe--realistically--that he or she or they might earn a way to economic mobility, to property ownership, to a 2030-style renewal of the American Dream of standing, of belonging, and of sharing a stake in us.
