The Missing Piece in the Housing Crisis: The Fall in Single-Family Homes

9 10 2017

Our latest piece on Medium.  Read the original post here.

Credit: La Citta Vita, [CC BY-SA 2.0 (https://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons

On Sunday Aug 20th, 2017, the San Francisco Chronicle posted a two-page editorial “On Housing” which included a very telling graph that, unfortunately, was glossed over in the editors’ simple narrative of deregulation and “build, build, build.”

The data, from the State’s Department of Finance, shows two things: 1) the Wall Street meltdown of 2008 nearly ground housing production in California to a halt, and 2) single-family construction has dramatically diminished and is clearly not coming back.

This second point — the stunning sea-change in development patterns just within the past decade — has been largely overlooked (if not intentionally ignored) in discussions of what has caused the state’s housing crisis. But understanding this extreme, recent change in the landscape of home construction is critical to finding a pathway to a more affordable California.

The Era of the Suburbs

For decades, single-family homes dominated residential construction in California and the Bay Area. Go to any suburb east of Oakland and it’s plain and clear for as far as the eye can see — single-family suburbia was what made up the bulk of the housing industry. The real estate market responded to middle-class consumer demand by building inexpensive starter homes on farm fields and orchards, expanding our state’s wide-ranging suburbs. Built on cheap, undeveloped tracts and with fairly low construction costs, these homes provided the “natural” affordability that many middle-class Californians have recently watched disappear.

That housing supply tracked with population demand, both in the Bay Area as a region and in California as a whole: for every decade since the 1960s, developers built an average of .4 units for every new person added to the state, which at an average 2.5 persons per household is essentially one new home developed for every new California household decade over decade.[1]

The Crash of Single-Family Development

Since the 2008 Wall Street crash, though, we are living in a completely new era of housing, turned upside down in terms of housing production and preferences.

As the Chronicle’s graph above shows, home production crashed overall since about 2006, while population continued to soar. Compared to the historic average of .4 units for every new person, developers have only built .09 units per new person since 2010.

But what’s most striking about the graph is not only the overall drop in production, but the shift in housing types being built. With the market crash, single-family home production crashed and has never recovered. In 2005, over 150,000 single-family homes were built in California, providing the bulk of housing that we needed. Just last year, when multi-family home construction had essentially returned to pre-crash levels, single-family home production was still at less than 50,000 units — a THIRD of what it was before the crash. Multi-family homes (apartments and condos) now make up nearly 60% of all housing being built. This is a stunning change from past decades, when by contrast single-family homes made up 70–80% of all new construction.[2] The Chronicle editorial totally missed that key revelation in the data.

The takeaway? The single-family suburbs are out, and denser, “transit-oriented,” “urban infill” is now the focus of the residential development market.

We believe that this shift to a more urban housing market is — and should be — permanent. This drop in single-family construction is at least partly a response to a positive cultural change that’s been taking place over the last generation: middle-class and younger folks are increasingly seeing more urban living as both socially valuable and ecologically important. This is a good thing from an environmental standpoint, even a necessary thing as we turn away from sprawl development and reconfigure our metropolitan regions to deal with climate change and vehicle emissions.

A quick aside: as exciting as this new urbanism is, the narrative often ignores the reality that preferring to live in cities is not new for everyone. Talk to any of the working class communities, communities of color, and immigrant communities that remained in California core cities during the decades of white flight, redlining, disinvestment, poor schools, toxic dumps, and urban renewal, and who are now living with the effects of evictions, gentrification, and economic displacement as the middle-class “return-to-the-city” increases. For people who have been there all along, urban living has not just been the only option, but has provided the critical social networks and public transport that allowed these communities to thrive despite the disinvestment and racial and economic segregation they endured while middle-class suburbs thrived and developers happily built hundreds of thousands of single-family homes decade after decade.

But back to the point. Acknowledging this dramatic change in single-family housing production and the generational shift in housing desires is an essential piece to understanding the origins of the current housing crisis. Pair this new middle-class attention on cities and the sustained (never-to-rebound) crash in single-family housing production with the inherently higher costs of building high-density infill on expensive land, add in growing income inequality and relatively weak protections for urban tenants and low-income homeowners, and you have the recipe for the housing affordability and displacement crisis we all know too well.

A New Economic Reality

To move forward out of the affordability crisis, we need to understand the history of how and where homes got produced in California in the past and what has changed. What the Chronicle’s graph makes clear is that the story that “we chronically under-produced housing for decades and are now paying the price” (a mantra of the Bay Area Council, SPUR and other real estate lobbyists, and the “YIMBY” crowd) is simply revisionist history with little connection to reality.

Until very recently, developers were building enough homes to match population growth in California — it’s just that most of it was in the form of single-family homes. The past 10 years of the real estate market tells a story of drastic change — of suburban abandonment, hyperfocus on urban “hot markets”, and resulting gentrification and displacement.

Acknowledging that our reality has changed, we can evaluate what the new role of the Bay Area and California suburbs should be in returning the state to healthy housing production levels and meeting the growing desire for denser, more interconnected, and sustainable living.

Stay tuned for Part Two for our thoughts on rethinking the role of the suburbs.

 

 

[1] Comparison of average annual housing starts by decade from Construction Industry Research Board data compared to annualized population based on decennial census and 2015 ACS estimate, varies from 0.27 to 0.57, with an average of 0.41 units per new person.

[2] Construction Industry Research Board data.


Actions

Information