The Counselors of Real Estate have identified the housing market in America as the second most important issue that will impact the overall real estate market, as part of its semi-annual report about the current and emerging issues expected to have the most significant impact on real estate.
Nationally, the housing market is facing pressure from both the supply side and the demand side, the report notes.
The subprime lending crisis of 2008 triggered a decrease in overall residential construction as many builders went out of business. Those who survived shifted into more profitable higher-end product. More than a decade later, the supply of starter and mid-range homes has still not recovered.
And on the demand-side, the age groups typically responsible for most home-buying activity — currently Millennials and members of Generation Z — are cash-strapped because of student loans, rising health insurance costs, and lack of income growth.
A healthy housing market at every income level is vital to a healthy economy. It enables entry-level workers to become homeowners and begin to build wealth. It fuels job mobility, household formation, and demand for durable goods used for home maintenance.
But Jeff Levine, SIOR, CRE, and senior vice president of APEX Commercial Group,
says that Dayton is not yet seeing a crisis in affordability that other cities are seeing. While Dayton has had a recent influx of high-end residential construction in its central business district, the market has not had enough population growth to drive consistent rent increases across the market.
“The rents downtown in the new apartments clearly limit accessibility,” Levine says. “But by the same token, we probably don’t see the same demand that other big cities have to backfill the properties that people are leaving.”
Levine says he has noticed that, in Dayton and around the country, the majority of investment and public incentives are flowing toward high-end residential projects. For example, the city of Dayton provided a variety of tax benefits for the Water Street project, making the investment possible in a city that isn’t seeing major population growth.
In the real estate investing market, apartment communities continue to sell quickly and at high prices, demonstrating the interest of investors in playing in the residential market, Levine says.
And while affordability has not yet become a problem in Dayton, it could become a problem if developers and planners don’t shift the focus to more affordable projects. Levine says it would be smart for the city to get ahead of the problem with policies that help make the numbers work for developers.
“It will probably be an issue here because we’re not going to see a general increase in income for the lower end of the socioeconomic scale,” Levine says.