Leadership

Homelessness And Homebuilders: Parallel Realities Or Merging Worlds?

As the housing crisis and its effects spread faster and come to "a neighborhood near you," market-rate enterprise leaders may either end up as part of the solutions or be viewed as part of the problem.

Leadership

Homelessness And Homebuilders: Parallel Realities Or Merging Worlds?

As the housing crisis and its effects spread faster and come to "a neighborhood near you," market-rate enterprise leaders may either end up as part of the solutions or be viewed as part of the problem.

August 14th, 2023
Homelessness And Homebuilders: Parallel Realities Or Merging Worlds?
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Here's what a resilient jobs economy, an ebullient consumer, enormous home equity growth for mortgage borrowers, and an orderly pace of growth on the new homebuilding side of things haven't done:

They haven't prevented a one-year record rate of increase among people with nowhere to call home. It's the paradox of an economy doing a good job at supporting an improved quality of life for well over a majority of U.S. households, and at the same time leaving behind a larger and larger minority of people unable to keep pace with today's moving goal-posts of financial security and sustainability.

The data so far this year are up roughly 11% from 2022, a sharp jump that would represent by far the biggest recorded increase since the government started tracking comparable numbers in 2007. The next highest increase was a 2.7% jump in 2019, excluding an artificially high increase last year caused by pandemic counting interruptions.
The Journal’s tally thus far includes more than 577,000 homeless people."– Jon Kamp and Shannon Najmabadi, The Wall Street Journal

If each day, the $1 trillion business of residential construction and real estate has a a "biggest story" in housing's ecosystem, this one takes top honors, hands down.

The core of the WSJ analysis is its characterization of the root causes for the "sharp jump" in homelessness:

This year’s surge reflects a host of pressures around the U.S. such as rising housing costs, lack of affordable rental units and the nation’s continuing opioid crisis, according to reports from nonprofits and government agencies counting the homeless."
The biggest driver remains high housing costs, which are now taking a heavier toll following the wind down of pandemic-era relief spending and policies such as eviction moratoriums, according to advocates for the homeless."

What homebuilders, residential developers, investors, and their business, operating, trade, and distribution partners on the market-rate side need to know is that this is the biggest story not just viewed through a fuzzy feel-good lens of social awareness and altruism.

Rather, it's one bound – at long last – to radiate from outside spheres typically relevant to market-rate, private sector residential real estate developers and builders inward to the core of the matter.

Will homebuilding and homelessness ever remain parallel realities, one focused on building profitably so that a million-some American households can affordably finance their American Dream, and the other an economic, political, and social galaxy distant?

Here's where what's gurgling and bubbling up every where as a high-housing-costs-fueled affordability and attainability crisis begins to jump the fences, particularly in markets where there's market share concentration among homebuilders, and at the same time, soaring home prices.

A Fortune analysis exploring "root causes" of housing affordability crises in the U.S. concludes:

Ten years ago, we thought this was only going to be a problem for maybe seven large cities, and now the problem is spreading and spreading. A city like Atlanta that thought of itself as so business-friendly, so growth-friendly, is suddenly finding that the government says it’s not allowed to build houses. That’s going to be a reckoning that we all are going to have to face, as the housing crisis has only spread since remote work. We thought remote work would save us from it, but if anything, it just seems to be even more widely shared." – Alena Botros, Fortune staffer, interviews Alex Armlovich, who’s a senior housing policy analyst for Washington D.C.-based think tank, the Niskanen Center

Meanwhile, the "widening gyre" of homelessness, spiraling housing costs, and homebuilder marketshare concentration begin – at least in the minds of policymakers and regulators – to look like correlated if not causally-related force factors. A John Burns Real Estate Consulting note from Jeff Brazel, senior VP, consulting, last week highlights an emerging risk to national and regional homebuilders' business growth plans when it comes to proposed new antitrust measures under consideration at the  Federal Trade Commission and U.S. Department of Justice. Here are some of the JBREC analysis top lines:

The antitrust agencies propose a new “30% rule” that will place greater scrutiny on M&A deals where a business controls 30% or more of a geographic market.

  • In the home building business, the 30% threshold has been crossed in 13 of the top 82 markets.
  • There are another 12 where one builder is close with a 25% to 30% market share.
  • In eight of the top 50 markets by number of sales, the top builder has a 30% or greater market share.
  • Another six markets’ top builders have a 25% to 30% market share.

When it comes down to the "biggest story" in the business, there's typically two macro approaches The Builder's Daily will take in its exploration of what the story means and why it matters: One is a celebration of achievement worth recognizing, and the other raises a challenge it would do well for business leaders to address head on.

In this case, the take-away is a challenge to leaders, and it starts when they begin to explore fundamental ties between their private enterprises' success and a holistic housing-as-a-solution approach to community, urban, suburban, and rural development.

The good news is market-rate homebuilder organizations and teams have both the entrepreneurial DNA, a repertoire of skill sets, and an established ecosystem of local, regional, state, and national relationships the likes of which few other industry sectors can tap into and team up with on solutions.

Homelessness, it's common sense, springs from at least a dozen root causes, some of which have nothing to do with housing cost trends. At the same time, unless people who are leading housing's most important market-rate private sector enterprises in residential real estate and construction see themselves as an important part of the solution, they're likely to be viewed as a critical part of the problem.

It's a challenge.

ABOUT THE AUTHOR

John McManus

John McManus

President and Founder

John McManus, founder and president of The Builder’s Daily, is an award-winning editorial, programming, and digital content strategist. TBD's purpose is a community capable of constant improvement.

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ABOUT THE AUTHOR

John McManus

John McManus

President and Founder

John McManus, founder and president of The Builder’s Daily, is an award-winning editorial, programming, and digital content strategist. TBD's purpose is a community capable of constant improvement.

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