New Or Used: Housing's Public Enemy No. 1 Is The Public Itself
Much as they'd rather not face it if they don't have to, builders and their business partners face a critical challenge to get out of a victim-villain vicious circle, and start winning over voters.
A saying goes, "when you point a finger, three fingers point back."
Headline risk on the swiftly shifting, shaky ground of materials prices has been sucking oxygen out of the room as homebuilders contend with real-time disruptions to a spit-and-polish supply chain.
The supply chain blame game is in full flower. If victimhood is the mindset, nothing beats naming and punishing a villain.
Net, net of all the noise on producer prices, soaring input costs, and a distribution channel in chaos, the big picture issue is can private-sector American homebuilding investment, development, construction, and sales profitably match what they do with what Americans in droves want, and want it now?
The common denominator factor that threatens, ultimately and almost inevitably, the presently healthy lifeline that links homebuyer prospect wherewithal to the capacity of merchant homebuilders to deliver homes and communities within those buyers' payment power range, hides in plain sight.
In our view:
- It's not greedy producers and distributors on the take and free-trade-squelching tariffs;
- It's not faceless, nameless regulators
- It's not malevolent Big Wall Street financial players gulping down home selling and buying in a fell swoop, denying people of the American Dream
This is not to understate the impact of these forces, all of which contribute to the vertiginous, hurdy-gurdy mix of exuberance and jitters at work in today's new residential construction space.
Challenges go well beyond lumber and building materials, although the supply chain disruptions serve to expose the delicacy and consequence of those challenges all at once.
- New homes that pass along an array of higher direct costs are having trouble appraising, complicating or even scotching sales when a buyer prospect can't get final mortgage approval
- Builders' access to lending capital for mid- and longer-range land development, acquisition, and construction projects is smacking up an inability to confidently pro forma their business and operational models beyond the next few months
- Local land use time, money, and design rules, density rules, zoning requirements, etc. adding up to constraint – are the local public sector's own version of an inflationary spiral.
National Association of Home Builders chief economist Robert Dietz writes, as a noteworthy characteristic of the risky weight of supply constraint this wrinkle:
Builders also reporting growing concerns about a more challenging regulatory environment that could limit land development volume.
Supply chain disconnects and self-interest, regulatory self-interest, and even supercharged global institutional investment self-interests notwithstanding, the real common denominator force underlying "the American Dream at risk" narrative comes down this: property-owner votes – 65% or so of households – outnumber all the rest.
The Atlantic's Derek Thompson, in a piece provocatively entitled, "BlackRock Is Not Ruining the U.S. Housing Market," writes:
Far worse than corporations taking a few thousand units off the market for owners are the governments and noisy NIMBYish residents taking millions of units off the market for owners and renters alike—by blocking construction projects in the past few decades. (California alone has an estimated shortage of 3 million housing units.) From New York to California, deep-blue cities and states have amassed a pitiful record of blocking housing construction and failing to meet rising demand with adequate supply. Many of the people tweeting about BlackRock are represented by city councils and state governments, or are surrounded by zoning laws and local ordinances that make home construction something between onerous and impossible.
Through law and custom, the U.S. has encouraged people to buy and cherish their houses. But by asking Americans to see their homes as precious investment vehicles, these laws activate a scarcity mindset and sow the seeds of NIMBYism: Don’t dilute my equity with new construction!
So, is the American Dream at risk because more people are priced out of homeownership right now, or because those who have already paid their way into it fear they won't get what they paid for?
Who's really the enemy here? Voters who elect local, regional, state, and national representatives of their interests?
Rather, the question – reframing the instinct to name and exact justice on a culprit as an opportunity to get out of a vicious circle of talk and little action – should be, how might we address risk for both property-owning voters, who are the majority, and those who'd like a fair shot of becoming one of them?
Or, can the equity-value creation and generation potential of renters be reframed to match that of property owners in a foreseeable future?
It will come down to listening to, talking with, and engaging in mutual beneficial value exchange with people who cast votes everywhere. Whoever masters that skill will prosper in residential real estate's future. Whoever doesn't will likely not be around for long.
Either way, the victim and villain Catch-22, actually may be the biggest threat to the stream of healthy, determined, and semi-patient demand among households for the privilege of new-homeownership.