Episode Summary

  1. Our housing shortage is magnified by supply chain issues and builders unable to grow their teams. Restrictive zoning is another barrier to supply that essentially blocks more efficient and dense constructions.
  2. Home prices continue to increase. After a record pace in 2021 that continues in 2022 as the inventory of homes slid to the lowest level on record (see above)
  3. If you are considering taking on a real estate project, despite of, or perhaps because of the previous two points consider the following: define your primary motivation, understand your tolerance for debt, measure your willingness to manage property, and understand the type of development you'd like to take on.

More data on the U.S. housing shortage (3 min read)

Home-Price growth accelerated in January (WSJ paywall possible, 2 min read)

A draft version of "Developer-in-a-Box", a starter kit for small scale real estate projects (37 page pdf)

A list of teams accomplishing amazing things in a short amount of time.

Episode Transcript

Short, Fast, Box

This is patterns of development.

Hey everyone. I’m Kyle Gulau and on this show, patterns of development, we take less than 10 minutes each week to deconstruct what's going on in real estate, architecture, and urban planing.

There is a housing shortage. An article from NPR this week by Chris Arnold discusses with a builder outside of Boston the challenges he's facing. This includes supply chain issues (6-12 month wait for basic materials and appliances, and a tough labor market making it difficult to attract workers back after the pandemic shut down.

The builder, Emerson Claus, references wanting to build missing middle housing (townhomes, duplexes) because they're more efficient to build and can be more affordable for people but zoning rules typically don't let you buy land and divide it up. This leads to his primary work being "knockdowns" - where you demolish an existing structure to create a new one - for wealthier folks.

Which of course doesn't increase supply it keeps it even. So builders move to support the wealthier clients who prefer detached single family homes which doesn't increase the housing stock at a rate fast enough to improve supply. This also means that builders are gaining more experience with green field development and construction rather than with restoration and remodel work. The cycle then repeats itself because if you can't find anyone to remodel a building...what do you do? You knock it down.

This supply issue naturally impacts price as home-price growth accelerated in January. The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 19.2% in the year that ended in January, compared with an 18.9% annual gain the prior month.

According to the National Association of Realtors the inventory of homes for sale slid to it's lowest level on record since 1999 when it began tracking inventory.

The combination of rising home prices, decreased supply, and talk/action from the FED to increase interest rates are making homeownership unaffordable for new buyers that have yet to accoumulate significant wealth.

But there's connective tissue here to last weeks episode. I shared the story of 4 development projects across the country and noted that construction projects are taking longer.

I was talking to a developer last week and he was talking about a developer that got started doing 20-40 unit projects out of the back of his truck back in the late 70s early 80s. It was just him. 1 man developer team that worked with subs. Eventually his son joined the game and the team grew as they were getting more and more units under management.

He asked me, "Could you imagine trying to do a 20 unit project in a year. Alone?"  I told him I've trying to do a 4 unit alone and it's taking at least 2 years...

Which leads us to the blog of Patrick Collison. He is the co-founder and CEO of Stripe. Stripe is a payment processing platform for internet businesses. If you've bought stuff on the internet your credit card data has likely moved through Stripe's network.

On Patrick's Blog is a page called "fast". It's a list of examples of people quickly accomplishing ambitious things together.

For example: The Eiffel Tower was built in 2 years and 2 months. The p-80 shooting star, the first US jet fighter was designed and delivered in 143 days. Disneyland was built in 366 days. The Empire State Building 410 days. The pentagon? The largest office building in the world. 491 days. More recently, and impressively, the COVID-19 vaccine was sequenced, produced, trialed, approved, and shipped in 266 days.

So why can't we build anything anymore? How did an activity that used to be so generalized. Build housing. Become so specialized, so complicated, that it requires more and more man hours and more and more calendar days? That's a whole other episode. I'll save that one for a bonus episode in the future.

Also saving the Eiffel Tower trivia. That's a fun conversation starter how long do you think it took...

Anyway.

The box this week? "Developer in a box" is a small start up kit I stumbled across by my friends at Inc Dev and Lean Urbanism. I was lucky enough to meet with a group of small developers in my community this past week and a lot of questions are answered in this kit (even though it is still in draft form).

Which leads us to our patterns of the week

  1. Our housing shortage is magnified by supply chain issues and builders unable to grow their teams. Restrictive zoning is another barrier to supply that essentially blocks more efficient and dense constructions.
  2. Home prices continue to increase. After a record pace in 2021 that continues in 2022 as the inventory of homes slid to the lowest level on record (see above)
  3. If you are considering taking on a real estate project, despite of, or perhaps because of the previous two points consider the following: define your primary motivation, understand your tolerance for debt, measure your willingness to manage property, and understand the type of development you'd like to take on.

That's all for this week and I'll talk to you soon.