Analysis: Experts Expect Multifamily Housing Crisis to Continue

The Vanguard has gone round and round on the issue of student housing in Davis, and recently some have suggested that we ought to be wary of building too much additional housing due to the fact that the housing market collapsed following the 2008 recession and collapse of the World’s Financial Markets.

In his recent column in the Davis Enterprise, Rich Rifkin noted that back in 2005, he wrote a column that the market which had increased by 20 percent three straight years, “was unsustainable.”

He noted that prices in Davis would peak in 2007 and then drop substantially following the recession.  He also added, “most Davis homeowners did not get crushed by the Great Recession. Our local market was not terribly overbuilt, and few buyers in Davis were foreclosed upon.”

By 2014, prices for homes had recovered and today they are back at an all-time high.

Mr. Rifkin warns, “It’s not certain that prices in Davis will suddenly and dramatically decline. It’s possible we hold steady in the next several years.”

But at the same time, he notes: “The main reasons home prices in the Sacramento region have escalated so rapidly the past three to four years are the historically low interest rates and the historically slow growth of our housing supply. We haven’t had a recovery in the last 50 years with so few new homes and apartments being built in our area.”

He concludes: “Considering the anti-growth feelings in Davis, it’s unlikely new housing starts will be the cause of our home prices falling.  But lack of affordability, rising interest rates and
Trump’s tax grab suggest that home prices in Davis are now too high, and a crash is not unthinkable.”

But the experts do not necessarily agree with Mr. Rifkin and I would argue that it is a foolish strategy to deny housing when there are clear and urgent needs in the community now.

In particular, I would warn that the cause for the housing market collapse in 2008 was not due to local factors, but rather would I would call the result of an exogenous shock, where the financial system collapsed and the previous system was delivered a crippling blow.

But even then, once the economic collapse abated, housing prices returned to their previous trajectory and for the most part, I would argue that is due to the slow growth of our housing supply – not just in Davis which has been artificially depressed due to growth control measures, but across all of northern California.

This is not just with the single-family, owner occupied housing, but has bled into the multifamily housing market as well.  Experts warn that  “There’s nothing to suggest that the region’s red-hot multifamily market will cool down any time soon.”  That is according to Tony DeLoney, quoted by Ben van der Meer of the Sacramento Business Journal.  Mr. DeLoney is the first vice president of investments with Marcus & Millichap’s local office.

The fourth quarter 2017 report notes, “The biggest reason for the market’s continued vibrancy is supply and demand” where there is not enough supply of existing and new apartments and a steady demand for places to live.

The same thing could be written for Davis as Sacramento which he notes “still ranks dead last for new multifamily development.”

The idea that somehow this crisis is going to dissipate in the near future is ludicrous.  And with the university, the demand for student housing is also unlikely to ebb any time soon.

The report notes continued upward pressure: “What new development the region is seeing is  concentrated on upper-end units. That puts upward pressure on class B and C apartment properties because they’re more affordable to both rent and, for investors, to own.”

They also cite geographic disparities: “A concentration of B and C properties is creating geographic disparities, where the year-over-year rental growth In Arden-Arcade, at ]5.2 percent, was the highest of any submarket. Partially because of new development, rents dropped by 2.2 percent since the fourth quarter of 2016 in midtown/downtown Sacramento.”

The market overall is still climbing.  “Even with numbers rising across the market for the last few years, thought DeLoney said it’s not clear “where the peak is. “Nobody has found the ceiling,” he said, adding he gets calls from across the U.S ., and even outside the country from people interested In developing multifamily projects here but unable to make the numbers work – yet.”

A lot of these factors we see at work here in Davis.  There is a number of new primarily student housing proposals, many of which have been higher density, rent by bed, larger rooms which are cheaper to build and contain lower impact fees than other units.  But the rest of the housing market is constrained by growth control laws and has been slower to develop.

If Mr. DeLoney is right however, there is not likely to be a peak any time soon.

—David M. Greenwald reporting

The Vanguard Needs to Raise $1400 to Meet Its Financial Obligations This Month



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About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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20 thoughts on “Analysis: Experts Expect Multifamily Housing Crisis to Continue”

  1. Ron

    From article:  “And with the university, the demand for student housing is also unlikely to ebb any time soon.”

    It is difficult to predict future demand for a UCD education from International students, in particular.  There are many political, financial, and other factors which can impact this.  I believe that I’ve previously posted articles showing less interest overall from International students, as well as the fact that many other universities are pursuing these same students (for the same reason – $$).

    Regarding 4-5 bedroom megadorms, these cannot be easily repurposed to suit other housing needs.

    1. Don Shor

      Actually, it’s pretty easy to predict future enrollment, since UCD has an office in China recruiting students and UCD decides how many of the applicants they accept.
      People have been telling me on the Vanguard for a decade now that we shouldn’t expect UCD enrollment to continue to grow, or that they’ll not meet their goals, or that colleges are changing and demand won’t be there. UCD has not failed to meet their enrollment goals. If the number of applicants drops, all they have to do is increase the percentage they accept. And it is a popular campus with very strong reputations in certain marketable fields. Any planning that counts on reduced UCD enrollment would be foolish to the extreme.

        1. Ron

          From the link, below:

          “The University of California has disadvantaged resident students with its recent emphasis on recruiting applicants from out of state and overseas, leading to a drop in the number of Californians enrolled at UC.”

          “The broad and blistering report also found that academic standards were lowered for thousands of nonresident admissions and that UC has not developed an actual cost of instruction to guide decisions about tuition.”

          http://www.sacbee.com/news/politics-government/capitol-alert/article68782827.html#storylink=c

      1. Ron

        Don:  “Actually, it’s pretty easy to predict future enrollment, since UCD has an office in China recruiting students and UCD decides how many of the applicants they accept.”

        Hope that you realize that this statement has no basis in reality, if/when demand drops.

        Here’s an article from the New York Times, regarding a drop in demand for a U.S. education from International students:

        https://www.nytimes.com/2017/11/13/us/fewer-foreign-students-coming-to-us.html

        1. Don Shor

          Hope that you realize that this statement has no basis in reality, if/when demand drops

          UCD decides what percentage of applicants to accept. So my statement is fully grounded in reality. But I guess I can add you to the long list of people who have been predicting otherwise for quite awhile now.
          UCD is very competitive internationally. From your citation:

          45 percent of campuses reporting drops in new international enrollment

          Meaning 55 percent didn’t.
          The stats for enrollment at UC campuses by category are available online if you choose to search for them.

        2. Ron

          Some quotes from the article, below:

          “The number of newly arriving international students declined an average 7 percent in fall 2017, with 45 percent of campuses reporting drops in new international enrollment, according to a survey of nearly 500 campuses across the country by the Institute of International Education.”

          “Experts cited an uncertain social and political climate in the United States as part of the reason for the decline in enrollment.”

          “Another reason for the decline is increasing competition from countries like Canada, Britain and Australia, said Allan E. Goodman, president of the institute.”

          https://www.nytimes.com/2017/11/13/us/fewer-foreign-students-coming-to-us.html

           

           

    2. Richard McCann

      I hadn’t thought of it for a while, but I’m one of those “out of state” student, transferring to Cal from Seattle many decades ago. And then I decided to stay and add value to the California economy. (I’ve participated in several decisions that saved the state several billion dollars.) That’s one of the reasons that many state colleges recruit out of state students–they want them to stay because they have higher economic output with their education–and much of the time the states are correct in their presumption.

      A recent report found that California will be short of college grads in the near future, so we need to increase enrollment, not decrease it. http://www.ppic.org/publication/will-california-run-out-of-college-graduates/

      1. Ron

        I suspect that most International students don’t stay in Davis (or the U.S.), after their education is complete.

        I also suspect that universities outside the U.S. will continue to improve, and will become more and more competitive.

        1. Howard P

          Why do you suspect those things?  Meant as an honest question… my experience with folk are contrary to the idea that most international students don’t stay in the US… cites would be useful…

  2. Ron

    From article:  “In particular, I would warn that the cause for the housing market collapse in 2008 was not due to local factors, but rather would I would call the result of an exogenous shock, where the financial system collapsed and the previous system was delivered a crippling blow.”

    That “exogenous shock” was directly related to systems which encouraged borrowers to take on more debt than they could afford, coupled with a response from the building industry to “build as much as they can” to meet that artificial demand, at prices that were unsustainable.  Leading to foreclosures and thousands of unoccupied houses, for years.

    The overall population has not spiked since that time.

    1. Don Shor

      Leading to foreclosures and thousands of unoccupied houses, for years.

      At one point in about 2010 I was monitoring Trulia.com and saw that there were over a thousand homes in Woodland in foreclosure, almost a thousand in Dixon, and less than 100 in Davis.

      1. Howard P

        Sounds correct… saw that from other sources, too… the main “crash” in Davis was the decrease in the increase of values/sf… or sellers desperate to sell because they had over-extended, lost work income, or were buying properties as investments, rather than as a place to live.

        There’s a “chicken little” thing going on… as long as this is where I live, I care little about purchase price in Davis… up or down… “timing the market” is a fool’s errand.  Worrying too much about it, even more so.

    2. Richard McCann

      The financial collapse was driven by financial institutions that exploited how mortgages were repackaged and transfer among those institutions. The collapse would have occurred regardless of the housing policies because regulation of financial institutions had become too lax. The financial institutions could have protected themselves, but instead they got too greedy. (I’m not sure why we should be blaming consumers for the mistakes that investors made.) We continue to leave open creation of other financial bubbles that will lead to more panics unless we enact strong regulation. Unfortunately, that doesn’t seem to be the path at the moment.

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