Housing Affordability Worsens During Pandemic

Housing affordability has worsened during the COVID-19 pandemic as rents and home prices barely experienced a pause during the brief recession and then quickly accelerated as the economy reopened after lockdowns in 2020. In addition, costs of rental and for-sale housing are rising much faster in secondary and tertiary markets as people fleeing the more expensive gateway markets bid up residential prices in the smaller destination markets.

While housing production is falling short of the nation’s new household formations, affordability will likely continue to deteriorate in the absence of significant private-sector and government intervention, according to the “Emerging Trends in Real Estate 2022” report from PwC US and the Urban Land Institute.

Affordability is just one trend highlighted in the report, which includes proprietary data and insights from nearly 1,700 leading real estate experts.

“There is clearly an optimism within the real estate industry for its prospects in 2022, and there is undeniably a weight of capital available for investment,” said Anita Kramer, senior vice president of ULI’s Center for Real Estate Economics and Capital Markets. “Yet the ground is shifting, and we are seeing long-term and lasting changes in a range of key areas, including the relative prospects for property sectors and locations, the extent to which we use various property types, and our attitudes toward the industry’s role in climate risk and decarbonization. Emerging from this is the opportunity to lay the foundation for a new vision for our communities, one in which we repurpose obsolete buildings, reduce carbon emissions, and create more affordable housing.”

The pandemic accelerated some trends that already had been occurring, most notably a shift from the large gateway markets to smaller ones in the Sun Belt. Sun Belt cities account for eight of the Top 10 real estate prospects for 2022, showing strong growth, home building outlook, affordability, and job prospects. According to the report, their ratings are close, with only one-tenth of a percentage point separating the top- and fifth-ranked markets, suggesting a clear investor preference. The Top 10 prospects include:

  1. Nashville, Tennessee
  2. Raleigh/Durham, North Carolina
  3. Phoenix
  4. Austin, Texas
  5. Tampa/St. Petersburg, Florida
  6. Charlotte, North Carolina
  7. Dallas/Fort Worth
  8. Atlanta
  9. Seattle
  10. Boston

On the multifamily side, the report finds a consensus of industry leaders gravitating with tempered optimism toward five common denominators that are carryovers from pre-pandemic trends to the post-pandemic decade ahead. These include:

High tech: Technology advances, which have accelerated and will continue, from modular and factory-based design speeding vertical assembly to proptech solutions aiding property management demands and improving net operating income.

Design tweaks: With more time at home, flex space design and greater square footage floor plans are increasingly desired as well as outdoor living and recreation space.

Multigenerational living: Mixed-age communities are reflecting the convergence of working adults who are renting for financial reasons and rent-by-choice households who are near or post-retirement age.

New is not for everyone: The costs of new development in the multifamily sector have pushed the majority of working-adult households to primarily older Class B, C, and D properties.

Missing middle: Housing for low- to middle-income households as well as denser low- to midrise multifamily buildings to serve this population remain an elusive challenge but could be a rewarding solution.

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