The Falbey Report: The Times They Are A-Changing: Part 2

Yesterday’s blog entry may have created a negative impression regarding the future for careers in real estate development. That’s incorrect.

More stringent loan underwriting standards certainly should shrink the percentage of candidates who can qualify for a loan, theoretically reducing demand for single-family residences. This is mitigated by at least two other factors.

One is the expected increase in overall population numbers. Thus, the percentage of the population that can qualify for a home mortgage will decline, but the raw numbers will grow as the size of the population increases. So, demand for housing continues.

Second, what about those who will no longer qualify for home ownership (financing) under stronger underwriting principles? Where will they live? To my knowledge, excluding moving back in with mom and dad, there are only two forms of tenure – ownership or renting. As a consequence of the decline in the percentage of the population who could qualify to purchase a single-family home, there should be a corresponding increase in demand for multifamily rental housing.

I’m not suggesting that those who can qualify should load up on single-family housing as rental properties. The economies of scale – mortgage payments, taxes, insurance, maintenance, management, etc. – make competing on price with multifamily projects difficult at best. And, in moving forward from the Great Recession, price will be paramount in decision-making.

At worst, it means a change in lifestyle for many people who aspire to own their own home, as that event will be pushed off into the future when they may be able to qualify for the necessary financing. At best, however, it’s a win-win situation all the way around:

· The industry will continue to create product in response to demand;

· This, in turn, will generate employment and career opportunities;

· People will have places to reside;

· Investors and lenders will have markets in which to operate;

· The continued expansion of the shelter market and employment will generate demand for additional commercial projects.

There are no coincidences!

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