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Vinyl360 Looks at the State of the Housing Sector

Nov 2016

The three top challenges in the housing sector are liquidity, labor shortages, and regulation, according to Ken Gear, executive director, Leading Builders of America.

At the Vinyl360 conference, Gear said that the recession was “traumatic” for the housing industry. While home prices are rising and much of the $7 trillion in equity lost during that period has come back, historical low levels of construction are indicative of a housing industry lagging behind the rest of the economy.

Gear specifically cited:

  • constricted lending—that the marketplace is very frayed and potential homeowners are having a lot of trouble getting a mortgage. In addition, Gear noted the need for lawmakers to address the problem of Fannie Mae and Freddie Mac, which are going to run out of money if nothing is done.
  • labor market shortages—notably the difficulty in finding enough masons, framers, plumbers, and other skilled workers. Gear noted that the average plumber in Texas is 57 years of age. In addition, he talked about the serious devaluation of vocational education as a roadblock to a skilled labor force.
  • regulation—and the explosion in regulations over the last 5-10 years.

Regulation is crippling the housing industry.

Gear said that an activist Environmental Protection Agency, coupled with new labor and occupational safety and health rules, is making it virtually impossible to build affordable housing.

As an example, Gear talked about the cost of regulations in California, which he said in many communities averages between $100,000-150,000 before you can even start construction. He pointed to storm water compliance (which requires builders to make sure that dirt from rain during construction doesn’t end up in rivers and streams), which costs $5,000-7,000 per home; also to energy code compliance, which he said averages between $2,500-8,000 per home. He added that many jurisdictions now mandate fire sprinkler systems in single family homes.

New housing trends for millennials, minorities, and multigenerational housing.

Gear also talked about three emerging trends that will impact the housing market. He said that millennials are starting to look at home buying, and that their search for a combination of affordability and convenience is going to drive more urban living in the suburbs. Gear pointed to U.S. demographic shifts, and said that Asian and Hispanic communities are largely going to dominate housing and home ownership within a decade. Finally, he said that the housing market is already starting to see demand for multi-generation housing, especially in the South and in Southwestern states.

Lifestyle renters are on the increase.

Doug Bibby, president, National Multifamily Housing Council, also spoke at Vinyl360. He said that growth in apartment living is going to come primarily from older Americans (i.e., people over age 65). Bibby also talked about the growth in “lifestyle renters”—high-income earners who are choosing to live in multifamily settings rather than standalone homes. Finally, Bibby also warned about the lack of affordable housing as building costs have forced developers to shift to the high end of the marketplace. “We need 300,000-400,000 homes just to meet demand,” he said, “and affordable units are going out of the market.” Bibby said that, to be a part of the solution, the industry has to play a role in rehabilitating the housing stock to ensure price points for all spectrums of renters.

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