Future of Housing Trends and the Housing Market Demographic Waves in the Region and Future of Housing Illinois Finance Forum January 25, 2019
Millions OUR STATE S POPULATION 2000-2017 13.0 12.4 M 12.9 M 12.8 M 12.9 12.8 12.7 12.6 12.5 12.4 12.3 Percent change in population by county Increase Decrease Stable* 12.2 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: U.S. Census; Esri; SB Friedman 2
OUR STATE S POPULATION GROWTH FOCUSED IN FEW METROS 2000-2017 Metro (Illinois counties only) 2000 Population 2017 Population 2000-2017 Population Change CHAMPAIGN-URBANA 210,623 239,124 28,501 14% BLOOMINGTON 167,644 188,232 20,588 12% KANKAKEE 103,842 109,605 5,763 6% ROCKFORD 321,033 338,291 17,258 5% CHICAGO 8,286,664 8,662,898 376,234 5% CARBONDALE-MARION 120,912 125,612 4,700 4% SPRINGFIELD 201,628 208,697 7,069 4% ST. LOUIS 672,354 688,786 16,432 2% PEORIA 366,659 372,427 5,768 2% QUAD CITIES 217,149 209,754-7,395-3% DANVILLE 83,821 77,909-5,912-7% DECATUR 114,499 105,801-8,698-8% CAPE GIRARDEAU 9,684 6,315-3,369-35% Percent change in population by county Increase Decrease Stable* Source: U.S. Census; Esri; SB Friedman 3
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Millions OUR REGION GREW PRIMARILY IN COLLAR COUNTIES 2000-2017 +48,038 +55,370 8.16 M 8.53 M 8.51 M 8.6 8.5 +126,820 23,844-162,155 8.4 8.3 8.2 +70,907 8.1 8.0 +185,032 7.9 Source: U.S. Census; CMAP; Esri; SB Friedman 4
DISTRIBUTION OF GROWTH 2000-2010 2010-2017* Growth occurred at the periphery and the core of the region Driven by single family development Growth occurred at the core of the region, including neighborhoods within the City Driven by multifamily development Change in proportion of regional population by census tract Increase Decrease Stable** Source: U.S. Census; CMAP; Esri; SB Friedman 5
RESIDENTIAL BUILDING PERMITS IN CHICAGO REGION 19,649 11,311 4,788 6,376 30,000 25,000 20,000 15,000 10,000 5,000 0 2000 2001 2002 2003 200 4 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Single Family Muti-Family Source: U.S. Census 6
NET NEW HOUSING PRODUCT DEVELOPED SINCE 2000 Net New Housing Units: 2000-2017 PERIOD: 2000-2010 1-Unit Detached 2-19 Unit 1-Unit Attached 20-49 Unit 50+ Unit 160,000 29,000 61,000-7,000 42,000 2010-2017 Source: U.S. Census; SB Friedman 44,000-13,000-13,000-1,400 19,000 7
RESALES OF EXISTING HOMES IN CHICAGO REGION Home price recovery and shortening market time signals strengthening for-sale market ANNUAL MEDIAN PRICES Single Family Detached, Attached and Condo: 254K 160K 235K $300,000 $250,000 100 $200,000 $150,000 46 $100,000 $50,000 $0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Illinois Realtors 8
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 HOME PRICES IN CHICAGO REGION Case-Schiller Index of Repeat Sales mimics resale trends 180 167 111 142 160 140 120 100 80 60 40 20 0 S&P/Case-Shiller IL-Chicago Home Price Index, Index Jan 2000=100, Monthly, Seasonally Adjusted 9
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 REGIONAL APARTMENT DELIVERIES Post-recession apartment construction heaviest within the City of Chicago and near transit 72% 76% WITHIN THE CITY OF CHICAGO WITHIN A HALF MILE OF CTA OR METRA STATIONS 1,976 4,699 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Source: Costar 10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 NEW CONSTRUCTION APARTMENT RENTS AND VACANCIES Slowing rent growth and increasing vacancies reflect a softening of a booming rental market $3.00 $2.50 $2.00 Monthly Apartment Rent/SF of Units Built Since 2000 Apartment Vacancy of Units Built Since 2000 7.6% 11.7% $1.50 $1.00 CAGR: 6.3% CAGR: 1.6% $0.50 2010 2018 $0.00 Source: Costar 11
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 DEMOGRAPHIC WAVES BY AGE OF HOUSEHOLDER (CHICAGO REGION) 1,400,000 1,300,000 1,200,000 1,100,000 1,000,000 37,542 59,604 35-54 55-74 900,000 800,000 700,000 600,000 500,000 400,000 300,000 4,750 159,820 <35 75+ 200,000 100,000 <35 35-54 55-74 75+ Source: Woods and Poole, US Census and SB Friedman 12
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 DEMOGRAPHIC WAVES & HOUSING CHOICE 1,400,000 1,300,000 1,200,000 37,542 57% 8% 34% 35-54 1,100,000 1,000,000 59,604 61% 8% 30% 55-74 900,000 800,000 700,000 600,000 4,750 26% 7% 66% <35 500,000 400,000 159,820 52% 8% 39% 75+ 300,000 200,000 100,000 Single-Family Detached Single-Family Attached Multifamily Other <35 35-54 55-74 75+ Source: Woods and Poole, US Census and SB Friedman 13
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 HOMEOWNERSHIP RATE AND ITS IMPACT ON HOUSING DEMAND 70% 69% 68% 67% 66% 65% 64% Chicago Region Homeownership Rate Driven by: Mortgage rates Lending criteria/mortgage availability Economic growth Demographic shifts and preferences by generation/lifestyle 63% 62% 61% 60% 59% Will homeownership rate tick upward or stabilize? A 1% increase in homeownership with modest household growth means an additional 35,000 owner-occupied households Source: US Census and SB Friedman 14
HOMEOWERNSHIP RATE BY AGE Chicago Region Homeownership Rate by Age 80% 80% 77% 77% 75% 70% 76% 77% 77% 73% 71% 59% 50% 70% 64% For overall rates to rise, 2017 homeownership rates by age need to increase Greatest potential for increase in overall homeownership rate is to have Millennials buy homes as they squarely enter family age group in the next five years 37% 20% 13% 15-24 25-34 35-44 45-54 55-59 60-64 65-74 75-84 85+ 2005 2017 Source: US Census and SB Friedman 15
HOMEOWERNSHIP RATE BY AGE Chicago Region Homeownership Rate by Age 65% 59% 50% 80% 80% 77% 77% 75% 70% 76% 77% 77% 73% 71% 70% 64% Nationally, Millennial homeownership rate has been lower than that of prior generations at same age group (25-34) National Homeownership at age 25-34 45.40% 45% 37% 44% 37% Millennials Gen Xers Baby Boomers 20% 13% 15-24 25-34 35-44 45-54 55-59 60-64 65-74 75-84 85+ 2005 2017 2025 Source: US Census and SB Friedman 16
WILL MILLENNIAL S START OWNING IN GREATER NUMBERS? Millennial Debt Millennial Life Stage in Transition 17
IMPLICATIONS FOR FUTURE HOUSING DEMAND Increasing single-family and townhouse home demand Sized and priced to be starter homes for Millennial's Vary product to be attractive to other generations Increasing senior housing demand The majority of seniors will likely choose to age in place But many will want to downsize into maintenance free living of various products: condominium, apartments, townhomes, single family New paradigms for housing: age restricted vs. for all ages Apartment boom likely to temper rather than crash Contingent on how homeownership rates and Millennial housing preferences evolve A possible condominium comeback Market will likely be smaller than pre-recession high Contingent on construction lending criteria Recent development mostly in City but larger developments in suburbs are including condo as a possible future use 18
HOUSING DEMAND NOT JUST ABOUT PRODUCT, PLACE MATTERS Houses with small yards and easy to walk to the places you need to go 2015 2016 2017 54% 53% 49% 53% 42% 46% 47% Houses with large yards and you have to drive to the places where you need to go. Source: National Association of Realtors, National Community and Transportation Preferences Survey, 2017 19
WALKABILITY VS. PRODUCT TYPE Millennials and Silent/Greatest Generation prefer walkable community and short commute even if it means living in an apartment or townhouse Own or rent an apartment or townhouse and you have an easy walk to shops and restaurants and have a shorter commute to work. Silent Boomer Gen X Millennial 55% 45% 45% 62% 38% 45% 55% 55% Own or rent a detached, single-family house and you have to drive to shops and restaurants and have a longer commute to work. Source: National Association of Realtors, National Community and Transportation Preferences Survey, 2017 20
WHAT CITY PLANNERS AND MANAGERS CAN EXPECT AND DO Continued rental apartment development requests in the next 3-5 years in downtowns, near train stations or highway accessible locations An increasing pace of for-sale housing (townhomes and single-family) development but lower than prerecession highs An increasing importance of walkability makes downtown adjacent or transit adjacent locations more important Rethink conventional subdivisions to be responsive to demand: Plan for and require corner stores, community centers and parks to be walkable and easily accessible from majority of homes Allowing for diversity of housing product within a single subdivision to appeal to a wider buyer pool 21
THE FISCAL PERSPECTIVE Retail continues to be the fiscal winner from a municipal finance perspective On a per acre basis apartments and mixed-use typically outperform townhomes and lower density development 22
FISCAL STRESS FROM INFRASTRUCTURE EXTENSIONS Service Capacity at Infill vs. Greenfield Locations Prioritizing infill areas with infrastructure capacity is fiscally prudent Greenfield development often requires extension of infrastructure and expansion of municipal service areas Need to consider the fiscal stress from associated long-term maintenance and capital costs 23
BEING RESPONSIVE TO DEMAND AND FISCAL HEALTH Smart Growth is Fiscally Smart Smart growth, characterized by compact, walkable places with a mix of uses, is more responsive to market demand and is also fiscally beneficial Smart growth vs. conventional development Requires less new infrastructure for the same amount of development Generates 10 times more tax revenue per acre than conventional suburban development Saves an average of 10% in ongoing municipal operations costs 24