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Process of US housing turnover
Old 11-20-2014, 04:20 PM   #1
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Process of US housing turnover

I am trying to understand the nuts and bolts of how new housing is created in the US. Not because I am on a philosophy jag, but because I am a timber investor and it seems to me that in the domestic market at least, a big purpose of growing softwood trees is to build new houses.

I don't know very much about postwar, pre 2008 housing markets, except that the main idea seemed to be to go out beyond the city blight and turn some farms into nice new housing developments. Over time downtown retail gradually gave way to suburban mall and big box retail, and now also online retail. New schools were built without many of the legacy problems of the cities, and suburban office parks even displaced much downtown office space, except in a few favored special cities. Seemed to work great, until the millenials threw a wrench into the works with some new ideas about how they wanted to live. Instead of marrying in their early twenties and setting about having babies, many are now marrying later (women average 27, men 29), delaying or forgoing childbearing and frequently not showing much desire to pack up and leave the convenience and stimulation of city living.

Where I live I am surrounded by multifamily new construction, and some infill single family and townhome construction. The zoning is complex, but true high rises are being kept in areas that were home to commercial, auto dealer, etc uses. Still, on a per dwelling basis, all of this multifamily uses more steel and concrete, and less wood than single family or townhome construction.

Teardowns and infill building are a common and high cost way to build in expensive city locations, where one or a few bungalows can be torn down and replaced with 4-5 story multi, or even nice townhomes. But the ground is very expensive, and even construction lacks the scale that suburban greenfield construction gets.

Old suburbs? Often older suburbs become crime and dope ridden messes, without the expertise of big city police departments, and often burdened by taxes that a jump to new farther out sites can lose. Still, I am personally acquainted with some pre WW2 "street car suburbs" that are still flourishing and are still very expensive with schools that are high quality by most American standards. Usually these suburbs were very expensive from the get go, or are located across some political barrier from the heavy duty crime and blight of fully urban northern industrial cities. On a recent trip my sister and I visited the house that I was born into, and the one where moved when she was born. They are both 1920s houses, and both still in good repair and in high quality suburban neighborhoods.

So what happens? In my mind the 2 drivers of moving away from cities are violence, and poor schools, and the interaction of these two things. Many of the school mass killings are in suburban "good neighborhoods", but day in and day out city schools are a real challenge for the teachers, and most of all for the students who have some residual hope of learning something.

Certainly here in the Seattle area, and on the San Francisco peninsula, population growth and relatively cheap cars and gasoline and tricky geography have pushed development about as far away from city center as it can go and still attract somewhat sane home buyers. It seems that the US cannot confront city crime very well, or powerful forces for the status quo in schools.

It seems like a standoff, and a resolution if one is even possible should be very interesting.

Ha
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Old 11-20-2014, 05:30 PM   #2
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So what happens? In my mind the 2 drivers of moving away from cities are violence, and poor schools, and the interaction of these two things...
That is what the term "Location, location, location" in real estate refers to. Living in a place that is surrounded by decent people. It has little or nothing to do with the physical proximity of a property.

While more suburbs will be created, developers have discovered that they can create their own great locations by re-positioning the neighborhood. Get rid of blight, and build a higher income property. Buy low, sell high.

The upcoming demographics of the population is more of a renter group, not homeowner group. If past trends are any indication, they are more of an apartment/public housing people, not a home ownership type of person. Lower income, not higher income. Higher density per bedroom, rather than lower density.

So, upcoming housing construction will be more high density housing. Probably more metal and concrete commercial construction techniques to prevent fires. Less retail buildings as internet sales surpass traditional brick and mortar stores.

Of course, I could be wrong...
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Old 11-20-2014, 06:18 PM   #3
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That is what the term "Location, location, location" in real estate refers to. Living in a place that is surrounded by decent people. It has little or nothing to do with the physical proximity of a property.

While more suburbs will be created, developers have discovered that they can create their own great locations by re-positioning the neighborhood. Get rid of blight, and build a higher income property. Buy low, sell high.

The upcoming demographics of the population is more of a renter group, not homeowner group. If past trends are any indication, they are more of an apartment/public housing people, not a home ownership type of person. Lower income, not higher income. Higher density per bedroom, rather than lower density.

So, upcoming housing construction will be more high density housing. Probably more metal and concrete commercial construction techniques to prevent fires. Less retail buildings as internet sales surpass traditional brick and mortar stores.

Of course, I could be wrong...
Thanks for your comments. Re: apartment/public housing groups, at least where I live these are very distinct. New construction around me rents a ~450-550 sqft studio for $1500-1900. I don't know how section 8 works, but it seems that this must be pretty steep even for our communist city government to pay. But there are 2 places left on my street within 3 blocks which have the marks of Section 8. Will the housing authority keep paying no matter how high the rents go? How exactly does "gentrification" cause neighborhood turnover? To the best of my knowledge there are no projects within say 3/4 mile. One post ww2 famous SFH public housing project is scheduled for demolition and replacement with mixed market rate and low income units in high rise developments. It is hard for me to imagine who would want to buy a market rate unit in these, but I am looking forward to finding out. It is easy walk to Seattle CBD, and beautiful views of the sound and Olympic mountains.

New market rate central city units are expensive. Tenants are mostly well paid young people, and single or coupled older adults. I think average programmer starting salaries are in $80,000 to $90,000 category, and they get pretty frequent raises if doing well with big software concerns. IT in banks and stuff usually earn less, but these are all well paid workers. There is a lot of noise around about not displacing people from their neighborhoods. But I don't know how many people want to pay enormous rents to live where gunfire over drug dealing gone bad while not exactly frequent is not rare either. It seems to me to be an unspoken assumption among people who buy into these neighborhoods is that it will improve over time. I believe one reason why South Lake Union and Paul Allen's developments down there took off so well is that this had always been a waste land of small industrial with few residents. So no one to displace. But compared to most of Seattle, it is flat and down in a basically unattractive hole.

In excellent neighborhoods with important amenities, a single family bungalow may be razed and replaced by $1.2 million to $4 million much larger and modern looking SFHs. I walk in one of these neighborhoods, and the buyers that I see are young. Not 20s, but 30s and 40s.

Re lumber markets, maybe rehabs and remodels will have to take up some slack if SFH housing starts remain lackluster, or maybe dimensional lumber will not do as well as it has historically.

Because of earthquakes, frame houses and buildings have been preferred where they are possible. Unreinforced masonry a big no-no.

Ha
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Old 11-20-2014, 09:55 PM   #4
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If you invest in timber, knowing the various markets that wood fiber is key to, and the volume that is spent in each might shed some light on where to put the money. Packaging burns a bunch of it, and is likely to increase faster than housing construction, but is also impaired by recycling. Paperless offices never did arrive in a big way.

As far as housing, detached single family expends more board feet per building square foot than attached multifamily, and total square footages are generally greater than in city housing, largely due to land values. If I were looking for companies that supply housing construction, I would lean toward value adders in terms of engineered lumber and panels. That product group is used more and more, particularly in tall, dense buildings, but also in singles.

A far as millennials, they may rent, but somebody owns those buildings, and they are part of the housing stock regardless who lives there. My guess is when they have kids, single family neighborhoods will look attractive. I think if wages go up, household formation will increase accordingly, if not...

Edward Glaeser [harvard] has studied urban economics and written some books about how and why cities grow or fail, they may be worth a look.

Large topic.
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Old 11-21-2014, 05:52 AM   #5
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How timber is used in the USA (from howstuffworks.com).
- Fuelwood: 7 percent
- Lumber: 53 percent
- Pulp and paper products: 32 percent
- Wood-based composites, such as plywood and veneer: 7 percent

In our suburban area there is still building out as most people do flee the city for larger properties, better schools, and Costco. There are still plenty of uses for timber. We used some lumber to resurface a large deck, for example. When the roof is redone there will be use for wood-based Fibre board. The majority of our consumption is pulp and paper products. Large bags of a cellulose product were used to insulate the attic. Boxes are used weekly to ship products to us. There are mounds of mulch from a variety of trees. And plenty of magazines and ads come through the mail. We recycle a great amount of the mail.

Timber is renewable, and you can hug a tree on the Olympic Peninsula. Or you could run off the road trying to avoid a lumber trailer.

I worked for 5 years or so in pulp and paper, and became very familiar with the manufacturing process of home paper products, which are indispensable. Try to get through a day without using tissue, for example.

It's probably true that in the cities there is a lot of downward pressure on the use of wood, but some uses will be with us for a long time.
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Old 11-21-2014, 06:02 AM   #6
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I would imagine that the increase in internet shopping, with the concomitant increase in the need for packaging, would boost the pulp and paper products sector. International Paper (IP) and MeadWestvaco (MWV) probably would be beneficiaries of this trend.
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Old 11-21-2014, 10:10 PM   #7
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"How exactly does "gentrification" cause neighborhood turnover? "

Some ballsy pioneer or two buys up real estate that is cheap due to relative undesirability. Artists often are the first crew in, as they need studio space but have little money. Ironically they often get booted during gentrification when they lease. Others trickle in, because following artists is following energy and creativity, and shows pluck. Meanwhile general prices are rising due to increased attention to the area, and immigrants continue to flow in. Soon, longtime residents are receiving offers beyond what they ever imagined, and accept them.


" I believe one reason why South Lake Union and Paul Allen's developments down there took off so well is that this had always been a waste land of small industrial with few residents."

The seattle commons park proposal was put to a vote and defeated in 1992 and again in '96, so the brash attempt by P. Allen to get partial financing from public funding was dashed. Undeterred, his real estate arm, Vulcan, proceeded to assemble property until he had enough acreage [60 by 2004] to mount a large development project. What was needed most to pencil out was taller buildings than were permitted under existing zoning. The city began to study zoning changes in 2008, and by april 2013, the city council voted to approve 24 story towers where the historical post ww2 buildings had been 2 stories.
Vulcan is a very capable organization, and capitalized like nobody's business. Allen had a vision, which he intended to fulfill. Zoning was crucial to make any economic sense of the dream, but he got it done.

The South Lake Union neighborhood is an extreme case of redevelopment. Another extreme is the False Creek area in Vancouver, the site of Expo 87. After expo was demolished, the site need a new job, so land purchase was negotiated between the province and a very flush Hong Kong developer for a price that raised eyebrows due to it's relative small size. The crux were the public amenities that the developer was charged with providing in exchange for the favorable price. The effort has made Van the envy of west coast city watchers.

SLU and False Creek are more like organ transplants than than the measured strife of normal gentrification, and likely neither used enough wood to get excited about.
Once you get above 4-5 stories, wood is no longer the structural frame.
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Old 11-23-2014, 10:53 AM   #8
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Re lumber markets, maybe rehabs and remodels will have to take up some slack if SFH housing starts remain lackluster, or maybe dimensional lumber will not do as well as it has historically.

Because of earthquakes, frame houses and buildings have been preferred where they are possible. Unreinforced masonry a big no-no.

Ha

I see a massive amount of high density development in my neighborhood - also in Seattle - and based on my observation, a lot of lumber is used in these projects. These are buildings that are zoned for 65'-80' neighborhood commercial development. This means retail on the ground floor with residential units on floors 2-5. The construction of the building is concrete below grade and on the ground floor with the upper floors constructed with lumber. Per sqft, I have to think more lumber is used than in a SFH.

This might not be the case in a 10+ story building (is it all concrete?), but I believe that type of development is confined to only certain neighborhoods in Seattle, such as south lake union and downtown. Smaller, non-SFH developments still use a lot of lumber. Plus, once you leave the urban cores you see town homes that are packed onto former 5-10k sqft lots, which also use a lot of lumber.

What would be interesting to know is the per person usage of lumber in housing. If you have a family of four in a new home in suburbia, then that family of four probably has more lumber in their home than the equivalent family of four in the city. The difference is that your single or family of two probably doesn't live in one of those new homes in suburbia and instead live in a more urban area. They'll be using less lumber per household, but there's a lot more of them in the city, so I think that could easily make up the difference in per person lumber usage.
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Old 11-23-2014, 01:49 PM   #9
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I see a massive amount of high density development in my neighborhood - also in Seattle - and based on my observation, a lot of lumber is used in these projects. These are buildings that are zoned for 65'-80' neighborhood commercial development. This means retail on the ground floor with residential units on floors 2-5. The construction of the building is concrete below grade and on the ground floor with the upper floors constructed with lumber. Per sqft, I have to think more lumber is used than in a SFH.

This might not be the case in a 10+ story building (is it all concrete?), but I believe that type of development is confined to only certain neighborhoods in Seattle, such as south lake union and downtown. Smaller, non-SFH developments still use a lot of lumber. Plus, once you leave the urban cores you see town homes that are packed onto former 5-10k sqft lots, which also use a lot of lumber.

What would be interesting to know is the per person usage of lumber in housing. If you have a family of four in a new home in suburbia, then that family of four probably has more lumber in their home than the equivalent family of four in the city. The difference is that your single or family of two probably doesn't live in one of those new homes in suburbia and instead live in a more urban area. They'll be using less lumber per household, but there's a lot more of them in the city, so I think that could easily make up the difference in per person lumber usage.
I found something called five-storey wood frame construction model ordinance by King County. It seems that this is an expansion of the previous 4 storey limit for wood frame multi in Seattle and Kind County. I can't really understand much of the language. When I look around I see what are likely these buildings that have recently been constructed just west of me. But I was living in amore SFH residential are on North Capitol Hill at that time, also I didn't see these buildings going up. Farther west on First Hill, and on Pike-Pine and what was formerly known as Auto-Row there are taller, true high rises going up. These start with a very big hole in the ground, and steel framework and concrete from way down there tall the way to the ultimate height of the building. These are built to a very different standard, and are IMO very high quality buildings, and are as expensive as might be expected. The newer ones seem to be built just as a downtown high rise office building, though there are some older ones of fewer than ?16 storeys that seem to be more like rebar reinforced poured concrete. Height guess is by looking at the elevator, not from any knowledge of the relevant codes.

On certain urban corners, even as far east as 23rd and Union, there is true steel frame high rise construction going on. Street level retail, and apartments above, as you mention.

My interest is not in wood products per se, and even less so in paper. It is in tree growing, but one still needs to understand the ultimate markets. I owned Longview Fiber for many years, and attended every annual meeting, toured the pulping and paper-making plant, and had lunch in their cafeteria. At one time I considered retiring to Longview. Great old company, which now after some trading around the tree farms have likely found permanent ownership right here in Seattle, with Weyerhaeuser. (Soon to be just down the hill in Pioneer Square.. What a strange thought that is!) Don't know who operates the paper making plant in Longview now.

Ha
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Old 11-23-2014, 04:04 PM   #10
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Here's a picture of a development in the heart of West Seattle:
Touring the Junction/Triangle ‘walkshed’: Proliferation of plans

Not the best picture, but you get the idea of what's being constructed. This is a lot zoned as NC65 and is common for all of the larger developments here. I also noticed the same style construction in Queen Anne/Ballard, so it appears to be quite common throughout the city.

Here's another one that is going to be the Whole Foods in West Seattle:
West Seattle development: Permit issued for The Whittaker

I point this one out because it looks like a high quality building, but a lot of that can be the facing that they apply to the building. Underneath it's just wood. But this one might be an exception, since it is zoned for NC85 and I'm not sure what the height limits are for wood frame construction.

Of course, this is all a small sample set to determine how much lumber is actually being harvested and used for construction. I just wanted to point out that even though you see a lot of urban core development, a lot of this development still uses lumber. This may or may not be true outside of Seattle (even though I expect it's the case in the PNW and possibly a good part of the Western US). As long as developers can use lumber to build with, then they'll do it because it is going to be cheaper than a comparable steel frame construction.
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Old 11-23-2014, 06:14 PM   #11
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Under a revision to the California Building Code to 'bring it into international compliance'*, we are now getting stick-built residential and mixed use Type 3 construction up to 5 stories. Especially lucky neighborhoods are getting these built atop 1 or 2 story concrete 'pedestals'.

These are being built as high end condos in San Francisco. Nothing can go wrong with that plan, eh? The structures rely on active sprinkler systems and similar measures for fire safety. These would never fail in an earthquake, which never happens here anyway.

It is possible to build a five story or taller stick-built structure with 2x4s, proper connectors, and reasonable care. It takes some attention to detail. Having that structure survive an earthquake and subsequent fires is a bit harder, and requires proper fireproofing including sheathing materials, as well as urban infrastructure that minimizes the chance of a loss of water supply, and provides street access adequate for firefighting equipment.

I figure that as these get built up and burn down, there will be an increased demand for forestry products. That's one form of housing turnover...

* Goodie! Just like Bangladesh and Pakistan!
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Old 11-23-2014, 06:31 PM   #12
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Buildings need to flex in an earthquake so 4/5 story wood frame, properly anchored to the foundation, is in many ways better than reinforced concrete and certainty better than masonry. Personally I like light gauge steel framing but it hasn't caught on.

I see a lot of plywood being used instead of particle board for underlayment in Portland.

There are neighborhoods in Portland where developers are buying an old house on a large lot, subdividing and building 2 wood frame houses. In the PNW almost all single family dwellings are wood frame.
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Old 11-24-2014, 07:19 AM   #13
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My interest is not in wood products per se, and even less so in paper. It is in tree growing, but one still needs to understand the ultimate markets. I owned Longview Fiber for many years, and attended every annual meeting, toured the pulping and paper-making plant, and had lunch in their cafeteria. At one time I considered retiring to Longview. Great old company, which now after some trading around the tree farms have likely found permanent ownership right here in Seattle, with Weyerhaeuser. (Soon to be just down the hill in Pioneer Square.. What a strange thought that is!) Don't know who operates the paper making plant in Longview now.
Think that is KapStone - trades as KS on the market.
Is your interest in tree-growing for purpose of investment?
I read a while back that the Yale Portfolio has a sub-portfolio in timber. This article discusses diversification characteristics of timber.
http://www.nytimes.com/2010/07/11/bu...land.html?_r=0
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Old 11-24-2014, 07:40 AM   #14
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haha, notwithstanding the importance of perception in real estate matters, this set of statistics suggests that over the long run crime has been less of a factor than you suggest in the OP.

Most Americans Still See Crime Up Over Last Year

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