Will 25-Year Building Boom Offset Potential For Doom? - 12/28/2004 - Mortgage Loan Refinance Debt Equity

Will 25-Year Building Boom Offset Potential For Doom?
by Broderick Perkins

Much of the housing to be constructed for the next 25 years will be in regions where there is a concentration of housing markets considered over-priced. The building projections may signal sufficient demand to negate the over-priced status.

First, in Smart Money's annual look at home prices, "What's Next for Home Prices?" published in the December issue and based on Wellesley, Mass.-based Local Market Monitor's research of dozens of communities nationwide, many of the markets appear overpriced.

The calculations are based on local income levels, future economics, job growth, job types, demographics, suburban vs. urban mix of homes, the mix of high-end vs. moderate- and low-end priced homes and other factors.

Over-priced metros are concentrated in California and cities in other Western states as well as the Northeast and Florida.

But California and more and more regions in the West have long been considered short on the housing supply, which may account for the "overpriced" status -- demand for homes in temperate climes where supply is limited tends to push up prices.

The Brookings Institution's "Toward A New Metropolis: The Opportunity to Rebuild America" released in December, reveals such strength in housing markets in many over-priced cities as builders are rushing to meet the demand. It also reveals strong economic trends, based on commercial building requirements, in those same regions.

The report says by 2030 half of the buildings -- residential and commercial -- in America will have been built after 2000 and most new building from now until 2030 will be residential space built in California, the West, Florida and the South.

The report also says:

 

• Homes will account for more than 100 billion square feet of new residential space needed by 2030. The commercial and industrial sectors will have the most new space with over 60 percent of the space in 2030 less than 30 years old.

   

• There is tremendous variation between regions in the total amount of construction. In the Northeast, less than 50 percent of the space in 2030 will have been built since 2000, while in the West that figure is about 87 percent, a near doubling of built space. Fast growing southern and western places -- states like Nevada and Florida and metropolitan areas like Austin and Raleigh -- will see the most dramatic growth.

   

• After California, which far outpaces the nation in terms of absolute square feet of new industrial construction, the next four largest producers of industrial space are all Rust Belt states in the Midwest: Ohio, Michigan, Illinois, and Indiana. By 2030, 70 percent of the Midwest’s industrial space will be less than 30 years old.

  And, keep in mind, many of the housing markets surveyed by Smart Money and Local Market Monitor are priced just about where they should be.