The Right Building Materials Could Eliminate The Need For Cooling

The heat of California, particularly in the summer, means many Californians turn up the air conditioner to stay cool. But there are some areas of the world that can get just as hot, if not hotter, and do without cooling systems. How do they manage it? In Burkina Faso, which frequently reaches temperatures over 100 F, it’s the type of stone used for construction.

Burkina Faso is rather low on the Human Development Index (HDI), ranking 184th out of 191 countries as of 2020. This means much of the country doesn’t have access to electricity, and importing concrete is expensive. What they do have easy access to is a stone called laterite, which forms naturally in the region. Laterite is quite strong once formed into blocks, and its thermal properties help keep the interior cool. Constructing buildings using laterite is not a new concept, but in much of the world it has been replaced by concrete.

Unfortunately, laterite is not a solution for California. With its advantages come some pretty severe disadvantages. Laterite has extremely low earthquake resistance. In California, which has over a hundred earthquakes per day and building laws requiring high earthquake resistance, laterite buildings simply won’t work.

Photo by Georgiana Andreca on Unsplash

More: https://www.theguardian.com/environment/2024/feb/29/we-dont-need-air-con-how-burkina-faso-builds-schools-that-stay-cool-in-40c-heat

South Bay Home Sales Improve!

Every month we compare the level of home sales from the preceding month to the same month of the preceding year. For example, November of 2023 is compared to November of 2022 to determine whether the number of homes being sold is growing or shrinking. The year over year number of homes sold across the South Bay has been shrinking every month since October of 2021–until now. November of 2023 marked the first time since October of 2021 where the number of homes sold increased over the same month in the prior year.

Lest we become overly enthusiastic, we need to remember that at this time last year successful sales figures were plummeting, Closed escrows were shrinking at up to 50% below the prior year in fall of 2022. So a positive value could only mean we’re bouncing along the bottom.

Also on the positive side, there is some improvement in median price which has been shrinking most of this year. At least as of November, it’s looking like “scattered improvement” in the South Bay real estate market.

Beach: Home Sales Pull Out of Dive

After two successive months of declining sales volume and falling median prices November real estate activity brought positive news to the Beach Cities. Last month saw a 9% jump in sales volume over October, and a 4% increase in the median price. The number of homes sold climbed from 79 last month to 86 in November. Concurrently, the median price gained nearly $70K.

The downside was a 3% drop of the median price versus November of 2022. The sold median for last November was $1.700M compared to $1.656M this year. The year over year sales volume gained 8% with 86 sales versus last years 80 transactions.

Year to date remains in red ink with sales down 14% January through November. For the same time period, the median price has fallen by 2%.

Harbor: Volume and Prices Turn Upward

Compared to November of 2022, both sales volume and median price climbed by 7% last month. This is the second month of solid upward figures for residential home sales in the Harbor area. Sales figures for the area have been in red ink since the beginning of the year, so these are welcome statistics for home owners wishing to sell.

On a monthly basis, the number of homes sold in the Harbor area fell by 6%, dropping from 267 in October to 252 in November. despite a median price increase of 1%.

Looking at the longer term, median price for the first 11 months of the year has fallen from $756K in 2022 to $740K, for a decline of 2% in the year to date median price. Sales volume for the same 11 months went from 3,770 in 2022 to 3,076 this year, a decrease of 18%.

Hill: Sales Volume Down, Prices Up

Comparing November of 2023 to November from last year shows a 10% drop in sales from 51 units in 2022 to 46 units this year. Despite the decline in number of sales, the median price for November climbed 19%, going from $1.77M in 2022 to $1.94M this year.

Monthly changes to the median price are much smaller and have been getting smaller as the year progresses. The November decrease was 1%, having dropped from $1.96M to $1.94M. The median price has varied monthly throughout the year. It ranged from a high of $2.3M in May of this year and fell as low as $1.6M in February. Year to date the median for the Hill is up 1% from 2022.

After having risen in September by 14% and in October by 13%, the number of homes sold on the Hill fell by 27% in November. Of course, part of the decline is seasonal. However, month to month sales volume for the first 11 months of 2023 was off by 19% in Palos Verdes with a similar drop of 16% overall for the South Bay.

Inland: Median Price Up from 2022

November 2023 was a good month for the Inland area compared to the same month last year. The number of homes sold climbed 11%, from 96 sold last year to 107 this year. Median price turned upward by 6%, ending the month at $851K, changed from $800K in 2022.

Compared to October of this year, Inland homes sales fell 8%, dropping from 116 homes to 107. That rate of change was slightly higher than the 6% drop across the South Bay. Median prices fell 7% for the month.

Year to date, the Inland area sales volume is off by 12% while the median price is up 1% from the same period in 2022.

Beach=Manhattan Beach, Hermosa Beach, Redondo Beach, El Segundo
Harbor=Carson, Long Beach, San Pedro, Wilmington, Harbor City
PV Hill=Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills, Rolling Hills Estates
Inland=Torrance, Lomita, Gardena

Photo by Andrew Sterling on Unsplash

Market Stalled By High Interest Rates

As of August 2023, interest rates are somewhere around 7%, possibly higher. While this isn’t astronomically high — they have historically been over 10% — it’s too high for current homeowners to want to exchange their homes. This is because 92% of current homeowners with a mortgage have an interest rate below 6%. Almost a quarter even have locked in an interest rate below 3%.

High home prices are actually somewhat helping current homeowners, since the price boost increases their equity. Prices have increased 14% in the past two years, which results in approximately $86,000 in equity over that time period. However, this may not be enough to offset the increased mortgage costs, especially for those with very low interest rates. Assuming a mortgage of $500,000 and a current interest rate of 3%, a new purchase with the same loan amount would result in a $1,200 increase in mortgage payments per month.

Normally, when demand is low like this, supply is high. This isn’t the case right now. Previously, we would have been able to blame declining construction due to increased construction costs. That’s no longer the case, though, as construction has largely, though not completely, recovered. It may even be simple lack of demand that is the final obstacle to a full recovery for construction. To see the real problem, remember which group we’re talking about — current homeowners. These are the same people who would be selling to buy a new home. If they’re not willing to buy in the current mortgage climate, they’re not selling either.

Photo by Adrian N on Unsplash

More: https://journal.firsttuesday.us/todays-homeowners-are-stuck-on-yesterdays-rates/91951/

Pros And Cons Of Buying Versus Building

Purchasing a home is a tough decision. You’re probably going to live there around eight to ten years, on average, so you want to make sure it’s somewhere you want to live. The good thing about building new is that you can make sure the home itself is right for you. But it’s really not that simple. There are pros and cons to both buying and building.

The most obvious advantage to buying an existing home is the reduced hassle. You don’t need to oversee the design and construction, making sure everything is to your specifications. You don’t need to wait for construction to finish before moving in, and while delays are still possible, there are fewer opportunities for delays. Another is that purchasing a home may be less expensive. This depends on the area, but construction costs are still high. Moreover, existing homes have almost immediate resale value, which can mean greater equity when you go to sell it. A less apparent advantage of buying an existing home is location. You might imagine that when you’re building new, you can pick anywhere to build as well, but the fact of the matter is that there are far more existing homes than empty lots, so you don’t get as much choice of where to build unless you’re planning to bulldoze an existing home.

The primary benefit to building new is customization. Whether you’re buying or building, you should have a good idea of what you need or want in a home. By building new, you ensure that you get those things, as long as they’re within your budget and no complications occur. A new home also means fewer issues, at least once the construction is finished. Any major structural issues would be the fault of the builders and not age. The property will use the latest building technologies, which are generally safer and more energy efficient. Building new is also a safer investment, albeit not necessarily a highly profitable one. It may take longer for a newly constructed home to accrue equity, but it’s extremely unlikely to go negative by the time you sell.

Photo by Brett Jordan on Unsplash

Do Your Research Before Buying Vacant Land

There are certain factors that are always important when buying a home. Everyone knows to look within their budget and find a good location, even if they need the help of an agent to figure out what those are. The same is true of buying land for the construction of a new property; however, there are additional considerations that you need to keep in mind.

When you’re buying an existing property, you can be fairly certain that the property is located within the boundaries of the lot and the soil has suitable conditions for building. If either of these isn’t the case, you certainly should be notified. But if you’re buying land with the intent to build, you need to know the property lines, topography, and soil conditions before you can determine whether or not it’s the right lot for you. You should also make sure that any utilities you want are readily available. Not every home needs to have access to every utility, but if you want one that isn’t currently available, that could mean the lot isn’t right for you or may just require additional expenditures. Another factor is zoning. If a property exists there, the area is probably zoned for such a property, else it’s grandfathered in somehow, or there’s a chance some work was done on it without a permit. If there is no property, you need to know what types of properties can be legally built there.

Photo by Rodrigo Ramos on Unsplash

Builders Reducing Home Sizes To Meet Demand For Affordability

Builders have had it rough the past few years. The pandemic resulted in skyrocketing lumber prices as well as many job losses for construction workers. In order to get the most bang for their buck, builders started building luxury homes, which generally have a higher profit to cost ratio. But this couldn’t last long, as both market demand and legislation pressured them towards construction of affordable living homes, while at the same time, zoning restrictions made even this rather difficult.

Pressures on construction companies have started to ease up in most of the country, but not everywhere. Particularly in the West and Northwest, available land is an issue. Fortunately, builders may have figured it out and now have a new plan: Make smaller homes. It’s predicted that more affordable starter homes will become available within the next year or two, as 42% of builders are reducing the square footage of their homes. It doesn’t even require a big change — the nation’s largest homebuilder, D.R. Horton, is only reducing home sizes by an average of 2%. Builders are also planning to build more townhomes and duplexes, which take up significantly less space per unit than single-family residences.

Photo by Avel Chuklanov on Unsplash

More: https://www.realtor.com/news/trends/first-time-buyers-rejoice-builders-are-finally-putting-up-more-affordably-priced-starter-homes/

California Sales Trends Don’t Match Rest Of US

In the US in general, the market has been slowing down. This is leading to a higher inventory — in March 2023, the number of homes for sale was 9% higher than in March 2022. But this isn’t the case in California. In fact, for-sale inventory in California’s largest metro areas was actually down 14% between the same two months. The difference is most stark in San Jose, where inventory dropped 32%.

However, this does have a couple of explanations. Available inventory is a raw number. It doesn’t take into account the number of buyers. Home sales volume is more indicative of the number of buyers, and that dropped significantly more than 14% between March 2022 and March 2023, by 33%. Thus, the ratio of homes available per buyer is actually higher than it was last year. In addition, California is still being affected by lower construction rates, while it has recovered in many other states. The major reason is pushback from local homeowners who don’t want additional construction in their neighborhood.

Photo by Tanya Nevidoma on Unsplash

More: https://journal.firsttuesday.us/fewer-new-listings-as-californias-for-sale-inventory-dips/90477/

Construction Down Overall, But Up For SFRs

While construction rates have been low overall since the pandemic, construction rates can potentially vary significantly depending on the type of building you’re looking at. This can be the result of different levels of demand or zoning regulations. Recent zoning reforms have tried to push construction more towards multi-family residences, believing that zoning is the primary obstacle.

However, if recent numbers are any indicator, there simply isn’t much demand for multi-family residences. Construction starts on buildings with five or more units dropped by 6.7% in March. Permits for such buildings also fell sharply, by 24.3%. At the same time, construction of single-family residences (SFRs) increased by 2.7%, and SFR construction permits increased by 4.1%. Overall, construction starts dipped down 0.8% and permits decreased by 8.8%.

Even though this wasn’t the goal of the zoning reforms, not everyone sees this as a bad thing. SFRs being in higher demand could signal that more people are ready to buy as opposed to rent. However, since it’s not renters but potential landlords that would create demand for multi-family residences, it’s also possible that homeowners simply aren’t seeing the value in renting the units out, leaving potential tenants in the dust.

Photo by Sandy Millar on Unsplash

More: https://www.reuters.com/markets/us/us-single-family-housing-starts-increase-march-2023-04-18/

Revised Building Codes Are Bringing Mini-Apartments To Long Beach

There was a time that smaller homes and multi-family living were common in Long Beach. Over the decades, that has transitioned to condos and then to single-family residences. But in 2020, Long Beach municipal codes were revised, reducing the minimum square footage requirement to just 220 square feet. The original aim was probably not co-living, which wasn’t on the radar given that it occurred around the start of the pandemic. Nevertheless, builders now are seeing the opportunity to build apartment buildings consisting of small units with shared common area.

Derek Burnham is a former Long Beach city planner and now works at a development firm, and is excited about the idea. Burnham has already planned about 48 units, which are going to be roughly the same size as hotel rooms, around 350 to 500 square feet. The target audience for this project is people who want to be near jobs and transportation, but can’t afford the typical apartment or condo unit. But builders don’t yet know how receptive people will be to it — after all, the transition away from shared living towards single-family residences was cultural and not pragmatic. Because of this, the plans are flexible, allowing anything from private units to shared units to miniature family units.

Photo by Scott Webb on Unsplash

More: https://lbpost.com/news/micro-apartments-are-coming-to-long-beach-will-renters-rush-to-squeeze-into-them

Why More Construction Doesn’t Always Mean More Homes

The housing shortage we’re currently experiencing has been attributed in large part to lack of construction. There’s a lot more to the story, though. First of all, the slow construction doesn’t even account for all of our housing shortage — there are other factors such as increasing population, a rapidly changing housing market, and vacant homes not for sale or rent. As far as construction, the problem isn’t merely a lack of it. It’s true that construction dropped significantly during the pandemic, but it’s mostly recovered now. The actual issue is that the homes being constructed are frequently not adding additional units.

The statistics you see when looking at construction starts account for all types of construction. However, much of the construction that’s occurring right now isn’t on vacant land. In 2021, 76% of builders reported that the number of available lots is low to very low. In California, a lot of this has to do with zoning laws. Many areas aren’t zoned for multi-family residences or even for residences at all. Even in areas that allow condos or apartment buildings, single-family residences (SFRs) are in higher demand in California. Building SFRs in the right place is also difficult. 28% of SFR construction is reliant on lots called infill sites. While these are vacant land, which is good, they’re in areas that already have a high density of housing and are less in need of additional construction. A further 20% of SFR construction starts come after teardowns, merely replacing one SFR with another SFR.

Photo by Becca Tapert on Unsplash

More: https://journal.firsttuesday.us/new-construction-doesnt-always-mean-more-homes-to-go-around/88622/

Build-To-Rent Market Rapidly Growing

A build-to-rent community is a community in which single-family homes are build solely for the purpose of renting them out. It isn’t a new concept, but it’s been under the radar for quite some time, comprising only 3% of the single-family residence (SFR) market. As just one of many changes in the type of demand brought in the wake of the pandemic, that number is now up to 12%.

Many people who transitioned to work-from-home needed more space for a home office. That meant looking for a larger home. For renters, that often wasn’t possible, since they were priced out of the homebuying market. But what if they could rent the type of home people normally would buy? In a build-to-rent community, they can. The SFRs in such communities have significantly more space than apartment units, and while they are certainly more expensive to rent than apartment units, rising home prices meant renters definitely couldn’t buy if they weren’t able to before. It’s definitely possible to find SFRs that are not in a build-to-rent community, but looking for such a community guarantees it, and also comes with community amenities.

Photo by Jason Jarrach on Unsplash

More: https://www.realtor.com/news/trends/those-who-cant-afford-a-single-family-house-are-turning-to-build-to-rent-communities/

Builder Confidence Drops As Interest Rates Rise

The goal of the Fed’s decision to increase the benchmark rate was to ultimately lower prices. That is now beginning to happen, but many other things have been affected in the meantime. One is builder confidence. As can be expected, rising interest rates are causing lower demand for buyers, including new construction buyers. That means builders are getting less business. This is not a good sign in an environment that many believe is best solved through increased construction.

The Fed’s decision may be starting to solve one issue, but is it actually the optimal solution? Could something else have been done? Maybe, maybe not. According to the National Association of Home Builders (NAHB), the Housing Market Index (HMI), of which builder confidence is one component, was actually already below 50, which is the midpoint indicating neutral confidence. This is despite multiple laws making construction easier, especially for affordable housing. HMI dropped 5 points from 38 to 33 between October and November. Back in November of 2021, it was at 83. The builder confidence score in particular dropped six points from 45 in October to 39 in November. Though the problem is national, with decreases in every region, different regions have different levels of builder sentiment. The South dropped the most, by seven points, but still has the highest builder sentiment of any region at 42. Builder sentiment is by far the lowest in the West, at 29, despite only dropping five points. The smallest change was in the Midwest, dropping merely two points from 40 to 38.

Photo by Ümit Yıldırım on Unsplash

Newsom Signed Two More Housing Bills in September

Two more bills aimed at increasing multi-family construction go into effect July 1, 2023 after Governor Newsom signed them into law in September. These are AB 2011, called the Affordable Housing and High Road Jobs Act of 2022, and SB 6, the Middle Class Housing Act of 2022. Both laws sunset nine and a half years later, on January 1, 2033.

AB 2011 adds a secondary review pathway for some multi-family construction projects. If the project meets affordability standards and site criteria, the review will not take into account conditional use permits or environmental impact reports. The site must be primarily commercial, and unless it’s a commercial corridor, 100% of the units must be below market rate. Even if it is on a commercial corridor, 15% of the units must be below market rate. AB 2011 also includes provisions for fair pay and additional training for construction workers. SB 6 expands the types of buildings that can be constructed in areas zoned for office, retail or parking. These buildings may be residential if they meet certain other criteria, many of which are similar to the requirements set forth in AB 2011.

Photo by Mikhail Pavstyuk on Unsplash

More: https://journal.firsttuesday.us/governor-newsom-opens-up-commercial-zoning-for-residential-use/86680/

Rental Construction at 50-Year High, But It’s Not Enough

Construction has had multiple ups and downs in recent years as a result of the pandemic and surrounding economic factors. Throughout it all, multi-family construction has actually done pretty well. In fact, it’s currently at its highest rate in the last fifty years in terms of total number of new multi-family constructions. Unfortunately, that doesn’t mean it’s high — construction has been in a slump for the past thirty years, and meanwhile the population has been increasing.

Los Angeles has it the worst of any US metro, underproducing by about 400,000 homes. This is despite the fact that it’s also one of the top metros for multi-family construction. In large part, this can be attributed to the fact that it is the second most populated metro in the US. But the real issue is restrictive zoning laws, which are only recently being changed in California. The vast majority of homes in the Los Angeles metro are single-family residences because that’s what the lot’s zoning allows.

Photo by Annie Spratt on Unsplash

More: https://journal.firsttuesday.us/apartment-construction-soars-in-los-angeles-but-is-it-enough/86562/

San Diego Combats Its Mid-Tier Housing Problem

The housing crisis is a well-established issue and many efforts have been made, or are in the process of being made, to address it. Most of these efforts are focused on low-income housing, since it ensures that the greatest number of people are served by it. However, San Diego faces a different issue. A significant number of residents don’t qualify for affordable housing programs and are instead looking at middle-income housing. Unfortunately for the city, they aren’t able to receive federal subsidies for middle-income housing construction.

So now they’re beginning to devise a plan. The city’s Middle-Income Housing Working Group has recommended a combination of immediate actions, short-term plans, and long-term plans. Immediate steps include streamlining codes and review processes, creating a list of public land available for middle-income housing construction, and converting public facilities to mixed-use structures. Future plans include tax modifications, a public rent registry, construction loan guarantees, investing in community land trusts, and redirecting philanthropic funds to middle-income housing.

Photo by Leslie Cross on Unsplash

More: https://journal.firsttuesday.us/how-san-diego-is-addressing-its-housing-shortage/86189/

More New Construction Aimed at Immediate Rental

New constructions are always built to certain specifications, whether that’s tract uniformity or client’s wishes. In the latter case, the client is usually also going to be resident. That’s starting to change, as investors are noticing that renting is becoming a lot more common as prices rise. Investors are now getting new constructions built for the express purpose of renting them out.

Only 3% of new construction SFRs were build-to-rent in 2019. By the end of 2021, this number jumped to 26%. It’s not entirely clear if this will continue to increase or not. While increased inventory of rental properties does benefit renters, renting is rarely a desired state. Almost everyone would prefer to buy if they can afford it. But it’s not renters pushing the trend. It’s the investors, and they stand to benefit as long as renters must continue to rent, whether they want to or not.

More: https://journal.firsttuesday.us/why-california-investors-are-turning-to-build-to-rent/83701/

Photo by Fer Troulik on Unsplash

Local Govt Continues to Obstruct ADUs Despite Widespread Support

Accessory Dwelling Units (ADUs) have been contentious for a while, but SB 9 has passed recently, ostensibly making them easier to construct in California. Unfortunately, this hasn’t panned out as well as expected, as local governments aren’t entirely on board. They’re trying to sidestep the requirements by introducing zoning ordinances that effectively, but not explicitly, ban ADUs. Zoning restrictions have always been the largest obstacle to ADUs.

What clearly isn’t much of an obstacle is popular support. Particularly in California, major cities are seeing support of over 70%, even up to 80% in San Jose. But California isn’t the only state. Nationwide support is at 69%, with the remaining 31% split between opposing and indifferent. It’s no surprise that more renters than homeowners support it, since they’re more likely to be searching for housing. But both groups show strong support — 76% of renters and 66% of homeowners.

Photo by Kristina Tamašauskaitė on Unsplash

More: https://journal.firsttuesday.us/californias-low-housing-inventory-boosts-homeowner-support-for-adus/83401/

Market Stability Anticipated In 2024

With government support having ended, this may prompt people to think the economy has stabilized and recovery is imminent. But this is just the precursor to a stable market. The market needs time to adapt under normal conditions, and probably won’t become stable again until 2024. The main factor in overall recovery is the job market, which has yet to fully recover, and a stable real estate market requires construction to catch up to demand.

Some policies remain from government actions during the recession, though. Three laws — SB 10, AB 345, and AB 571 — will help out in construction efforts. SB 10 allows more areas to be zoned for up to 10 units, AB 345 allows ADUs to be sold separately from the primary residence, and AB 571 prohibits impact fees on affordable housing. Two more laws, SB 263 and AB 948, reformed bias training for real estate professionals. This legislation should have lasting impact in making the recovery more comfortable.

Photo by Logan Cameron on Unsplash

More: https://journal.firsttuesday.us/2021-in-review-and-a-forecast-for-2022-and-beyond/81281/

Outdated Zoning Laws Hinder Construction Efforts

While it’s now legal to build multiple units on land previously zoned for single-family residences (SFRs), the cost of construction is still high. The costs of acquiring a site, making sure to conform to environmental codes, and building from scratch definitely add up. Builders aren’t able to work out a positive return on investment for new constructions.

They can cut a lot of the costs by using existing structures and renovating them. But, many of these structures are zoned for commercial use only. There are certainly zones that can be commercial or residential as needed, but not nearly enough to satisfy buyer demand. New zoning laws in the Los Angeles metro area and in the San Francisco Bay Area have facilitated conversions from commercial to residential, but even that isn’t enough. And in areas without these new policies, such as the San Diego and Sacramento metro areas, conversion rates are dramatically lower.

Photo by Al Soot on Unsplash

More: https://journal.firsttuesday.us/california-residential-conversions-limited-by-outdated-zoning/81042/

Builders Still Skeptical Even as Lumber Prices Drop

Builder confidence plummeted in April 2020 after the start of the pandemic and recession. As time went on, they slowly regained confidence since demand was high. But demand was too high, and lumber prices accelerated upward, causing builders to hesitate again. Builder confidence is below the levels from the start of 2021, though higher than it was in mid-2020.

Now, lumber prices are starting to fall back down. But the reason for that is decreasing demand and rising interest rates, the exact opposite of what caused prices to rise in the first place. With demand decreasing and prices now on a downturn, builders still aren’t sure whether it’s a good or bad time to buy lumber. They’re expecting more vacancies, which means less need for new construction.

Photo by Gene Gallin on Unsplash

More: https://journal.firsttuesday.us/lumber-prices-drop-builders-remain-cautious/79400/