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Construction Safety Dispatch Articles
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 2012, it seems, is the year economic reporting turns rosy. NPR is out with an analysis of today’s decent job figures that pins our hopes on a construction turn-around. It’s true that construction employment ticked up quite nicely—by 17,000 in November—and earlier Commerce Department data revealed an incline in construction spending. But today’s construction numbers, once you parse through them, came almost exclusively from non-residential industries. And the level of optimism in the employment figures lean heavily on the future of the housing market.
That market, for better or worse, is turning sharply toward renting. Here are a couple clear signs: The latest rise in housing starts was pushed along primarily by multifamily construction. And apartment vacancies hit a 10-year low in the final quarter of last year, a clear sign that rental demand is surging. Coming in tow with the vacancy drop is a rise in rental prices, in the familiar desirable places—New York and San Francisco—as well as some surprises, like Chattanooga, where tech jobs are on the rise.
A surging rental market may very well throw a wrench in the recent bets big hedge funds are making on a housing recovery. And it will pose a set of challenges for city governments, all of whom are hoping madly for a housing recovery and the property value revival that comes with it. To an undeniable extent, the zoning regulations in many of these cities are cramping construction growth, and keeping rental prices inflated. But I think the policy approach cities take to confront their nasty stockpile of foreclosures is a bigger economic tell.
In its unusual foray into housing, the Federal Reserve hit this exact countervailing force of dropping vacancies and raising rents, offering a policy nudge:
The price signals in the owner-occupied and rental housing markets–that is, the decline in house prices and the rise in rents–suggest that it might be appropriate in some cases to redeploy foreclosed homes as rental properties. In addition, the forces behind the decline in the homeownership rate, such as tight credit conditions, are unlikely to unwind significantly in the immediate future, indicating a longer-term need for an expanded stock of rental housing.
Where, when, and how appropriate this tactic is in certain cities is a little fuzzier—and it’s something I hope to dig into deeper. But the report gets at a question that a smart commenter posed in my previous housing post: why would a city dip its hand into the blighted market when private investors could do it better? Here’s why:
Although small investors are currently buying and converting foreclosed properties to rental units on a limited scale, larger-scale conversions have not occurred for at least three interrelated reasons. First, it can be difficult for an investor to assemble enough geographically proximate properties to achieve efficiencies of scale with regard to the fixed costs of a rental program. Second, attracting investors to bulk sales opportunities–whether for rental or resale–has typically required REO holders to offer significantly larger price concessions relative to direct sales to owner occupants through conventional realtor-listing channels, in part because it can be difficult for investors to obtain financing for such sales. Third, the supervisory policy of GSE and banking organization regulators has generally encouraged sales of REO property as early as practicable.
This appears to be the approach Chicago is now taking. How exactly a city like ours—where political plans rarely go down smoothly, or uncorrupted—will coordinate with the private real estate market on this plan is perhaps a better barometer of our economic picture than construction jobs.
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