Agenda - Economic Development Authority - 01/25/2018

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During the past 10 years, Metropolitan Area residential building permits declined from a peak of 20,973 units in 2003 to 4,028 in 2009, as shown in Table 4-16. The housing boom undoubtedly fueled the high number of building permits in the 1999 to 2004 period. Building permits fell below average in 2005 and began a sharp decline in 2007. While it was not apparent at that time, this decline coincided with a significant decline in household formation. Between 2006 and 2009, building permits fell from 12,109 to 4,028 in 2009, a two-thirds drop similar to the drop in household formation nationally. In past recessions, declines in household formation have been less severe and have been reflected in slight drops in building permits and decreased apartment occupancy rates. During the Great Recession, those declines have been greater and lasted longer due to the slow recovery. In the Metropolitan Area, as the economy has improved and the unemployment rate has declined, there's been an increase in the number of building permits issued, particularly for multi -family housing. This indicates that the rate of household formation is beginning to increase creating demand for new housing. It's uncertain how long it will take household formation to recover to previous levels, but the process seems to be underway. At some point, there may be an increase in household formation that makes up for some of the household formation that did not occur in 2008, 2009, 2010, and 2011. How much pent up demand exists is subject to speculation. Stabilized Residential Demand The estimates of future housing demand in incorporate State Demographer estimates of future household growth for 10-year periods. These estimates represent stabilized residential demand based on long-term household growth estimates and do not reflect cyclical changes in household formations. The relationship of stabilized residential demand to past annual building permits and household formations for the Metropolitan Area are shown on Figure 4-4. The blue bars represent annual unit building permits and the horizontal black lines represent average annual household growth for 1990 to 2000 and 2000 to 2010. The red bars represent stabilized future residential demand. Stabilized annual demand is decreasing because the State Demographer is projecting slower future growth for the Metropolitan Area. Household growth in the Metropolitan Area has been declining since the 1970 to 1980 period when annual average household increase was 18,231. In the next decade (1980 to 1990), the average annual increase was 15,406. Between 1990 and 2000, the average annual household increase was 14,595 (shown by the black line in Figure 4-4) compared to annual average building permits of 15,141, a difference of 3.6 percent, which could be accounted for by vacancy and demolition of existing units. In the latest 10-year period (2000 to 2010), average annual household growth was 9,830 compared to average annual building permits of 12,279. The sharp decline in building permits beginning in 2007 is clearly evident. Building permits more than doubled in 2012 to 10,301, a positive sign. Future stabilized residential demand is represented by the red bars and is expected to grow slowly over the next five years. This graph demonstrates that over the long-term, residential demand is expected to moderate as household growth slows. 4-20