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Through The Roof
Despite a decade of economic ups and downs, tight supply has kept housing costs high — and climbing higher
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Business New Haven
7/8/2002
By: Anne-Marie Brungard
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Peaks and valleys may most aptly describe the New Haven housing market over the last ten years. Not unlike the rest of the state, New Haven felt the effects of the real-estate crash in the early 1990s while enjoying the spoils of the dramatic boom that peaked in 1989.
Data issued by the state's Office of Policy & Management (OPM), and calculated by the Connecticut Policy & Economic Council (CPEC) indicate that statewide average home sale prices for 1999 returned to the high point reached in the peak of the 1980s real estate boom. Kolie Sun Chang, senior research analyst with the state's Department of Economic & Community Development (DECD) reports that from 1996 to 1999 Connecticut recorded an average growth rate of approximately five percent that tracked slightly ahead of the rate of inflation in the same period.
According to Chang's Housing 2000 report, in contrast, the period of 1986 to 1989 exhibited a dramatic (and as we know now, artificial) increase in values of approximately 39 percent, from $144,477 in 1986 to $200,256 in 1989.
The Connecticut Association of Realtors recently released its 2000 Connecticut Housing Affordability Index (HAI) with a reading of 1.38. This report indicates that on average, families in the state had 138 percent of the income required to purchase the average priced single-family home last year. By comparison, for the U.S., the HAI was 1.30, 8 index points below that of Connecticut.
In other words, “Connecticut housing affordability shows that housing here still offers considerable value for investors with a long-term time horizon,” according to Donald Klepper-Smith of Centerprise Advisors in New Haven.
According to the census report Profile of General Demographic
Characteristics for Connecticut: 2000, there were 1,385,975 housing units in the state, and 93.9 percent of those units were occupied housing. This ratio is comparable to the 1990 level of 93.2 percent.
Among occupied housing units, 66.8 percent were owner-occupied, compared to 65.6 percent in the 1990 census. One can conclude from the data presented that the number of homeowners increased by over 62,000 during the last ten years.
Connecticut's inventory of residential dwelling units, estimated by the DECD, the lead agency for housing in Connecticut, was 1,399,819 at the end of 2000.
Chang's report indicates that the estimate was based on a net gain of 78,969 housing units authorized from January 1991 through December 2000 were added to the base of 1,320,850 housing units reported in the 1990 census.
When comparing the values of homes within New Haven County for owner-occupied units, the 1990 U.S. Census showed that 36 percent were valued between $100,000 to $149,999, 25 percent between $150,000 and $199,000, while 21 percent were valued over $200,000. Valuation of 2000 properties shows that the number of units valued below $149,999 dropped by three percent, while 7.1 percent more properties were estimated to be valued at more than $200,000 (in non-inflation-adjusted dollars).
Homeowners are spending more when comparing costs as a percentage of the household income. Over a ten-year period, a 2.8-percent difference can be found, as families are now more likely to spend more than 20 percent of their household income on mortgages and other related home costs.
In 1990, 50 percent of households indicated that they spent less than 20 percent. While the numbers are fairly comparable for those spending 25 percent or more, approximately two percent more families are now spending between 20 and 25 percent of their household budgets for homeowner costs.
New Haven residents are making more money - while spending more on housing costs. The number of households has increased from 47,193 to 48,779, a net difference of 1,586. The 1990 census reported that approximately 49 percent of residents had household incomes of less than $24,999 in 1989. This number has dropped by almost five percent to 44.1 percent in 2000.
Increases are also noticeable in incomes between $25,000 to $49,999 and $50,000 to 99,000, showing 3.13 and 4.51 percentage point increases, respectively, in 2000.
Striking differences can be seen when comparing what households are paying for gross rents (rent plus utilities). Census 2000 data indicates that 26.1 percent of New Haven residents who are renting are paying rents of up to $499 monthly. In 1990, approximately 38 percent of households were paying rents in the same range (again, not adjusted for inflation).
There is little noticeable difference in rents between $500 and $749, however. There is an 8.62 percent increase in those paying between $750 to $999, and a 5.66 percent increase in those paying more than $1,000 per month.
Of New Haven's 52,941 housing units reported in Census 2000, 88.95 percent, or 47,094 units, were occupied, meaning that 11 percent of housing units were vacant at the time of the census. Figures for 2000 show a net decrease in the number of housing units of 1,116, accounting for demolished units.
John Ortiz, president of Ortiz Real Estate on State Street in New Haven, says that there is a high demand for rental units in New Haven. In 1990, 90 percent of housing units were occupied, leaving just more than nine percent vacant. Rental vacancy rates between the two periods are comparable, showing 7.4 percent in 1990 and 7.1 percent in 2000.
Steve Witten, senior director of the multi-housing group of Marcus & Millichap Real Estate Investment Brokerage in New Haven, points out that there is a definite distinction to be made between market rate or conventional units and multi-family units.
“For multi-family or multi-unit properties, the absorption rate has been extraordinary,” Witten says. The numbers may indicate that where there has been a net loss, it may actually translate to a number of units that have been “lost to condemnation in the inner city, or obsolescence. It may not be representative of B and B+ properties where there has been a tremendous conversion of properties from retail and industrial spaces to higher-end housing units.”
So while New Haven may have lost some lower-end housing stock, there has been a shift to serve the more affluent lifestyle renters, especially younger professionals. This is also evident in the apparent shift of rental costs and income categories, both showing solid movement from the lower to higher categories.
Explains Ortiz, “There are less actual rental units available now and there is increased competition and demand for the apartments.” Ortiz's agency specializes in rental properties. He notes that he has difficulty placing families who require more than three bedrooms.
Families with children under age 18 account for more than 80 percent of New Haven's households, according to Census 2000 data. Particularly affected are those families within the lower to mid-income brackets.
According to Witten, the adaptive reuse of properties is consonant with New Haven's goals to get people to come back to the city, and creating housing for people to live and work here. Witten points to the Liberty Building on Chapel Street that was converted from multi-office and retail space to luxury apartments, as well as the former Strouse-Adler factory on lower Chapel Street.
Essentially the tenant profile in New Haven has shifted and, basically, “Everything old is new again,” Witten notes.
In a study issued by the U.S. Department of Commerce, property owners and managers were surveyed about privately held rental properties. Nationally, more than half (52 percent) off all multi-family properties underwent some kind of capital improvements between 1990 and 1995. Most common were renovations of bathrooms, replacement of kitchen facilities and upgrading heating systems.
Considering that 87.8 percent of New Haven's housing units are more than 30 years old, property owners are spending more for renovations and repairs, too, compared to 1990 figures. Howard Savage, author of the Property Owners & Managers Survey Report, estimates that the median percentage of rental income spent on maintenance for small properties ranged from a low of 13 percent to a high of 17 percent.
“The percent of rental income spent on maintenance usually reflects the amount of owner commitment to the future viability of the rental property,” explains Savage. Not discounting inflation as a factor, Steve Witten adds that rents have outpaced operating expenses, and there is a proportionately higher increase in income.
“Just as recently as the events of 9-11, within the last 12 months, several factors have significantly impacted expenses,” he says. “Insurance costs for property owners has tripled and in some cases quadrupled.”
The three largest counties in the state - Fairfield, Hartford and New Haven - accounted for 63 percent of all new residential permits issued in 2000, according to Chang's report. The same three counties accounted for almost 68 percent of all the permits issued in 1990.
This suggests the three counties' combined share of new permits is shrinking while the rest of the state has increased its share of residential housing production activities.
Reports issued by the state's Department of Economic & Community Development (DECD) indicate that in terms of the new permit growth rate, New Haven County has stayed at roughly the same level while the permits issued for the city of New Haven proper dropped from 134 in 1990 to 97 permits issued in 2001.
In sum, 2000 housing permit levels showed strong and steady growth in housing construction in Connecticut. New Haven's numbers, although down, indicate that the overall market remains fairly vigorous.
“There are no significant subsidies to encourage low to moderate housing development,” says Witten. “Nationwide the shift is to building new B+ to A multi-unit properties.
According to Witten, the most desirable investment property types are those available for adaptive reuse - those which, if purchased wisely, can be repositioned to reflect changing marketplace realities.
Housing is a key sector of the overall economy and housing statistics are among the leading indicators in measuring economic performance. In January of this year, the Economic Digest cited a the newly released 2001 Corporation for Enterprise Development (CEFD) Development Report Card showing Connecticut scoring straight As. The report card grades each state's performance, business vitality and development capacity.
The state scored particularly high in the area of business vitality, in part because of the “high presence of technology-intensive firms [in the state].”
How about a scorecard for New Haven's current housing market? According to Chang, “Favorable interest rates, growth in population and a continued demand for housing in a growing economy” are factors that all exert a positive influence. The face of New Haven's housing stock is changing, and so too are its residents.
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