Pressures That Dominate Real Estate Value

When people usually think of real estate value they think of two forces; supply and demand. Yes, this is correct; however supply and demand only fall under the one of the four main categories that drive/depress real estate value. Supply and demand fall under the economic category of influences in real estate value. The other three include; social impact, government subjection and environmental forces.

When looking at social impact, there are a few things one would want to consider determining the effect it will have on real estate value. Most of all the value would fluctuate accordingly with population characteristics. This tie into the potential for demand in the economic section of value; the more demand, the more value a property can derive. Population however should be looked at in more depth by breaking down the sample by age and gender, rate of household formation and partition, as well as analysis of the social values such as education, law and order, and lifestyle preferences. Careful consideration of these factors will help establish trends in what would be reflected in real estate values.

Next is the government subjection, accounting for a large aspect of real estate value. This includes political and legal activities on several levels of government. These government influences have the power to overwhelm natural market forces such that you would find in the economic category. Government has their hand in providing facilities and services that affect values as well as a one of the main contributors to patterns of land use (zoning, by-laws, etc). The following are some things to look out for when assessing the government subjection of a market; fire and police services, garbage collection, transportation arrangement, utilities, zoning, building codes, health codes, and fiscal policies. Also the legislation that is set forth by the governmental factor must be accounted for, this would include; rent control laws, rights to farm, rights for managing forest, rights to agricultural land, restriction on ownership, new development laws, control of hazardous and toxic materials, and laws affecting investment power, loan terms, and mortgage lending institutions. All in all this is quite the category and its understanding will provide for a great idea of where values are currently and where they are headed.

In addition to the social impact, as well as government subjection, the environmental forces also play a part in real estate values. These can be natural or man-made and are analyzed by observing several aspects. Climatic conditions (snowfall, rainfall, temperature, humidity) would be an obvious one that would affect the values of building somewhere as well as maintenance and carrying costs, as well as the quality and type of build. Topography, soil and consideration of any toxic contaminants would also be of great importance as well as natural barriers, such as rivers, mountains, lakes, etc.

Just to get out of the 4 factors of real estate value; it is important to mention that there are some overlying factors that would be part of 2 or more of the categories. Once such factor is location, this is the link of a property in time/distance to any given origin or destination of a resident/user of the property. Location could fall under for environmental and economic, if not all categories. Due to the area and property type, properties access to public transport, schools, hospitals, stores, employment, suppliers, recreational and cultural facilities, parks, and places of worship would of importance.

This would also lead us back to the economic factor of influence on real estate value. The fundamental aspects to look for here include: employment, price levels, wage levels, industrial and commercial expansion, mortgage credit availability and cost, stock of vacant property, stock of improved property, occupancy rates, construction costs and rental/price trajectories of existing properties.

And there you have it, the 4 major pillars of real estate value; social, governmental, environmental, and economic. Taking a deep look at each of these sections one would assemble the entire spectrum of current real estate values and more importantly future real estate values.

Why Sky-High SoCal Housing Costs Just Keep Rising

Any SoCal Resident Can Tell You Rent is High,

But did you know the average cost of a home in Los Angeles ($658,000) is more than double the national average for houses of the same size? Real estate experts say that the gap between the cost of living in LA and the rest of the country will continue to get larger, all the way through 2018. When gainfully employed, educated people with salaries hovering around $250,000 a year are looking to move to nearby cities due to the inability to find a home within their budget that meets their standard of living, it is clear that California is pricing out its own residents. And the truth is – there isn’t really much anyone can do about it.

The Cause

While no single problem is exclusively to blame for the incredibly inflamed housing cost in Los Angeles, the generalized answer is that there are not enough houses to meet the demand, and in addition to that, the cost to build more housing keeps developers away. It is a vicious cycle of economics – people want housing, construction companies can’t fill that demand because the cost to them is too high, this takes money and jobs out of the metropolitan area as builders, investors, and developers look to the suburbs to build, so the demand grows, and the cost grows alongside it.

What is even more unexpected, is that the positive growth in jobs and the rest of the economy is actually putting more of a strain on housing cost. Los Angeles has added tens of thousands of jobs in almost all sectors of the market, from the lower level entry jobs, all the way to opening space for new executives and CEOs, and as you can expect, that means more people look to move to the city to fill the openings which the jobs have created; thus adding to the demand for housing that seems insatiable in Los Angeles.

The Proposed Solutions…

The answer seems simple, right? Just build more houses. Unfortunately, nothing is ever that easy. Up until recently there was a push among lawmakers to, at the very least, keep the cost of housing under control through litigation.

The solution seemed concentrated on reducing the cost for contractors to build homes and new developments. Prior to this year, litigation seemed to offer great tax incentives to builders willing and able to quickly build new multi-family units, especially in urban areas. Especially to those builders who made such new developments more eco-friendly and energy-efficient.

Many state law makers have focused energy and attention on low-income housing subsidies. The legislative analyst’s report estimated that building affordable homes for the 1.7 million low-income households in California that now spend half their salaries on housing would cost as much to finance each year as the state’s spending on Medi-Cal.

… And why they have failed

As much as state litigators may want to deal with the overwhelming housing shortage in LA, there is a huge problem – namely, that most decisions regarding new developments and building fall into the laps of city and local government. The state governments’ hands are tied. Unfortunately, the smaller governments tend to have a much more narrow view of the situation, seeking to raise gains and find solutions for /their/ city, without much consideration for the surrounding areas.

Additionally, the main tool that state legislators could use to quickly build homes, is in direct opposition to a myriad of business and environmental interests. The C.E.Q.A (California’s governing environmental law), in many ways, prevents the building of new housing developments at any rate which would make an impact on the housing shortage.

So the question becomes… what can we do? Should we sacrifice environmental protection laws to lower housing costs? It is a question that has to be addressed, but with so many political influences and issues, most lawmakers won’t touch it.

And SoCal residents and home owners associations aren’t making it any easier. Many of these local governing bodies are in stark opposition of rapid development of housing- because that means that their neighborhoods would have to face the dreaded “D” word… Density.

Push-back from neighborhoods and suburban areas is obvious- no one wants to be crowded in, especially in the areas which are the most affected by the housing shortage (affluent coastal communities). So it seems as though lawmakers are blocked on all fronts.

Have Lawmakers given up?

This year, it seems as if state lawmakers have given up on dealing with the increasing housing cost. Little to no new solutions have been proposed, and those that have are not being passed through and put into place. The state is at a stand-still and lawmakers seem to take the “I guess we’ll just have to wait and see what happens” approach.

As litigation passes to increase the minimum wage to $15 an hour, many people believe that this increase will ease the burden on low and middle-income families and low for economic growth and eventually lead to a reduction in the housing shortage.

British Home Owners Are Waiting Longer to Move Up the Property Ladder

Research carried out last year revealed that British home owners are waiting longer than expected to move up the housing ladder.

The survey which was carried out by Lloyds Bank found that a whopping 33% of Brits should be further along the property ladder than they currently are. Thanks to the never-ending rise in house prices, the research also found that an incredible 83% of home owners have to wait longer than ever to reach their goal of owning a long-term family home compared to just a decade ago.

40% of people surveyed said that they feel the highly competitive housing market has an impact on their aspirations as it’s so difficult to become a home owner in the first place, let alone move to a bigger property. This figure has fallen since 2013 however when 47% of people felt this way and 2012 when this number was at 53%.

Naturally, first-time buyers are being hit hard with nearly half (48%) saying that the housing market has an impact on how long it takes them to become a home owner.

Despite the difficulties that Brits are facing to get onto or move up the property ladder, it seems as if they still have high hopes for their future. 44% say that even though it’s harder than ever, they still won’t make any compromises when choosing a home and they believe that this is something that’s still a realistic achievement.

63% believe that this is a goal they will reach within the next five years and 64% think they will only have to make one more move before they will be able to achieve their long-term housing aspirations.

If you live in London or the South East then chances are that you will have to wait longer then the rest of the country to own your dream three bedroom property. The average age of applicants for this type of house is 35 which is a year older than the national average. Many are all too aware that these areas remain the least affordable in the country.

This is a stark contrast to the North and Wales however where properties are much more affordable. The average three-bedroom house in these areas will set you back between £129,000 and £135,000. In London, the average price of a three-bedroom property will set you back a staggering £1.3 million.

Lloyd’s survey also revealed that the majority of home owners (43%) aspire to own a three-bedroom property. 24% want four bedrooms and many dream of having a nice garden, high quality kitchens and bathrooms and conservatories.