1. Smaller technology hubs will grow. New ones will not rise (yet).
Amazon’s HQ2 contest dominated real estate headlines in 2018, and the final decision taught us that distance still matters more than ever. Technology firms want to be near infrastructure, investors, and pools of high-skilled talent. As a result, they have clustered near one another. This trend will continue in 2019, even as technology giants set up shop outside of the Bay Area and Seattle. The tech sector will add a cornucopia of new jobs in technology hubs east of the Rockies, but the benefits of proximity will not favor tech job creation in places where it has never existed.
Google is growing its presence in New York City. Apple is expanding into Austin. Amazon set up an operations center in Nashville. Smaller companies will follow. This growth creates new demand for housing, pushing up rents but growing income opportunities for local businesses. There will be examples of well-managed, inclusive growth alongside a dialogue around displacement as existing residents that worry they’re being left out of their own neighborhood’s boom.
2. San Francisco housing will be in for a wild ride.
The rumors of the Bay Area’s demise have been greatly exaggerated, and the San Francisco housing market may be gearing up for a historic year. Bay Area real estate moves with the technology industry, and the technology industry cashes in when companies go public. In 2019, a handful of hotly anticipated IPOs are rumored to be on the horizon. If the economy holds strong, Uber, Lyft, Airbnb, Palantir, and Slack may all go public. In this scenario, well over 10,000 new households may have down payments overnight (or after a six-month lockout period). For reference, San Francisco has only built an average of 2,500 units annually over the last decade, across affordable, rental, and owner-occupied housing. Open houses will get crowded, and home values will rise in what is already one of the priciest markets in the country.
On the other hand, if markets don’t hold and a recession comes earlier than expected, the momentum may disappear, having the opposite effect altogether. The bottom line: it’s unlikely Bay Area rents and home values will remain unchanged through 2019.
3. The future of affordability will be on trial in Minneapolis.
When it comes to housing affordability, the devil is in the details of the zoning code. Zoning and land use restrictions can preserve character and influence design, but they can also restrict housing supply (pushing prices up) and promote economic and racial segregation across neighborhoods. Land use restrictions can lead to artificially high prices and painfully long commutes. For many growing cities, zoning becomes an immovable barrier to affordability. This month, Minneapolis became the first city to end single-family zoning. This change will allow for multi-family housing construction in all single-family home neighborhoods.
This is a controversial move, slated to go into effect in 2019. Nothing will change overnight, but affordable housing advocates across the country will be watching closely to see how the new rules play out. If the transition is smooth, cities such as Portland and Seattle (pondering similar changes) will follow suit. The end result would be a more inclusive housing market and lower rents.
4. This will NOT be the year that millennial homeownership rates catch up to those of prior generations.
Millennials lag behind previous generations in homeownership, and 2019 will not be the year that they catch up. Even though 89% of millennial renters eventually plan to purchase a home, nearly half of the aspiring homeowners have nothing saved for a downpayment. Only four percent of millennial renters surveyed have plans to purchase a home in the next year. The markets, however, may not be in their favor. Mortgage rates are rising and single-family home construction is still lagging. Our research indicates that millennials do plan to eventually buy homes, but affordability concerns will prevent 2019 from being the year that most of them do so.
5. Housing policy will take center stage in national politics.
Housing policy is still a predominantly a local dialogue. Housing was not mentioned in the last series of presidential debates. Moreover, the outgoing Congress introduced only 115 housing-related bills, and precisely zero made it to the President’s desk for signature. In 2019, however, housing will start its moment in the national political spotlight.
This past year, several leading democrats introduced bills designed to expand the federal role in housing. Kamala Harris and Cory Booker called for renter subsidies. Elizabeth Warren introduced the American Housing and Economic Mobility Act to promote mobility and development. Alexandria Ocasio-Cortez made headlines by pointing out that housing affordability affects members of Congress as well. By the end of 2019, the speculation for who will be the Democratic nominee will be well underway, and each contender will need to have an opinion and a plan for housing affordability and equity.