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Columns

Single-family homeownership declining

By Morris Beschloss
Single-family homeownership declining
May 29, 2015

While an ultimate eulogy for single-family homes may be premature at this point, other options, such as renting, leasing and even co-ops in large metropolitan apartment buildings are rapidly taking over from full-time personal ownership which had been the mainstay of America’s residential markets.

Although government projections remain bullish on the residential market as a whole, the 1 million new units predicted for 2015 differ dramatically from the heyday that encompassed the post-World War II period and slightly past the change of the millennium. This pace radically declined during the Great Recession (2008-2010), dropping from an annualized 1.6 million to less than half that number by 2009.

But even more disturbing is the attitude, especially among young millennials, about the ongoing change and the advisability of homeownership as a main asset. This proved to be beneficial over the post-World War II years. It was fostered by returning GIs and other members of the younger generation. They saw in single-family homeownership a phenomenon where value would appreciate over the years. It seemed a practical guarantee of sale in the existing U.S. economic growth environment. This commitment was abetted by a growing economy, plentiful jobs and relatively low interest rates.

Despite pockets of recession along the way, the general trend over the decades has been forward-moving, even as interest rates got caught up in the inflationary spiral of the late 1960s, 1970s and early 1980s.

With government-supported financial guarantees from Fannie Mae and Freddie Mac, this trend of family ownership and upscale pricing continued until 2008.

The Great Recession’s sudden home value reversal and increased unemployment led to the subsequent rash of bankruptcies and distress sales. These almost totally reversed homeownership from asset to liability, in spite of the Federal Reserve’s low interest rates.

With an increasing number of job-seekers accepting part-time jobs, or even giving up looking for work, the current trend is directed toward renting and long-term leasing. Also in vogue are other temporary arrangements that have given prospective employees the option of moving their domiciles to the nation’s regions, where the job market most strongly beckons.

This has drastically decreased the building of single-family-owned homes but greatly increased multistory apartments in big cities and even some suburbs, while even increasing the number of homes for long-term leasing in the rural areas.

With the overall employment mindset of the dynamic, younger generation set on solid employment opportunities, these have been centered in the energy development areas of the Southeast and Southwest, as well as spot areas in North Dakota and the mid-Atlantic. While the overall residential construction market has maintained a monthly volume construction rate annualized near 1 million, which primarily includes nonsingle-family ownership, little change is expected in future direction.

Unlike the rebound of the automotive industry, which has neared the record of the prerecession production level, overall housing starts of all types are barely 60% of the levels reached more than a decade before the financial decline.

Federal tax structure unchanged

Although not mentioned as the crucial standoff during the current administration’s remaining two years, a badly needed revised tax structure will not be resolved.

With a Republican majority in the House and Senate steadfastly opposed to the administration’s plan to up the ante on the highest bracket, the GOP has stated unequivocal opposition to such stringent measures on capital gains, as well as ordinary income. Republicans are especially opposed to any tax increases without substantial cuts in social programs.

This disagreement over the return to far higher taxes on the top brackets to balance growing budgets will likely not be resolved. Those who remember the sky-high taxes existing throughout the 1970s and early 1980s also will remember that all types of ordinary income could be offset by losses on stock investments, with liberal discounts on even the most risky overvalued pursuits — such as movie projects, Broadway plays and unproven innovations.

This led to a plethora of risk-taking in order to bring the tax bill down to a much lower level. In effect, the super-rich generally made sure their taxable income levels were reduced to a rational tax amount.

Under the GOP/Democrat deal made in the mid-1980s, the most highly taxed bracket came down to 28%, with capital gains and dividends reduced to 15%. But this pact also called for the elimination of investment losers of all kinds to offset ordinary income.

Whether by coincidence, the resultant impact was a simultaneous end to hyper-inflation in the mid-1980s, which has never again made a reappearance of the previous runaway inflationary impact.

Although the top bracket crept back up during the two terms of the Clinton administration and was then tempered during the succeeding George W. Bush’s two terms, a comprehensive re-examination of an outdated federal tax code is long overdue, along with the nation’s more than 50-year-old transportation infrastructure.

Private sector labor unions

While the recent West Coast longshoremen labor union strike focused on that once over-powering segment of America’s labor union movement’s ability to bring Pacific shipping commerce to a halt, private sector unions, as a whole, today are only a shadow of their former selves.

To emphasize that statistic, overall AFL/CIO union membership, once dominant as a required necessity of most workers’ jobholding, has come down to 6% of shop workers in 2014, compared to 16% in 1984. Even that figure lags from the mid-1950s when, for many economic sectors, labor union membership reached its all-time pinnacle.

Although the U.S. National Labor Relations Board generally has been favorable in its decisions regarding labor rights, the loss of millions of hands-on mass production manufacturing jobs to low-cost imports, combined with productivity-enhancing technology, has materially reduced the need for much of the unskilled labor arena’s opportunities.

Particularly affected by this diminution of potential union members has been those job openings related to the automotive industry. Represented by the once voluminous membership of the powerful United Autoworkers Union, its membership of 1.5 million in 1979 has been reduced to 400,000 currently, despite the recent post-recession comeback of that industry to near boom levels.

These diminishing numbers, relating to America’s union membership as a whole, have lowered labor unions’ share of the active workforce from its one-third total in the 1950s to a diminutive 1/15 residue in 2015.

Union organizers face ever greater resistance in the Southern states, in which foreign automakers have concentrated their expanded production facilities. Local and state laws, as well as that population’s attitudinal resistance, have made open shops attractive to the likes of Japan’s Toyota and Nissan Motors, South Korea’s Hyundai and Kia, Germany’s BMW and Volkswagen.

In order to counter at least some of this resistance, the increasingly union-pressured automakers have begun to accede to workers’ councils. They hope this will lead to an American version of Germany’s Mitbestimmung, or codetermination law, which allows workers to elect trade union representatives for almost half of the supervisory board of directors. It provided the incipient workers’ involvement an opportunity to vent grievances or suggest mutually beneficial solutions.

This has been alluded to as a “minority union,” which workers for the foreign manufacturers, in the Southeast and Indiana, hope will at least open the door to decision-making councils that will take worker groups’ recommendations and grievances under consideration.

With unacceptable unemployment levels still rampant in many of the areas where these automotive production facilities have been built, both workers and management are united in reasonable job opportunity development for their mutual benefit.


This article was originally titled “Fading single-family homeownership” in the May 2015 print edition of Plumbing & Mechanical.

KEYWORDS: residential construction

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Beschloss

Morris R. Beschloss is a veteran of the industrial PVF business and a longtime industry observer. His career in the industrial pipe, valves and fittings sector spans more than five decades.

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