😬 Is Housing Already in a Recession?

Here’s what you will find in today’s email:

• Quote: The economy is giving mixed signals

• Tweet Thread: A framework for risk

• Chart: The housing market may be signaling a recession

• Zoning: An NYC building gets decapitated

• Sustainable Building : How legos can save the planet Subscribe now

🎤 Quote

"It's as difficult an economy to read as I can remember"

- Larry Summers, Former US Secretary of the Treasury 

This week the economy gave us some mixed news.

The jobs report came out for January, showing more than half a million jobs were added, and unemployment sits at 3.4%. This is the lowest unemployment rate since 1969!

The bad news was that the Fed announced a new 25 basis point rate hike.

The Takeaway: 

This is another reminder that no one knows anything.

Unemployment is at all time lows, but other parts of the economy (i.e. housing) are showing weakness. For real estate investment, this means that most will be taking a “wait and see” approach until there is a clear direction.

🐦 Tweet Thread

Managing risk is the cornerstone of investing, no matter what industry. Whether you are investing in stocks, venture capital, real estate, understanding risk should be top of mind. This thread gives us a range of risks to evaluate when making an investment decision.

The Takeaway: 

Once you start peeling away at the risk onion, this thread presents a framework for risks that you’ll need to look to eliminate or reduce in order to make smarter investment choices.

Don’t let your risk analysis become a death of “analysis paralysis”. Create your own risk framework so that when a deal comes along that checks the boxes, you are ready to act.

📊 Chart

The National Multifamily Housing Committee (NMHC) just recently published their quarterly survey of the apartment market. The above index shows market tightness and sales volume, which also happen to be good indicators of recessionary periods.

The sales volume and market tightness indexes both fell off a cliff last quarter.

The current “loose” market means that we now have a greater spread between the bid and the ask, less liquidity, and less deals getting done.

The Takeaway: 

The housing market may already be in a recession.

The National Association of Home Builders (NAHB) is projecting negative GDP growth for the first two quarters of 2023. Two sequential quarters of economic contraction is a traditional indicator of a recession.

🌆 A Zoning Story

The Hustle just released a great piece on an NYC building that was forced to remove 12 stories after completion!

The Parkview, at 108 E. 96th St., was once 31 floors.

The site was approved by the DOB in 1985, but later, it was discovered to be zoned for no more than 19 floors and forced to chop off 12 stories!

The Takeaway: 

Developers often take the stance of “ask forgiveness, not permission”.

In many cases that works! In this case, it didn’t…

Zoning laws exist for a reason, and zoning regulation can make or break the profitability of a project. If there is a question, make sure you’ve got a good zoning attorney!

🌲 Sustainable Building

Can legos save the planet?

A paper by Bent Flyvbjerg, Make Megaprojects More Modular, argues that a modular approach is needed to help large megaprojects come in on time and within budget.

A Financial Times article further highlighted the case for modular in large scale energy projects.

The argument is that modular building comes with significant advantages. Nearly all megaprojects have significant customized components and come in over time and over budget. With modular building, you reduce the additional risk of customization and can manufacture at scale and reduce costs.

There is also a phenomenon that occurs with building products at scale, “the learning curve”.

This shows us that additional products become more efficient as production increases. It has been observed in more than 50 products, from planes to beer. This can be applied to building for delivering projects at scale.

The Takeaway: 

While this study specifically discusses megaprojects that are often $1B+, there are takeaways for all types of projects to reduce or prevent delays and budget overruns.

• Figure out your “lego” - modular components that can be replicated at scale

• Iterate and eliminate or reduce customization

• Forget innovation that brings additional risk - look at tried and true methods to maximize building success

That’s it for this week! Thank you for reading.

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