Eye On Housing
Roughly 6.8 percent of single-family homes started in 2017 qualify as tear-down starts, according to NAHB’s latest estimates. This is down from 10.2 percent in 2016, due primarily to the sharp reversal of a 2016 spike in tear-down percentages reported from the western part of the country.
The abovementioned results come from special questions appended to the February 2018 survey for the NAHB/Wells Fargo Housing Market Index (HMI). For purposes of this post, a tear-down start is defined as a home built on a site where a previous structure or evidence of a previous structure was present before the new home was started. The reason for defining tear-down starts this way is because there are few alternatives. The information has to be collected from builders, and the question formulated in a way the typical builder can understand and answer. After failing to persuade the government to add this question to one of its builder surveys, NAHB decided to incorporate it into its own HMI instrument. NAHB has been collecting and reporting data on tear-down starts in a consistent fashion since 2015.
The 6.8 percent of tear-down starts described above for calendar year 2017 is a weighted percentage that takes into account the number of homes started by each builder that year. Applying this weighted percentage to the Census Bureau’s preliminary estimate of single-family housing starts for the year produces an estimate of 58,600 tear-down starts in 2017, down considerably from the 79,300 reported last year, even though single-family starts overall increased by 8.5 percent during the period.
Regionally, the 58,600 tear-down starts break down as shown below:
Between 2016 and 2017, the number of single-family tear-down starts remained relatively constant in the Midwest and South Census regions, nearly doubled in the Northeast, and declined by nearly 75 percent in the West (after increasing by more than 200 percent the year before). The estimate of 58,600 tear-down starts in 2017 was somewhat higher than the 55,200 estimated for 2015, however, and the 2015-2017 change was not drastically different from the increase you would expect based on general growth in single-family production. Moreover, after the year-to-year rise and fall, the number of tear-down starts in the West was similar in 2015 and 2017, making 2016 look like an anomalous spike—to the extent it is possible to detect an anomaly in an annual series only three years long.
I think this is an important statistic to follow and I understand the difficulty in tracking. Please continue to track because we can use this information when building in heavily developed areas as we work with communities struggling with wanting to regulate it. As housing stock get’s older there does come a time that it needs to be replaced whether from functional obsolescence or under utilization of the land.
Every neighborhood we are building in right now would qualify as a teardown except one. A brownfield redevelopment, a gain in density, or a higher and better use are all important reasons to redevelop new housing stock.
It might be interesting to break the question into a few more:
1) Is the tear down a 1 for 1 replacement.
2) Is the tear down a gain in density – if so how many more units where gained?
3) Is it a change in usage, from commercial to residential?
Thanks. Feedback like this, letting us know what information people are interested in, helps a lot when we make decisions about how to allocate the scarce space on our HMI questionnaire. It would indeed be interesting to collect data on 1), 2) and 3). However, the builder of a home isn’t necessarily involved in the demolition and in a position to answer questions like these (the argument the Census Bureau used for not collecting information on tear-downs, when we suggested it). It might be practical to ask builders about 1 for 1 replacements, though. I’ll consider that for next time.
Paul,
Actually I think you would be surprised with this type of demo to new construction how many companies are handling the demo and the construction. We handle it all on each project we do. So I actually think it would be relevant to ask the additional questions.
Thanks,
Court
Not sure this data reflects the real state of the redevelopment market. Most of the residential infill (teardowns to new) builders are one or two person shops and are not NAHB members, therefore not a part of the survey. IMO, the real data would be derived from counting local demo permits. The problem with that is many teardowns are happening in resort-type communities where the permits are still written on paper.
As Court above says: “Every neighborhood we are building in right now would qualify as a teardown except one”. His thought here reflects the fact that there is simply no more vacant land in, and around, the major metro markets in the U.S. So, if new construction is an ongoing industry, the only way to build new is tear something down. This is an expanding and growing market.
If you guys can get the permit count you’ll find these numbers are much greater.
Thanks,
Brian
Thanks for your comment. Actually, at NAHB, we have (and are very happy to serve) many small builders. Half of our single-family builders have fewer than 5 employees, and 18 percent have fewer than two. Twenty-eight percent do less than $1 million a year in business, and half of these do less than $1/2 million. Twelve percent of those who responded to the survey in February started fewer than two homes last year.
On the issue of demolition permits…
The Census Bureau stopped collecting information on these in the 1990s (over our objection) claiming that data from local permitting offices were too problematic and inconsistent. Even if you had a good count of demolitions, of course, that wouldn’t tell if, when, or how many single-family homes were subsequently built on the sites.
In general, I don’t think infill and tear-down starts are the same thing. There is a paragraph on this point at the bottom of the previous (June 19, 2017) post on tear-down starts.
Paul,
We both want reliable information on the subject, and over the years I have had hard time finding it….
In order to use your survey data we have to concede that 93.2% of new housing starts occur outside of the major urban metro markets, their suburban neighbors and away from commuter lines, bus routes etc.
Our experience is actually the opposite of the survey results. We see all the new construction in and within about 10 miles of a city center where there is no vacant land. So, all the new construction results from a teardown – commercial and residential.
If this new construction is happening outside of these parameters it then must be in greenspace and in far out areas….but there is nothing to teardown in those markets.
Something doesn’t make sense?
Thanks,
Brian
The assumption that there is no land without structures on it within 10 miles of any central city or suburban area in the country is extreme and, I don’t think, supportable.
Paul,
We are both after the same data, so please don’t take my push-back as confrontation but………
Take a look at any large(r) city on Google Globe (CHI, LA, SF, NY etc.) – they all look the same, built out with very few gaps (vacant land).
If we use 1,000,000 as annual housing starts and assume most people in the U.S. live near one of these major metro markets then we have to agree that 941,400 of the new housing starts took place outside of the density we see in the photos or it all snuck into those tiny gaps or the new housing was built in far out more rural areas (which may be the case?).
#headscratcher
Please keep up the great work…you’re the guy with the data. I’m using experience and logic to come to my conclusions.
Thanks,
Brian
Paul,
If you want, email me or Hal Bennett at BuildZoom and let’s see if we can help you get estimate demolition permit counts, possibly with info on subsequent construction.
Issi
This appears to be accurate you can track teardowns in most inner ring suburbs in the Midwest and East since their are no vacant lots. This is also a good way to track the real luxury home market since the cost of a typical teardown is over 600K where ever it is built
Just curious Paul- most of our business is now on Land Bank Lots that were Home that have been foreclosure upon and demo’d by a public entity- do the figures for tear downs include Land Bank lots? I also agree that Court’s suggested data would be useful- that’s the second source of our primary land resources- abandoned convenience stores w a dirty enviro history or underutilized retail and commercial properties. Cleveland has been progressive in encouraging enhanced density for the properties as an incentive to clean them up and put them back into production.
Hi, Bill – My presumption is that most Land Bank Lots generated the way you describe are included in our count of tear down starts, on the grounds that there would usually be enough evidence of the previous structure for the builder of the new one to detect.
great- makes sense. There is a huge number of land bank lots in Ohio- permits for starts on those lots is a different number. If they count only the LB vacant lots. that might significantly overstate the number of tear downs- although eventually the numbers will even out.