2022 Outlook for Residential Market: Up and Up

Tensions remain in 2022.

By: Diane C. De Felice 

Although some folks may be back in the office and traveling more in 2022, the experience of the last year and a half-plus has left an undeniable mark on the way Americans view their home and what amenities they now desire. 

For many, the boundaries of commuting and remote work have shifted, removing constraints in terms of work proximity and in-office face-time expectations. For those in this category, many are prioritizing homebuying, and rethinking where they buy those homes.

However, a clear gap remains between those hoping to purchase a home, and those able to. A combination of factors, including historically low mortgage rates and a shortage of available homes, has continued to drive up sale prices and buyer demand. Fannie Mae forecasts an almost 50% shortage of homes available to meet home-buyer demand. 

 “In 2022 and beyond, we will continue to see pushes for creative housing solutions…”

Statistics show at the end of 2020, the national deficit of single-family homes stood at 3.8 million units as estimated by Freddie Mac. An array of creative government policies at the state and local levels as well as private-market solutions will be required to close the housing deficit. 

To address this, states are embracing new housing laws to close the supply and demand gap, and hopefully this will start to bear fruit in 2022. In 2019, Oregon passed laws allowing up to four units on single-family-zoned lots, depending on lot size. 

California followed suit with the passage of Senate Bills 9 and 10, which arguably make it easier to build more than one housing unit on lots zoned for single-family residences, as well as give local jurisdictions greater flexibility to approve apartment complexes in neighborhoods near public transit. 

Such measures, however, are unlikely to fully cover the housing deficit. In 2022 and beyond, we will continue to see pushes for creative housing solutions including pre-approved design and prefabrication. Eugene, OR recently approved an accessory dwelling unit (ADU) program that has a selection of pre-approved ADU architectural plans to streamline permitting and reduce predevelopment costs. 

Private sector innovations to reduce building costs, such as 3-D printed homes and prefabricated ADU companies that handle everything from the design to permitting and installation are also seeing support. 

Lennar, a major home builder, is teaming with Icon, a Texas startup, to create a community of 100 3-D printed homes near Austin, TX which will be the largest development of its type in the U.S. Mighty Buildings, a construction-technology company based in Oakland, CA. 3-D printed homes could offer a solution to labor shortages the construction industry faces, which also may help address affordability.

Continued pressure to build affordable homes will also be important in 2022. The California Association of Realtors’ 2022 Housing Forecast predicts a continued rise in median home prices of 5.2% to $834,400 in 2022, following a projected 20.3% increase to $793,100 in 2021 from $659,400 in 2020. While the flattening of the 2021 spike is a welcome relief to some, the price tag makes homebuying unattainable for the vast majority of otherwise eager homebuyers.

In an effort to quickly ramp up the affordability supply shortage, cities and counties are teaming up with private investors to explore options to repurpose vacant commercial buildings. The Orange County Forum discussion centered on the Future of Housing considered the conversion of office buildings and hotels as options to develop more affordable housing. 

The pandemic made its mark on office culture and expectations for time spent in the office. In some industries, especially tech, the changes are expected to stay long after the risk of transmission is alleviated. Ten percent of the U.S. labor force worked exclusively remote before the pandemic, and some anticipate this number to grow to 25% over the long-term. 

As a result, demand for relatively less pricey metropolitan areas; Phoenix, Fort Worth, San Antonio, Charlotte, are rapidly absorbing an influx of workers leaving their higher-priced coastal areas given their new ability to work remotely and retain the same job or career.

While new housing laws and regional housing crises remain in the headlines, we can expect these tensions to remain in 2022, especially in higher-priced coastal areas. NIMBYism and the status quo are powerful opposing forces to new development and the rapid adoption of new home building solutions.

Diane De Felice is a Land Use and Real Estate Shareholder at Brownstein Hyatt Farber Schreck. She may be reached at ddefelice@bhfs.com.

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