Real Estate Economics in California

INTRODUCTION

There are several key concepts to bear in mind while taking this course. They are:

The study of economics and the business of real estate are inseparable, because land is one of the four major factors of production and because the various real estate markets together constitute a major economic force.

Economic growth, urban growth, real estate development, and land use controls are all aspects of one issue, not separate concerns.

All economic activity is cyclical, including real estate activity.

Economic history demonstrates how booms and busts in real estate, and the economy in general, take place.

It is possible for the average person to learn important economic indicators and measurements and to use them advantageously in any business enterprise, especially real estate.

The course is structured in the following manner: A discussion of real estate economics in general is followed by an introduction to key economic concepts and the rudiments of economic thinking. The role of real estate in the economy is then described through a historical overview of real estate development in America. Several of the following chapters deal in considerable detail with one of the major components of the economy, and one of the major concerns of real estate professionals: finance.

Following the discussion of finance and lending institutions, you will be introduced to one of the major concerns of economists, and one that is of particular concern to real estate professionals: the issue of growth as public policy and as a problem for our major cities.

The course concludes with an examination of how government participates in the economy through the process of taxation, and how taxation affects real estate, followed by the contemporary economic issues of housing affordability and fair housing.

Chapter 1

WHAT IS REAL ESTATE ECONOMICS

The subject called real estate economics is ambiguous enough, and unfamiliar enough for many people, to require a definition and description. Before we begin to examine it and draw conclusions, therefore, let’s try to get a firm grip on just what we mean when we speak of it. Is, for example, the subject of real estate economics the same kind of subject as tuna fishing economics?

The answer to that question would be no if tuna fishing economics were simply an explanation of how to operate a tuna fishing enterprise economically, that is, in such a way as to utilize resources carefully, keep costs down, and maximize profits. That is only marginally or tangentially what we have in mind here. We are not going to discuss in any great detail how to operate a real estate business economically or how to use good sound business practices in your real estate operation.

If, on the other hand, you understand tuna fishing economics as a larger subject matter, one which explores the relationship of that industry to the national economy, then you’re on the right track. A book on such a subject might consider the questions of supply and demand, consumer appetites, markets, trends and forecasts in American eating habits, foreign competition for the household’s grocery dollar, and how government food programs, subsidies, embargoes, and catch limits affect the price of a can of tuna.

Such a book would certainly be concerned with economic forecasting. It might discuss whether it is wiser to sell tuna as pet food or for human consumption, or if in fact it might be better used as fertilizer. Population projections would figure prominently in the discussion, as would the subject of seasonal cycles and business cycles. One would learn the importance of such statistical information as the disposable income of the average consumer in this country.

In other words, the simple subject of how to run a tuna fishing enterprise economically would more properly be called Business Management in the Tuna Fishing Industry. Our concerns here are larger than that. When we speak of real estate economics we want to discuss the relationship of real estate to the national and world economy, as well as to certain general economic principles. Since real estate business is conducted locally, and since cities and neighborhoods are basic real estate concerns, we will also discuss how cities and communities grow and how they relate to the overall economic picture.

To pursue the point further, in the interest of clarifying our subject, consider what a book on Public Transportation Economics might contain. You would likely find chapters dealing with the role of public transportation in a free enterprise system, the effects of population growth in forecasting public transportation needs, government regulations and subsidies, environmental concerns, etc. You would not find a discussion of how to purchase tires in bulk, or how to design routes and schedules to meet rush hour demands, or how to market bus service.

Every enterprise, every market, whether real estate, tuna fishing, transportation, farming, auto repair, or higher education can be discussed in terms of its economics, its relationship to the national economy and other markets, the government, supply and demand, and other economic principles. In a moment we will discuss the question of why anyone should bother with such a discussion in the first place.

Before we do, however, it’s worth noting one thing here which distinguishes real estate from all those other markets, and at the same time ties them all together. Excluding real estate, all the others mentioned (and any others you can think of) are more or less discrete.

That is to say, there is little to discuss in common between, for example, the car rental enterprise and the enterprise of higher education, or between farming and the production of motion pictures. They remain more or less discretely separated by the fact that each operates in a different market. Each competes for a different share of the consumer dollar.

You can argue that they are all interrelated, and it is true that they all operate under the same economic system (our subject), and they all respond to supply and demand pressures similarly. Furthermore, it is easy to see how, for example, a taxi enterprise will cross paths with an auto manufacturing enterprise, or how the medical enterprise is dependent upon the enterprise of higher education.

Nevertheless, there is no one enterprise which plays a major role in the markets of all other enterprises -- except one: real estate. Real property is essential to virtually every economic enterprise in the entire system, and as it ties them all together in this way, so it is distinguished from each of them by this unique quality.

It should be apparent that the real estate market is subject to, tied to, inextricably linked to every market in the economy. This has profound implications, as we shall see, both for the real estate market itself and the economy as a whole.

You’ve heard the economy discussed all your life, and if you are like most people many economic terms are only vaguely apprehended. In this book you’ll come to terms with inflation and recession, leading indicators, M-1, the Fed, the business cycle, Keynesian economics, the mysteries of fluctuating interest rates, strong and weak dollars, the real and unreal GNP, real and unreal economic growth, capitalism, perfect and imperfect markets, transfer payments, budget deficits, Euro-dollars, price setting and price taking, and other mysteries of economics, the so-called dismal science. We’ll try to take the dismal part out of our discussion.

Why, you may still be wondering, is it necessary to learn about economics, which seems such a separate discipline, when all you want to do is practice your business skills in the real estate industry? To put it as simply as possible, there simply is no way to separate one from the other. Here’s why.

There are four so-called factors of production in any economic system. Think of factors of production as resources. In a capitalistic system, which is what we have, however modified by government control, these factors of production, or resources, are: land, labor, capital, and entrepreneurship. Because it is enterprising individuals with ideas and energy who make the economy go with their initiative, entrepreneurship is recognized as a resource or factor of production. If initiative were all they needed, however, it would be a lot simpler, but they also require capital, which can be thought of as investment monies or as instruments which are used to create or increase production. Few entrepreneurs can manage without the third resource of labor, or human effort which is supplied for wages.

That fourth factor of production underlies everything else. Everything else depends upon it. Land. Real estate. And when land or real estate is considered as a factor of production, as a resource for the economy, we are talking about all natural resources -- trees, dirt, minerals, water, space. Land provides the raw materials for manufacturing goods, growing food, and providing shelter.

Money capital is used to purchase what in economics is often simply referred to as capital -- machinery, tools, buildings, etc. -- and these are used by labor to extract resources from the land, manufacture goods, and produce services. So not only does land provide raw materials, as mentioned above, it is that upon which the buildings of commercial enterprise are constructed. The effects of land as a factor of production are everywhere significant in the economy.

What has economics to do with real estate? You might as well ask what interest rates have to do with the economy, or what they have to do with real estate. Everything, obviously, as anyone in the housing market can tell you. What does the money supply have to do with interest rates and real estate? A lot, as we shall see.

How can the actions of the Federal Reserve have anything to do with your real estate agency? Wait until we discuss the way the Fed can pump money into the economy and loosen up credit. What do business cycles have to do with your property management agency? When you see how a contraction phase of the business cycle can affect rental levels, you’ll understand.

If the economy is about anything, it’s safe to say it’s about growth, since an economy which does not grow dies. It therefore becomes important to understand economic growth and the growth of cities and neighborhoods.

Real estate economics involves a study of land and people and the uses to which people apply land. It involves the availability of land for economic use, population pressures, birth rates, and demands for land use. It involves land conservation. Taxation (where the government gets its money) is an important economic consideration, in real estate as elsewhere.

The creation of national wealth, which may be called the ultimate goal of our economic system, is intimately connected with the ways in which we use our land resources. In other words, just as real estate activity is central to national economic goals, so economic activities of all kinds are a major force in real estate activities.

To operate successfully in the real estate market, you need to understand how national wealth is created and measured. You need to be able to read the figures on the GNP and understand them. You need to understand how markets behave and why. You need to understand savings flows and how these relate to the real estate markets. You need to know about the competition for funds that goes on all the time.

You will learn, as we go along, how the real estate market has a special character as distinguished from other markets, how for example supply in the real estate market responds relatively sluggishly, and how there are short-run price changes and long-run supply changes with which you must be concerned.

In real estate, as in all other markets, but perhaps to a greater extent than many other markets, there is a great need for reliable economic forecasting. No one can survive long in the real estate market without some sense of current and future demand for real estate, of whatever type. Forecasting involves knowing about family incomes and housing demand, housing prices, and the indicators of housing demand.

Anyone seriously involved in real estate should also know something about the basic employment activities which support real estate markets, as well as city growth and transportation. A whole host of economic-related problems face the real estate professional, and must be addressed. These include: rising property taxes, urban decay and pollution, overpopulation, unemployment, land use and abuse, the homeless, depletion of natural resources to build cities, crime in cities, transportation overload and obsolescence, rapid change which outruns planning, inner city core poverty, a decline in family savings, and even a decline in education.

Why, you may wonder, are the conditions and problems of our cities an important economic consideration for the real estate professional? Because two-thirds of all our national wealth is in real property, most of which is condensed in cities where eighty to ninety percent of the U.S. population now lives. These cities are becoming poorer and poorer by the moment, and millions more people will be added to city populations in the coming years. The real estate industry depends upon the value of real property, and real property in a decayed and ruined city will have no value.

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We began this chapter by asking the question: What is real estate economics? Let’s say that real estate economics is a two-pronged study: (1) a study of real estate as a factor of production in the economy, and (2) a study of the economy as it affects the real estate market. Remember, the economy is composed of many markets, one of which is the real estate market, and this particular market also happens to be one of the four factors of production which constitute the economy.

Along the way we raised the issue of why it is important to know something about real estate economics, or economics itself. It should be self-evident by now that to know real estate implies a knowledge of economics, and vice versa. This will become more apparent to you as you are introduced to the concept of economic flow and the structure and behavior of markets (of which real estate is one).

UNDER ALL IS THE LAND

Now that we’ve begun to get a grip on just what real estate economics is, and how significant it is in terms of the overall economy, let’s break that significance down a bit further. A good place to start would be the preamble to the Code of Ethics of the National Association of Realtors:

PREAMBLE. Under all is the land. Upon its wise utilization and widely allocated ownership depend the survival and growth of free institutions and of our civilization. The REALTOR should recognize that the interests of the nation and its citizens require the highest and best use of the land and the widest distribution of land ownership. They require the creation of ad-equate housing, the building of functioning cities, the development of productive industries and farms, and the preservation of a healthful environment.

Such interests impose obligations beyond those of ordinary commerce. They impose grave social responsibilities and patriotic duty to which the REALTOR should dedicate himself, and for which he should be diligent in preparing himself. The REALTOR, therefore, is zealous to maintain and improve the standards of his calling and shares with his fellow REALTORS a common responsibility for its integrity and honor.

THE ECONOMIC MEANING OF REAL ESTATE

Democratic sentiments and principles are clearly reflected in this document, as are the underlying market assumptions of a free economy, such as private ownership of property and a wide distribution of ownership. These and other aspects of our economy will be discussed in greater detail in following chapters. For now, it is enough to recognize that real estate, under our system of economic and political organization, is regarded as a necessary element in the growth of free institutions and of our civilization and a requirement for the creation of housing, cities, industries, farms, and the preservation of a healthful environment. The significance of the real estate industry in the overall picture begins to emerge.

REAL ESTATE AS A MARKET

It is very important that you begin to think of our subject in terms of a market, for this is a key concept in economics. Real estate itself is a commodity, and as we have already mentioned is considered one of the four factors of production. As a commodity, real estate is bought and sold in a market. It is actually more accurate to say that there are a number of real estate markets.

There really is no one monolithic real estate market; instead, there are different types of properties which comprise markets of their own. For convenience’ sake we often refer to the real estate market, and it will be seen that indeed all markets within the real estate market respond similarly to over-all market forces.

There are five broad categories of properties, each of which may be considered a separate market within the larger real estate market. We will take a moment here to consider the characteristics of the various types of real estate properties, what distinguishes them from one another, and what they share in common. They are:

Residential properties

Commercial properties

Industrial properties

Farm properties

Special purpose properties

THE RESIDENTIAL PROPERTY SUB-MARKET

Within cities, residential properties make up the largest land use category. In fact, nearly half of all land in major urban areas is used for residential purposes. Of this large residential market, there are two basic types: sales markets and rental markets.

It is convenient to think of rental properties as those which are not designed to be occupied by the owner of the property. These are broken down into such structures as multi-story apartment buildings, duplexes and four-plexes, and clusters of townhouses, as well as garden-style buildings and two story walkups. There are generally fewer square feet of living space in rental units than in other types of owner-occupied living units, and it may be said that the people who live in rental housing are to a significant extent from the younger and older ends of the population spectrum.

The structures which make up the sales market are structures which are built with the expectation that someone will buy them and live in them. The structure which perhaps typifies the sales market is the single family housing unit. Other types of structures in the real estate sales market include condominiums and cooperatives, as well as mobile homes.

There is a wide range in the proportion of the rental market to the sales market, depending upon a variety of conditions from one community to another. For example, a community which contains a large university or a military base is likely to contain a higher proportion of rental housing, simply because of the transient nature of students and military personnel.

THE COMMERCIAL PROPERTY SUB-MARKET

Here we have a market, the demand for which is derived. That is to say, the demand for commercial property has nothing to do with the value of the property itself. We will discuss the concept of demand (and supply) in later chapters, but it is interesting to note here this characteristic of the commercial real estate market.

For example, something as seemingly unrelated to real estate as consumer appetites and habits can provide a demand or lack of demand for commercial properties. If, for example, the nation’s consumers suddenly decided it was unhealthy to eat candy, then there would be a lessening demand for commercial space for sweet shops; rental space for sweet shops would then eventually diminish. This is what is meant by derived demand; the demand for commercial space is derived from something other than its intrinsic property value.

Commercial properties primarily consist of properties which are utilized for business operations: the sale of goods and services. This would include individual shops and offices, as well as shopping centers of various types and office buildings. Office buildings are generally separated from retail properties by the distinction that they house service and information businesses, whereas retail businesses (the sale of goods) generally operate in shopping centers and individual stores.

The proportion of commercial land use in most major urban areas is somewhere around 15 percent. The central business district, of course, would have a much higher percentage of commercial property. The value of commercial property, as suggested by the fact that its value is derivative, is closely linked to how well the property contributes to the occupant’s profits.

Among commercial real estate properties, a distinction is frequently made between those which are general and those which are specific in terms of use. In other words, commercial real estate which can be easily converted from one use to another (general commercial real estate) is more highly valued than property which is designed and built for a specific type of business enterprise.

THE INDUSTRIAL PROPERTY SUB-MARKET

This is a very specialized market, and each type of industry within this market actually creates its own sub-market. In the average major urban area, industrial properties comprise perhaps five to ten percent of the land use.

The terms light and heavy are frequently used to separate industrial property into two convenient categories. This of course refers to light and heavy manufacturing, as the industrial market customer is exclusively a manufacturer of goods, as opposed to the retail seller of goods and the seller of services and information who use commercial properties.

Perhaps the most significant attribute of industrial property is that its occupants can have a major effect on a city’s economy by providing employment, income, and tax revenues. Thus, many community governments will offer a variety of incentives to industrial tenants to locate in their area.

THE FARM PROPERTY SUB-MARKET

Here, of course, we step out of the city and into the country. Well, not entirely. You will often find urban borderland being used for agricultural production, and often it is used simultaneously for speculative purposes. In these situations the owner of the property may derive some agricultural income from the property while holding it with a view toward its appreciation as the city grows in his or her direction.

The national view of farm properties finds them being used primarily for raising crops and timber, as well as for pasture. Many areas of the country will only support a particular kind of crop, e.g. citrus in Florida and California, cotton in the South.

THE SPECIAL PURPOSE PROPERTY SUB-MARKET

Here we are talking about theaters, cemeteries, churches, parks, government properties and some types of noneconomic properties, such as historical sites. Compared to other types of properties, these comprise a very small proportion of total land use, probably less than one percent.

COMMON DENOMINATORS

Now that we have seen that the real estate market is really comprised of many sub-markets, depending upon land use, we should mention the various ways in which all real estate markets are similar. There are five factors which are special to the real estate industry and which unite all the various markets. They are: fixity of location, relatively long economic life, relatively large requirements for capital investment, an interdependence of decisions and the nature of ownership rights, and the concept of illiquidity.

What, you may wonder, does the fixity or immobility of real estate have to do with economics? The implications are very important. Think in terms of value and what the value of real estate depends upon. The most vivid example of the effects of immobility upon the value of real estate is a familiar one to anyone in the real estate business: shifts in transportation patterns.

What happens, for example, when a new freeway bypass is built, re-routing traffic patterns away from established businesses? Obviously, since these businesses cannot move their properties (fixity of location), many of them will suffer economic distress, if not outright disaster.

In addition to changing traffic patterns, fixity of location can cause real estate properties to fall victim to shifting population patterns or a decline in the general quality of the area in which they are located. The owner of a neighborhood shopping center in a deteriorating area or an area in which the crime rate has risen sharply may be ruined simply because of the fixed nature of the real estate property.

The fixed nature of real estate property is exacerbated by the fact that most tenants are local. That is, few are absentee owners. This is true not only of commercial properties, but of residential properties as well. Homeowners with second homes number only some five to six percent of all homeowners.

In other words, demand, an economic concept we will be discussing in considerable detail, is created, in the real estate market, largely by local residents, and local residents are more likely than absentee owners to be aware of, fall prey to, and purchase with a view toward the fixity of location of real estate properties.

ECONOMIC LIFE

Compared to other types of commodities, real estate has a long life, which is what we mean by a relatively long economic life. Unimproved land, for most practical purposes, has an economic life without end. Improvements on land don’t last forever, but they are generally meaningful in an economic sense for several decades.

What, then, are the implications of long economic life? Here the words supply and demand once more arise. Real estate investments, in land and improvements both, arise out of demand. Demand, it should be pointed out, is something which fluctuates and changes, and these fluctuations and changes in demand take place in the short-term. That is, during the relatively long economic life of any given property, there are likely to be a number of changes in demand for that particular property, and the change may be a short-term decline in demand.

This characteristic of real estate, long economic life (combined with short-run declines in demand) has a number of serious implications. First of all, it is obvious that real estate investors would be wise to carefully examine their markets and the general environment of a given property before making the investment.

Secondly, investment in real estate (a long-term investment) must of necessity be an investment in the future. Therefore, since the benefits of a property are spread out over a large number of future years, it is obvious that the present value of a property is really a projection of future benefits. This aspect of real estate investment (long economic life, present value based on future benefits) combines with real estate financing to force investors (including homeowners) to make decisions based on long-term considerations. Most real estate is financed by debt. Families who purchase homes not only commit their present savings to the purchase, but their future savings as well. Lenders will necessarily be concerned with the long-term market conditions relating to any property they finance, since the property itself is security for the loan.

OUTLAY

Real estate is not only conspicuous by being fixed in its location and long-lived, but also by the relatively large outlay of capital required to purchase it. It has always been true, and remains true today, that the purchase of a home is the largest single investment an individual is likely to make in his or her lifetime. In the mid-eighties, the cost of an average single-family home (nationwide) is over $60,000, a sizable figure for most people.

Here we touch on the national economy in a truly significant way. Private savings are extremely important to the national economy, as we shall see in a more detailed discussion in a later chapter. Here we will mention in passing how savings and the relatively high capital outlay required for real estate purchases combine to create a powerful effect on the economy.

In the housing industry alone, individual homeowners commit a huge portion of present and future savings to the purchase of their homes. With this major portion of savings invested in home ownership, the welfare of the economy is significantly affected by the ways in which housing prices change.

Imagine, for instance, what would happen if housing prices were to decline by as much as forty percent. First of all, since a lot of individual wealth is held in real estate, much of that wealth would be lost. The repercussions would rebound across the entire economy, and millions of people and businesses would suffer economic distress.

Obviously, in any discussion of the cost of real estate, there is the issue of construction cost. In fact, construction and operating costs for real estate tend to increase faster than income grows, and the result is that there are fewer individual purchasers eligible to enter the market.

As the required capital outlay continues to increase, so the transactions become more complex. The first necessity for most real estate purchases is borrowing a portion of the purchase price. This in turn necessitates an accurate determination of market value and a precise description of property rights for all parties involved in the transaction. Furthermore, as the size of the capital outlay increases, so ownership arrangements become increasingly complex. Thus, multiple-ownership arrangements and ownership syndicates and corporate ownership.

INTERDEPENDENCE

What you do with your property will have some effect on the property of your neighbor. This is a truth concerning real estate which has long been recognized, and which in modern times has given rise to strict community controls over land use. Generally speaking, the denser the population of an urban area, the more stringent the land use controls (building codes and zoning regulations).

Land differs from most other commodities in this respect. You are more or less free to do what you will with any other commodity you happen to own, but your freedom with regard to real estate, because of the interdependence of real estate, is relatively limited. This characteristic of real estate brings into play such issues as police power, governmental regulation, and environmental considerations. Obviously, zoning ordinances are a primary consideration in any real estate investment.

ILLIQUIDITY

In this, real estate is not alone. However, the degree of illiquidity of real estate is higher than in other types of investments. You can liquidate savings accounts, stocks and bonds, and commodities in short order. On the other hand, it may take you several months to sell your private residence, and private residential properties are probably easier to sell than other types of property.

Not only that, but it is usually necessary to involve a number of people in the sale of a property, particularly commercial property, where the participants could include attorneys, lenders, brokers, appraisers, accountants, and marketing professionals. It might take several years to sell certain commercial properties.

DEMAND AND DEMOGRAPHICS

For individuals and society as a whole, demand for real estate is a function of three very important considerations: want, willingness, and ability. A buyer must want something, must be willing to pay to satisfy the want, and must have the ability to pay.

How, you ask, does demographics relate to this demand which is created by wants, willingness and ability to pay? Well, there are certain social factors which have a bearing on real estate markets, and these are reflected in demographics. Demographics can provide a reliable picture of the general atmosphere and environment in which the real estate market operates, and this can help the real estate professional to make decisions about current trends and future forecasts with regard to consumer wants, willingness, and ability to enter the market.

We will briefly touch on some of the more important demo-graphic considerations here, and we will take them up in more detail in a later chapter. Some of the more important demographics are: population growth or de-cline, household formations, age distribution, migration, standard of living, and desire for home ownership.

POPULATION GROWTH AND DECLINE

This is the basis for all demand in the real estate market. Furthermore, the rate at which a population is increasing determines future demand. Obviously, it becomes very important to understand the impact of population on demand and to learn how to make a reliable determination about population growth in your market.

Population is basically determined by net immigrations, birth rates, and mortality rates. The U.S. Bureau of Census provides a source book called the Statistical Abstract of the United States which contains a wide variety of important statistical information, not the least of which is population information, including future projections.

As an example of how this information can be useful to you, the Statistical Abstract provides future projections of population growth based on certain assumptions about mortality rates, birth rates, and net immigration, illustrated in various scenarios. Most reasonable projections, barring major unforeseen circumstances, strongly suggest a rate of population growth in the U.S. sufficient to have a tremendous impact on our quality of life and large enough to require, even in the most conservative scenarios, a very substantial commitment of resources and planning in the real estate sector.

THE FORMATION OF HOUSEHOLDS

The Bureau of Census says that a household:

...comprises all persons who occupy a housing unit, that is, a house, an apartment or other group of rooms, or a room that constitutes separate living quarters. A household includes the related family members and all the unrelated persons, if any, such as lodgers, foster children, wards, or employees who share the housing unit. A person living alone or a group of unrelated persons sharing the same housing unit as partners is also counted as a household. Group quarters are living arrangements for persons who do not live in housing units. Examples of group quarters are: a rooming house, an institution, a college dormitory or a military barracks.

The Census Bureau further says that a family:

...refers to a group of two or more persons related by blood, marriage, or adoption and residing together in a household. A primary family consists of the head of a household and all other persons in the household related to the head. A secondary family comprises two or more persons such as guests, edgers, or resident employees and their relatives, living in a household and related to each other but not to the household head.

We are here more concerned with household formations than family formations. You should think of family formations as a sub-category of household formations. Housing units are needed for every household formation, not merely every family formation. Using Bureau of Census figures on total households and average household size, you can compute future housing unit needs easily.

For example, if the average household size is four, and there is a projected increase in population over a given period of time of some 100,000 people, then simply dividing 100,000 by four will tell you that we are going to require 25,000 new housing units. It is interesting to note that under the same projected population growth, if the household size is only 2.5, then the need for housing units jumps to 40,000. Hence, the smaller the household size, the greater the number of total housing units needed.

These are forces which apply pressure to the housing industry and real estate resources (population increases combined with household size decreases); these, in addition to a slower mortality rate and rising birth rates (or net birth rates), as well as immigration, which we will discuss in a moment.

You may be wondering why the average household size would tend to decline, as it has demonstrably. The reasons are many. Young people have been postponing marriage; couples have fewer children than their parents did; women’s liberation has probably had an influence; and many more people are preferring a singles lifestyle. There are probably other reasons as well, but whatever the reasons, the results show up in the Census Bureau’s statistical data.

AGE DISTRIBUTION

From the beginning of the present decade (1980) until the beginning of the next century, a mere twenty years, approximately eighty million people are expected to turn thirty. In the twenty-year period preceding the one just mentioned (1960-1980), only some 55 million persons entered their thirties. Obviously, such a dramatic increase in adults of that age is going to place an unusual demand on the housing industry, and housing prices are likely to be strongly affected. It’s also interesting to note that the five-year period from 1995 to 2000 shows a slight decrease in the numbers of people entering their thirties, which will probably herald a longer period of population decline for that age group and have the opposite effect on the housing industry.

Why is it so important to know how many people are going to reach age thirty in a given time span? Because the University of Michigan’s Institute for Social Research developed data which, if reliable (and it probably is), tells us that people between the ages of thirty and fifty occupy three out of four of all owner-occupied housing units. Obviously, then, the age distribution figures are very important in planning for future housing needs.

MIGRATION

We have all heard about the westward movement in this country’s history, the pioneer movement some call it. This was one of the great migratory waves which this country has experienced, and every migration that occurs affects the demand for and distribution of housing.

The movement from east to west continues even today. If you were to view the United States as a flat, weightless plane, and assigned an equal weight to each person on that plane, and then imagine this hypothetical plane as resting on a point where it would balance, then in 1970 that point would have been just a few miles east of St. Louis, Missouri in Illinois. This will give you some notion of how the population was distributed at that point in time.

Now, to illustrate how the population has gradually moved westward, look back to 1940 (using the same flat, weightless plane with each person assigned an equal weight, etc.), and you find the point of balance at the