Revenge of the Insulbrick

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So it made a bit of news, but really not what it deserved.  I will say that there really is something weird (a technical term) going on in Pittsburgh's real estate market.  By some recent data, the year over year price appreciation in the local real estate market is an insignificant smidge below +13%. That just isn't normal anywhere these days, and certainly not normal for Pittsburgh at anytime in recent memory.  Remember that national real estate markets remain mostly in the dumpster and given relatively low inflation rates we are talking what may be truly unprecedented price jumps for the Pittsburgh region when measured in real (i.e. inflation-adjusted) terms.


Maybe not so weird actually.  Sometimes that darn economics gives an insight.  Let's stick just to supply and demand.  We've gone over how net migration for the region has turned positive in recent years and I will lay a professional guess that it remains so strongly as I type.  The change in net migration is in itself not a big flow, but remember prices are set at the margin.  So the switch from net decline to net gain could at the margin be quite impactful in some parts of the real estate market.

But supply.  The real estate professionals, and I concur, are saying there is a big local supply shortage of housing at this point.

Let's focus for a second on just the City of Pittsburgh.  The main story is for the region, but I have personal observations that some really extraordinary things are going on in some city neighborhoods.  What is the supply situation there?   Here is a time series of note.  This is the time series for the total number of residential housing units specifies in building permits within the City of Pittsburgh. 


 
So note these are just the numbers in the building permits.  Not all permits result in final construction so if anything these numbers are higher than reality.  Yet they are pretty minimal numbers.  Roughly 150K housing units exist within the city.  So you would need to see maybe 1,500 new units a year if we were growing or replacing at a rate of 1% a year.  We are not even close to that rate anyway.

That of course is not really the story for the city.   We are an outlier in another big important way.  Its not like the existing housing stock would be stable if there were no new building permits.  The city of Pittsburgh has one of the oldest housing stocks in the nation.  If there was a measure for 'real age' I am sure we would be off the chart.  Unlike some other 'old' cities and regions (Boston for example), I will stake a large bet that our housing stock is at a whole different level of disinvestment.

To put a point on that and crib from some colleagues.  Below is a map the average age of housing by city of Pittsburgh neighborhood.  In itself it may not seem like it is that interesting, but suffice it to say that the range of ages depicted are not normal for a large swath of the nation.  Let's put it another way.  In a lot of places, any housing that remains from the 19th century is likely a tourist destination. 

One likely result of such old housing almost has to be a rate of depreciation higher than most anywhere else at this point and the effective loss of housing every year. Likely that loss is more than the minimal building permits data so we are likely net negative.  That situation is probably further compounded because even the housing that is habitable likely is not the type of housing marketable to your typical new resident moving into the region. Couple it all with historically low mortgage rates in a region which likely has a lot more folks with decent credit compared to elsewhere these days and it all makes a lot of sense.




I have an idea!  Let's have a contest for the ugliest insulbrick anywhere in the region.  I will think of a prize.  Bonus points for pictures that show walls with multiple layers of different types of insulbrick.