NH Public Policy
New Hampshire Center for Public Policy Studies

Business NH Magazine: NH's Changing Housing Needs

NH’s Changing Housing Needs

June 11, 2014

by DENNIS DELAY and DANIEL BARRICK

In the decades before the Great Recession, NH’s housing market was a major driver of the state’s expanding economy. But shifting demographic and economic trends could mean that NH’s current housing infrastructure will drag down NH's future economic growth.

There are several reasons why: an aging population, shifts in housing preferences among younger generations, a mismatch in supply and future demand, and changes in financing. Like many policy areas, much of NH’s housing industry is still under the illusion that consistent, high population growth (especially among young families) is the norm. Instead, NH must prepare for more senior households, financially strained first-time buyers, and changing lending standards.

A recent analysis conducted for the NH Housing Finance Authority by the NH Center for Public Policy Studies and Russ Thibeault of Applied Economic Research examined the state’s housing market and came to several conclusions:

1. Home ownership demand in NH is declining. The reasons include the poor economy, lower rates of in-migration and difficulties in obtaining financing. Among older homeowners, low levels of liquidity pose problems, while high student debt and mediocre wage growth limit younger workers. In rural areas, this decline has been particularly apparent in communities far from major transportation networks. Moreover, growth in low-wage service jobs and rising housing costs are a growing problem, particularly north of Concord.

2. New Hampshire’s current housing supply is poorly aligned with evolving preferences. Older residents are likely to downsize to smaller living arrangements, yet housing units of three bedrooms and more far outnumber one- and two-bedroom units. Given the relative small number of young households, it’s unclear whether the larger homes will draw sufficient interest from future buyers. Plus, younger people in general are less likely to be homeowners compared to previous generations due in large part to financial pressures.

3. Seniors will occupy a growing portion of the state’s housing units. New Hampshire’s senior population is expected to nearly double between 2010 and 2015, the highest rate of growth of any age group. As a result, seniors will occupy one in three units by 2025. While seniors generally want to stay in their current homes, this desire is complicated by several factors, including high rates of disability, lower median income and a declining caregiver population.

4. New construction will likely be limited in an era of slower population growth. Because of shifts in demand and the needs of an aging population, rehabilitation of the existing housing stock may become more prevalent. There has also been an increased demand for rental housing. In an unfettered market, the supply of rental units would increase and relieve upward pressure on rents. But because local planning and zoning ordinances show a strong prejudice against rental housing, developers cannot easily meet new demand. The result is higher rents that harm households and communities alike.

Affordability and the NH Advantage

All these factors affect the affordability of housing in NH, something that was a big part of the state’s attraction to new migrants from higher-priced states. While the median home price is more affordable than a few years ago, this is not necessarily true for first-time buyers. In addition, a recent rental housing survey indicated that since 2006, the median monthly gross rent rose by 4 percent (in contrast to the 40 percent drop in the monthly mortgage cost) and vacancy rates declined.

What might a successful shift in regulatory efforts look like? Towns may want to encourage multi-generational options that are now often restricted by zoning ordinances. In many NH cities, the conversion of old mill and industrial buildings into housing units could offer one-floor living, smaller and (potentially) more efficient units, as well as proximity to shopping and other amenities. Encouraging housing rehabilitation, however, does not solve the affordability problem, as rehabilitation is often more expensive than new construction.

There is potential for encouraging new development approaches using market incentives, but it is unclear whether subsidies or other incentives can jumpstart a market solution. Manufactured housing could help seniors. Encouraging these changes would require complex policy decisions on property tax exemptions, land use requirements and zoning ordinances. The solution will not be straightforward.