“On real estate bubbles and things that go Bump in the night.” QUESTION: Just How Much Demand Is There For Housing in America, And Specifically, In The Chicago Area? ANSWER: More than there has Ever been QUESTION: What proof do you have for that bold claim? ANSWER:  See The Attached Set Of Statistics.(See March 2, 2005 Powerpoint Presentation to Illinois Housing Development Authority, “Housing Trends in the U.S.” Peter Fugiel  © 2005                          December newsletter A word to the wise: don’t confuse all this tremendous demand for housing with interest rate and economic trends that temporarily affect housing activity.  It is these temporary changes that get a lot of press. We are always going through some kind of economic cycle. In the foreseeable future though, the strong underlying demand for housing of all kinds remains. One other caveat: Homeownership is heavily subsidized through the federal tax code (to the tune of $80 billion a year!) The recent updraft in the use of mortgage credit reflects a lot of demand of course, but a goodly portion of it (one-fourth maybe?) is tax-induced.

Some free verse for the informed investor            APPRECIATE REAL DEMAND, BE NOT CONFUSED BY NOISY CYCLES, BUT DO HEAR THE WHIR OF THE TAX CODE ENGINE THAT SITS OUT BEHIND YOUR NOT SO LITTLE HOUSE ON THE PRAIRIE WHAT ONE CONGRESS GIVETH ANOTHER CONGRESS CAN TAKETH AWAY.

HOUSING TRENDS IN THE U.S. Demand, Demographics, and Policy lllinois Housing Development Authority March 3, 2005 Peter J. Fugiel, Ph.D. Map Capital Financing, LLC U.S. Population Growth Decade by decade increases: 1850-2020

Demand for Starter Housing                                 Number of 15 -19 Year Olds                                     Number of 20 - 24 Year Olds                                           (in millions)                                                                (in millions)

Population and Household Increases: 1970-2000(in millions)(Ratio of Persons to Households)

Average Household Size: Population divided by number of households, not housing units

1990-2000 housing unit ‘shortfall’= 387,000

The decline in the production of rental units(in millions)Change in the number of owner vs. rental units

The Case of the Missing Rental Units                               NUMBER OF UNITS                                                                                      NUMBER OF UNITS                                            1991                                                                                                              2001                                       (in millions)                                                                                                    (in millions)

Affordable housing’s best kept ‘secret’ The Owner Occupancy Rate Is Going Up: (FROM 64 TO 68%, BETWEEN 1993-2003) BECAUSE …………………. The Production of Rental Housing is Going Down!

Housing Costs in America

Owner cost as a percent of   income (before) vs. after   taxes

Renter cost as a percent of income, utilities excluded

The Booming Housing Market’s biggest negative, bar none RENTERS PAY NEARLY 40% MORE OF THEIR INCOME FOR HOUSING, COMPARED TO OWNERS EVEN THOUGH THEY HAVE ONLY HALF THE INCOME!

Tax Code Principle  #1:

The more you favor an economic activity under the federal tax code: The more you get of that activity. Risk of over-capitalization is to lending/guarantee institutions, rather than to most owners (Japan in the 1980’s) Price increases for lower-income housing is defensible, as long as property in not in a deteriorating sub-market

State by State Differences in terms of Population Growth     Top Ten States 1991-1999 (IN MILLIONS)

NOTE: THE TOP TWELVE STATES HAD 70% OF ALL US GAINS

Illinois Factoid: Illinois gained more population in the last decade than did;   New York, Pennsylvania, and Ohio, combined