Sunday, August 28th, 2011
The financial news and opinion site 24/7 Wall St. recently ranked Indianapolis number two in its list of America’s 10 sickest housing markets.
I’ve always been fascinated by top-10 lists. Fellow Hoosier David Letterman delivers one every evening. Purdue fans get excited when their basketball team makes the top 10. IU fans hope to earn that distinction too, because recent recruits are ranked in the top 10. Then, of course, there’s the Big 10, which is so enamored of top-10 lists that it retains its name despite having 12 teams.
The Big 10 (12) example points to a big challenge for top 10 list makers. Sometimes, there’s little difference between number 10 and number 11 – or even number 25 for that matter.
A second challenge is that often, a list’s creator fails to fully or even partially explain how the list came to be.
A third challenge is that two different organizations, each ranking the same thing, can come to different conclusions. Take football, for example. The various polls often disagree as to who’s number one.
Given these list-making challenges, I decided to examine Indianapolis’ housing ignominy to determine whether we are justifiably bottom-of-the barrel.
To start, I compared some of the 24/7 Wall St. data for Indianapolis to a few cities that didn’t make the bottom 10.
The key criteria used in this ranking were homeowner and rental vacancy rates for either the 75 largest U.S. cities or, more likely, their metropolitan areas. They excluded from their list any locale that improved its vacancy rate over the last year or quarter and then enhanced the data set with unemployment rates and median home prices.
Of the 75 areas considered, Indianapolis had the fifth-highest home vacancy rate and tenth-highest rental vacancy rate. These are troubling statistics that clearly suggest a supply-and-demand issue. Indianapolis likely needs to reduce the supply of homes and rental units and/or increase demand by attracting more owners and renters.
Tucson, the one city deemed to have a sicker housing market than Indianapolis, had the highest home vacancy rate and sixth-highest rental vacancy rate.
But here’s where it gets confusing: When considering some other housing-market fundamentals, Indianapolis appears very sound. For example, between 2008 and 2010, the median sales price for a home in the Indianapolis metro area increased by $12,100 or 10.9 percent.
The only community on the 10 sickest-housing-market cities list to experience a greater increase in median sales prices was Oklahoma City (13.7 percent). Only two others had any increase at all.
To further confuse matters, Cincinnati, Milwaukee and Minneapolis didn’t make the sick-housing-market cities list, yet all experienced a decline in median sales prices – Minneapolis with a precipitous 15.5 percent drop. That’s certainly sickening to would-be sellers.
In addition to its sales-price success, Indianapolis was one of six sick-housing-market cities to experience a decline in unemployment (from 10 percent in June 2010 to 9.1 percent in June 2011) – generally a positive indicator for the housing market. Meanwhile, Milwaukee, Minneapolis and Nashville (also not on the list of 10) all experienced an increase in unemployment during the same period. If people aren’t working, they struggle to buy houses.
Then there’s population growth. Between 2000 and 2010, Indianapolis grew by 12.6 percent – fourth fastest among the sick-housing-market communities. Only three on the list (Detroit, Dayton and St. Louis) experienced population loss. Yet other cities suffering losses – including Cincinnati and Milwaukee – were somehow deemed healthy for housing. Go figure.
By now, you might be asking yourself how Indianapolis can be increasing employment and gaining population yet still have high vacancy rates and a sick housing market?
At least part of the answer is that between 2000 and 2010, while Indianapolis added 39,963 people, it also added 36,893 new housing units. That’s a lot of property per resident.
While there’s plenty of room to debate the details of Indianapolis’ sick-housing-market ranking, we undoubtedly have serious and difficult work to do if we’re to address our supply-and-demand imbalance while keeping local housing affordable (we rank in the top 10 for that!).
On the other hand, it might be best to not be in the top ten in either the “sick” or “affordable” lists. Then, Indianapolis would have more balanced market fundamentals, fewer vacant houses and better price appreciation.
As for top-10 lists in general, they’re about image. The data provide the real substance. And when it comes to substance, fundamentals matter, as the Butler University men’s basketball team taught us the past two seasons by proving that you don’t need to be in the top 10 to make the Final Four.
Drew Klacik is a policy analyst for the Indiana University Public Policy Institute at IUPUI. He focuses on public policy related to economic development, state and local taxation, affordable housing and neighborhood development.