I’ve been preparing for a conference this week held by the investment bank DeSilva & Phillips. The concept is intriguing: the principals, Reed Phillips and Roland DeSilva, have invited eight CEOs of mid-market media companies to talk about the transformations in their business to an audience of about 100 members of the private equity and media banking community.

Ironically, the context for transformation is crisis, as the publishing segment of the media sector has been under extreme duress during the recession. While this duress has taken a toll on the capital structure of media companies, it has also forced business to focus, identify where their customers are and develop more flexible and web-centered business practices.

In preparing for my presentation, I’m forced to answer two basic questions: what is attractive about our company, Network Communications, Inc., and what is attractive about our market.

When you are positioned squarely against the housing market it’s easy to fall in to the trap that your market is a problem.

Perhaps the best way to disabuse people of that notion is to show them two charts.

The first looks at home prices since 1970. It is the simplest way of capturing the impact of the housing bubble. For a short period of time,home prices soared irrationally. What we know now is that the loans made against those soaring house prices helped fuel a fever in lending to the entire building market — resale, new homes, multi-family and commercial — that created an unimaginable glut of capacity just when demand was going to decline.

When we take a long view of prices, it is easy to conclude that the market has fallen back close to the norm, and that with a little more correction, the housing market will be where it need to be.

The drama of the price drop over-simplifies the dynamic impact the housing market has on the economy. The best way to measure that impact is to look at the effect of housing on Gross Domestic Product over time.

The second chart captures all components of housing as a percentage of GDP since 1970 and plots the ratio against the logarithmic trend. This analysis shows that housing as a percentage of GDP is significantly below its trend over the past couple of years.

Closer analysis of the number shows that the driver for reduced production in the housing sector is the overhang of excess capacity, coupled with conservatism in the lending markets.

The most volatile component of the housing sector is residential fixed investment, which includes the cost of building new homes and multi-family units, improving existing homes and paying commissions on the sales of homes.

From 1995 to 2005, residential fixed investment increased $319 billion to more than $700 billion.

Between 2005 and 2010, residential fixed investment declined $424 billion.

Historically, residential fixed investment has been about 5% of GDP. Currently it is at 2.7%. At the normalized rate, residential fixed investment would be around $650 billion, or 85% higher than current levels and 15-20% below the peak.

Has anything happened to change the long-term structural dynamics around residential investment? Not really. There are more efficient building techniques, and the overall size of structures is likely to diminish, but the demand for residential fixed investment is driven by the population’s housing need. Population grows, existing housing stock ages, bylining costs come down, and new capital pours in as part of a virtuous cycle.

The current challenge of the housing market is that the alignment between supply and demand still is not set. Demand is suppressed because of the weak employment market and frozen lending channels; supply is too strong because of the overhang of building during the housing boom.

Each quarter the housing market regulates a little bit more, and a recovery in the housing market is not that far away.

At that point, it will be clear that housing is a good market opportunity, with steady growth characteristics that will distinguish it during a particularly challenging decade for our transforming economy.

The U.S. economy lost more than 1 million households during the recession, even as the population grew more than 3.5 million, driving down home ownership and increasing rental vacancies at a rate that hasn’t been experienced in more than a generation.

Just as economic distress reduced households, economic recovery will increase households, concludes USC professor Gary Painter in a paper sponsored by the Research Institute for Housing America, a mortgage industry-backed think-tank.

As you read through What Happens to Household Formation in a Recession?, it becomes clear that the rebound in household formation will greatly benefit the rental market, while the impact to the residential real estate market will be more muted.

Finally, it will be important to observe a turnaround in home ownership rates before the housing market is likely to stabilize. This is because increases in initial household formation will disproportionately come from renters, which may cause home ownership to fall further. In addition, former homeowners who lost their homes due to foreclosure have had their credit damaged and will likely take time to repair their scores and secure a down payment. Once both of these classes of renters make the transition to home ownership then we would expect the housing market to stabilize.

Painter provides one of the most complete analyses of available data to capture what happens to households during changes in the economy. The graphic below illustrates the dynamic of households. During periods of economic stress and increased unemployment, more people combine households and fewer people leave existing households.

Declines in employment and increases in the unemployment rate during periods of recession reduce household formation rates. Specifically, a national recession suppresses the formation of new renter households, while higher unemployment rates suppress the formation of both new renter and owner households.

The remarkable thing is how much those numbers add up: in all, a net decrease of 1.2 million households during the recession, Painter estimates.

The model…using data covering 6 recessions, predicts that rental household formation likely fell by 2–4 percentage points due to the current recession and that the formation of owner households likely fell by about 1 percentage point. Confirming these predictions, data from the ACS shows that formation of native-born households in a sample of 80 of the largest metropolitan areas has fallen by about 3 percentage points overall and by nearly 4 percentage points in the largest immigrant gateway metropolitan areas. This translates into a reduction of nearly 1.2 million households nationwide during a period where the population in these metropolitans grew by 3.4 million.

These figures help to explain the significant pressure on the residential home market and on the rental market.

As the table below demonstrates, the drop in home ownership that began in 2004 was accompanied by a sharp increase in vacant homes.

At the same time, occupancy of rental units has decreased to generational lows, leaving one to wonder, Where have all these people gone?

Last month, Pew Research Center released data showing that multi-generational households — two or more generations sharing a home — had increased to 16% of the population during the recession. In raw numbers, this means that 7 million more people were living in multi-generational households in 2008 than were in 2000.

That creates a depression of demand. Add in the glut of inventory that was created to satisfy the temporary demand of the housing bubble, and you’ve got the kind of discontinuity that drives down prices and disrupts the orderly progression of markets.

Interestingly, Painter shows that the elimination of households was disproportionately concentrated among native-born Americans, and particularly among households that had moved in during the recession.

The good news in Painter’s analysis is that the signs of a rebound in household formation are apparent in his model.

The model suggests household formation should increase by about 2 percentage points from current levels by 2012, as people find jobs and recession-induced anxieties abate. That would imply that by 2012, normal rates of household formation should reappear (roughly 1–1.5 million new households per year), but it will take even longer before the U.S. completely recovers from the deficit in household formation caused by the severe recession.

As noted above, the first market to benefit from the gain will be rentals. The residential home market should recover more slowly, Painter argues.

To the degree that the economy rebounds more strongly, the recovery will be more rapid. The mystery of increased demand isn’t unsolvable: the dynamics that drive household formation need to reassert themselves, and the core drivers are jobs and incomes.

You can find the full report available for download here.

If you’re in the multi-family industry and are looking for some signs of hope, today’s release from REIS Inc. wasn’t very helpful.

Reuters reported on REIS’s newest look at market conditions:

The U.S. apartment vacancy rate rose to an almost 30-year high of 8 percent in the fourth quarter, and rents dropped in the biggest one-year slump in 2009, according to real estate research company Reis Inc.

The fourth quarter was the worst of the year, REIS said, and a pick-up in 2010 will depend on how consumers are feeling about the job market.

Yet, the apartment market may still turn around this year if those out of work become confident enough about a job market recovery to move into a rental, Victor Calanog, Reis’ director of research, said on Thursday.

The Wall Street talked with Rich Campo, the CEO of Camden, who laid out the current reality: it’s a buyer’s market.

Landlords now must entice tenants to renew leases. “We’ll shampoo their carpets. We’ll paint accent walls. We’ll add Starbucks cards,” said Richard Campo, chief executive of Camden Property Trust, a Houston-based real-estate investment trust that owns 63,000 units. He said the first half of 2010 should be “pretty ugly,” but was optimistic the sector would pick up later in the year.

Want to get a look into the crystal ball? Watch the consumer confidence numbers and see how they line up with the job reports. If the job market strengthens and consumers keep an improved outlook, then the market for rentals will turn up.

As the year winds down, I was curious which posts over the course of the year were the most popular. I was pleased to see that the posts that had resonated the most with all of you were ones that I felt like I’d achieved some clarity around an idea that I’d been working through. (It’s also interesting that these posts are among the most frequently accessed through search.)

The number one post was from March: Social Media Can be A Marketing Platform. This was when we were taking Network Communications into its Project Massive Network, an effort to get every person in the company using social media to broaden and intensify their professional connections.

Through the year, I kept meaning to come back to the concept of Evangelist. The word too easily connotes intense passion, while I believe that the most effective Evangelists are the ones who have completely integrated their nature with their passions, so that they communicate a relaxed enthusiasm that inspires and attracts others. Evangelism is too often associated with a mania and mono-focus that can be off-putting.

The number two most-popular post was a very detailed case study that I did in June about migrating our marketing strategy at Apartment Finder to a social media focus. My intent with this post was to demonstrate each of the steps that we had taken to extend our communications with the multi-family marketplace to multiple platforms, and our efforts to modify and adapt our messaging to the unique attributes to the platforms. This effort continues today and deserves a follow-up: the most challenging aspect of the initiative is maintaining continuity and assessing its effectiveness. Despite our intent focus, we have areas of spotty execution with our own program.

The third most-popular post was my first attempt to consolidate the thinking that I’d been doing about how a traditional publishing content workflow needed to adapt to accommodate the inclusion of social media platforms. In Thoughts on Evolving the Content Strategy in Publishing to Leverage Social Media I outlined the Sharing Model of content creation. This model outlined here as served as a framework for developing new processes at our regional home design brands, and in some instances we’ve seen significant impact on audience and enthusiasm. The process is a living work in progress.

The fourth most frequently viewed post is an down-and-dirty analysis of State Farm’s presence on Facebook. This was a period when I was trying to understand the challenges that face traditional marketing departments when implementing social media programs. The post was published in April and is one of the two most-frequently accessed posts through Google search. I recently re-visited the State Farm Facebook sites and little had changed.

In the Spring, I was doing a lot of work to try to quantify the impact of the economic decline on consumer spending, marketing outlays and media allocations. In an early April post, I pointed out the contradiction between industry research showing the effectiveness of TV and magazine advertising and the steep declines in revenue. The point: When marketing budgets shrink, the most expensive media goes first.

I’m kind of proud that a self-serving post doesn’t show up until the number 6 spot. Over a period of 6 months, we radically shifted our traffic strategy at ApartmentFinder.com in order to leverage what we percieved as our core strengths. This shift was rewarded in April when Comscore reported ApartmentFinder was solidly in the top 5 destinations for apartment shoppers on the Internet. Our work put us solidly in the consideration set for online-only marketing in the multi-family industry, and we did it despite being heavily outspent on search engine marketing traffic by our competitors.

The seventh most-popular post, from July, demonstrates how powerful social media can be. I described a disappointing customer service experience with American Express. A couple of days later, I heard from the Chairman’s Office. It doesn’t match Jarvis’ Dell experience, but it was an instructive moment in the new age of marketing and media.

A May post reporting on research that shows how effective print advertising is in driving web traffic came in at number 8. Despite multiple instances of independent research like this, many people insist of maintaing a very simplistic “Print Is Dead” position. At this point, I just shake my head and wonder why the concept of using multiple platforms to intersect with consumers to drive business activity is so hard to accept. [I very accepting of marketers who say they don't have the money to invest in premium marketing choices, whether they are online or offline. Then we can have a conversation about how to leverage their marketing resources to build their business. Just sitting around arguing about living or dead media gets old very fast.]

An October post made the top 10 and is a big search favorite: The Current State of the Economy in 5 Pictures. I realized doing this analysis that I should update the post in January to reflect the fourth quarter results. Lesson: People like pictures.

The number 10 position is taken by a post where I ranged outside of my limited sphere of knowledge to speculate about how social media platforms would change the way that people searched for information. The premise was that “human search” would develop through the filtering of content by overlapping social graphs. This is happening on Twitter and is expressed by many as crowd-sourcing. I had fun thinking about the problem and putting together the schematics. The post attracted a broad readership and started many conversations. I’m sure that those followers soon dropped off as I returned to my more mundane noodling about business models, business processing and marketing approaches.

I spent some time this morning looking through the transcripts of the Equity, AIMCO and Avalon Bay earnings calls and excerpted some sections that neatly summarize the current market conditions and outlook.

While revenue is down, declines in the rental rates of new leases are being offset by a widening spread between new lease and renewal lease pricing.

The pricing spread has increased focus on retention, the companies said.

Equity is renewing leases at 1% below the expiring rental rate, while the net effective new lease rate (a new metric Equity is tracking) is down 9% from the rates vacating tenants are paying.

AIMCO has experienced an overall decline of 1.3% in average rents, with new leases down 2.3% in price and renewal rent up 0.1%.

At Avalon Bay the spread is even wider, with new rents down 12% and renewal rents down 0.6%.

All three companies reported that rental rates have stabilized in the early part of the summer, and that generally traffic is up from significant dips in April.

The impact of the lower rents and lower occupancies drove down same-store revenue 2.4% at Equity and 2.3% at AIMCO. Equity reported occupancy at 93.7%, while AIMCO reported occupancy at 92.8%.

In other comments, Equity spoke in detail to the impact that increased exposure of listing information online has had on their cost structure.

Part of a bigger picture workflow transition that utilizes our web tools, engages the resident, transfers a lot of the work to the resident. When you put prices on line and you have that transparency kind of cut down your call traffic about 50% because, people know what your prices are. They don’t have to call. So, I think what you are seeing is really just the beginning stages of a longer-term focus that we have a fairly detailed plan that will take us probably the next three years to fully implement.

In addition, investment in their Equity web site has allowed them to significantly reduce their investment in paid advertising.

[Our] website is really a Ferrari, so to speak as far as the infrastructure. We’ve been able to move from page nine on a Google search as far as organic, all the way to page one. We’ve also taken more central control of a lot of the ILS spend, the Rent.com, the Apartments.com and you see significant optimization year-to-date on that expense.

Last week I posted some research that helped support an observation I’ve made in several different ways: When you want to know what people are doing on social networks, look at what they do in their analog lives.

The point is that we are rapidly moving into a post-digital framework for social interaction online. In this construct, consumers are so familiar with the technology tools that their focus on social goals is more prominent than their interest in exploring technological tools.

In this post-digital experience, the most interesting questions is to what degree the dynamic of technology-enabled social communities change identity and social mores.

e-Marketer shared the results of research done by Anderson Analytics, a market research firm, looking at how users across generations think about their primary reasons for using the social networks.

The research shows that these services are aptly names as “social” networks. Social connectedness is the key purpose of every generations engagement with the sites. For younger generations, the services help them strengthen their peer bonds with friends and classmates. As the generations age, their focus shifts to strengthening the bonds with their families. The concept of “fun,” enjoyment for the sake of enjoyment, is much more prominent with younger generations than older generations. I’d venture this is a by-product of each generation’s orientation to technology: the older generation generally needs to learn new skills to feel wholly engaged and comfortable with the social network, while the younger generation has grown up with both the skills and the orientation to the shifts in privacy, currency and relevance that can unsettle the older generation.

What do I mean by privacy, currency and relevance? These are three characteristics of social interaction that change in technology-enabled groups. Privacy is apparent: many more people can know much more about you, and your interactions with different sub-sets of your social network can be available to you entire network. Currency is the steady stream of immediate information about the social network that is available to you, reducing the time between experience and commenting on experience. Relevance is the breadth of information available across your social network, which can be at once highly relevant and utilitarian — the group will be at this place at this time — or equally irrelevant and of little apparent use — here’s my cousin Vito’s pet parrot.

The effectiveness of social networks in enhancing social relationships is a motivator for older generations to work past their initial discomfort and learn how to manage these new dimensions of post-digital interaction.

The first quarter earnings calls from multi-family companies revealed a handful of common themes.

Occupancies are down, net effective rents declining and consumers increasingly price sensitive. Further, investment in new developments is reduced and M&A activity generally at a standstill because of the overhang of the capital markets.

The operating response is to focus on reducing expense and attract and retain tenants cost-efficiently.

At Avalon Bay, they are seeing a significant increase in residents moving out of their communities to find a lower rent, along with residents who are leaving because they have lost a job.

Drilling down on a discussion of our markets, in general, renters are understandably price sensitive as they focus on reducing their living expenses. Three facts regarding reasons for move out are worth noting.

First, moving within or to another community was the top reason for move out at approximately 18% and may residents are stating that the reason for this change is to reduce housing costs. Second, financial and loss of employment accounted for approximately 15% of our move outs. These reasons typically account for about 10% of move outs and provide further evidence of the impact the weakening economy is having on our residents.

And finally, home purchases fell to 15% of move outs, well under the historical average of 20% to 25%. There is no sign yet that improving home affordability is boosting home purchases among our residents.

That increase in financial stress has put pressure on move-in rents as well, management says.

Across the portfolio, new move in rents are approximately down about 10% to 12% and we have been able to maintain positive renewal rents across the portfolio, roughly around 2%.

At Equity Residential, they’ve observed a significant increase in foot traffic, but not a commensurate gain in lease closing. Management points to a decline in web traffic to suggest that overall demand for apartments is down. [Note: that decline has not been apparent at Apartmentfinder.com.]

Our foot traffic, those people that are recorded that walk into our office, that number is up 4.6% year-to-date. Now I tribute that to two things number one we have a very focused initiative around sales, our people are doing an excellent job of working with customers, following up that’s driving some of that improvements.

But secondly I think there is lot of tire kickers out here, people are shopping right. And I think that evidenced in the unique visitors — the unique visitor accounts that you see on the major ILS, our equityapartments.com site, our unique visitors are down somewhere around 7% apartments.com down about 8% rent.com all of these ILS is that report their staff they all see a reduction in monthly unit business. So, it’s clear that demand is down but yet we are seeing more people shopping our communities and coming to the door each month.

When people are applying for a lease, the quality of credit is down significantly, again a sign of the increased financial stress among consumers. At Colonial, management is experiencing the same increases in financially-driven move-outs as other multi-family companies.

Traffic was at the same level as last year; however, we have seen a decrease in credit quality. Application denials are up to 16.1% from 4.6% a year ago.

Overall resident turnover is up 180 basis points as compared to last year and up 40 basis points sequentially.

As expected, financial and job-related turnover was up roughly 870 basis points to 27.1%, a trend that we expect to continue. However, turnover related to homebuyers was 12.8%, down 700 basis points from a year ago.

For the quarter, turnover due to renting a home was 2.3%, which was up 20 basis points sequentially. Consistent with the deterioration in the economic environment, rates on new leases decreased 4% for the quarter based on 5,200 new leases. Renewal rates for the quarter were flat based on 3,500 renewals.

In general, the leaders of these companies concur that the path out of this slowdown will be gradual. While the demographic trends are strong for rental housing, management believes that the overhang of affordable single family homes for sale will siphon off some percentage of the renter market when the economy improves.

The Apartment Internet Marketing Conference is going on out in Denver this week and has created a lot of stir under the #aimconf hashtag on Twitter.  To follow some of the discussions, go to search.twitter.com and type in #aimconf: the Twitter-stream will unfold.

The presentations seems to be chockfull of specific and interesting content.  Reading the Twitter-stream you get a picture of apartment companies that see terrific potential in social media, but are cautious about challenges of management, execution and scale.

A couple of voices dominate the Twitter-stream.  Charity Hisle is twittering as fast as they are presenting and has some good insight.  One voice, Mike Brewer, was active only occasionally during the day, but in one of those moment of pithy serendipity that you find only on Twitter, Brewer issued six inadvertent commandments of social marketing.  They follow:

Take these Tweets from top to bottom and you’ve got a pretty good set of guidelines for an effective social media campaign.  I’d probably add one or two items about keeping content fresh and relevant, but on the whole, he nailed it.

UDR, the old United Dominion, in the rental marketplace has been a aggressive experimenter in terms of leveraging the internet to generate leads for new customers of their rental communities.

Our internal tracking of our customers show that combining print and internet advertising drives the lowest cost and highest volume leads.  We have customers who use the internet exclusively for lead generation and others who use multiple media.

UDR is a leader in their ability to track the sources of their leads.  See the except below from their earnings call last week.

…Turnover for the fourth quarter was 53.7% which was up 40 basis points from last year’s fourth quarter. Move outs to home purchases were 14.1% in the quarter that compares to 15.3% in the fourth quarter of last year. For the full year 49.7% of our move ins originated through the internet as we continue to see the benefits of our industry best website.

This is up from 40% in 2007. Our website, www.udr.com had almost 1.6 million unique visits this year, that’s roughly double what it was in 2007. We continue to develop enhancements to our website to keep it the best in the industry as well as find other ways to connect with our customers through things like mobile websites and social networking.

Not only have these enhancements driven our revenue, they’ve also enabled us to reduce our marketing costs over the last several years. These expenses for 2008 were down 18%. Now looking to the future, we see the same job loss projections as everyone else. Most of our markets will be effected…

They’ve also done a good job of measure their net cost of driving a lead into a unit.  One secret we know at NCI: they could get it even lower if they were using our print/internet package to drive traffic.

That savings are roughly historically over the last several years, we’ve cut it by about $50 per unit so that’s a $1 million, $1.5 million when you look back two or three years ago. It was down in 2008 versus 2007 by the 18%. We expect it to go down marginally going forward but for the most part we’ve exited all print ads and we’re predominantly in the internet right now…

via UDR, Inc. Q4 2008 Earnings Call Transcript — Seeking Alpha.