With apologies to our local newspaper, which used to publish a regular column summarizing a certain television show, so you didn’t have to watch it yourself.
This is the time of year when many organizations host events such as, “End-of-Year Wrap-Up” and “Outlook for Next Year.” Your SFDC staff recently attended the 2019 session sponsored by the Northern Virginia Building Industry Association (NVBIA). This group represents local home builders and other companies involved in the home-building business, such as engineers, architects and, yes, economic development organizations. The speakers were David Flanagan, President, Elm Street Development; Jarod Blaney, Mid-Atlantic Division President, Pulte Homes; and Craig Strent, CEO, Apex Home Loans; with moderator Alexandra Johns, Vice President, Co-Investment with Grosvenor.
We enjoyed the opportunity to hear directly from those who are building homes about what they observe on their projects and the attitudes they see from home buyers. And they shared a perspective that we do not always hear in the media.
As we have heard from others, recession worries have been put off to 2022 or 2023. Housing prices nationwide are expected to rise slightly in 2020. In our region, prices have settled into “bands” where there is resistance to higher prices. For example, customers will not buy townhouses in many areas priced over the $800,000’s. Although the “Amazon effect” caused some home buyers to panic (snapping up all remaining inventory at one speaker’s Cameron Station project, for instance), the market has stabilized with the realization that Amazon’s build-out will take place over several years.
The age-restricted market (for those 55 and older) is very hot, and prices are increasing rapidly. The large Boomer generation is providing an abundance of customers.
Land and construction costs are historically high. Although buyers expect to pay less for homes farther from transit, the building cost differential is not that much. The speakers bemoaned the “missing middle” of housing and prices. They are particularly nostalgic for the days when they could build townhouses in Prince William County that sold rapidly in the $250,000 price range.
The continuation of low-interest rates helps to make home mortgages affordable for buyers, but it has a different impact on the industry: It can make it harder to finance home construction projects. Because development is inherently riskier than many other financial instruments, investors want a higher rate of return, but projects are not generating those high returns. This makes it hard for capital investors and makes builders more reliant on bank financing.
Homebuilders are building the products for which local governments will grant zoning approval, which means more multi-family projects and fewer single-family detached home developments. Virginia’s 2016 proffer legislation had the unintended consequence of shutting down zoning actions for detached homes, but there is hope now that applicants can “opt-in” to the old proffer system.
And we are going to need those multi-family units, since more high-income households are choosing to rent rather than to buy, especially millennials and empty nesters. Millennials have trouble with saving a down payment, but what accounts for empty nesters? Is there a perception that owning a home is not the great investment that it used to be? Or do older households want to divest themselves of homeowner responsibilities? Maybe these questions will be answered at 2020’s wrap-ups.