The biggest driver of soaring Boise-area home prices in recent years has been high demand and low supply. Building more houses is a key way to remedy that. But so far in 2022, fewer homes are being built.
Zonda, a real estate consultant company, reports construction began on 1,637 single-family detached homes in the first quarter of the year in the Boise market. That’s a 20.7% decline from 2,065 in the first quarter of 2021. “There’s a lot of reasons it’s down,” Zonda Senior Vice President Eric Allen said by phone. “It’s not like the market is starting to contract.”
Several factors are contributing to less building, experts said. Supply-chain issues have made it harder to acquire materials. Staffing shortages have made it harder to get work done. And after two years of big increases in costs and sales prices, some builders may fear overbuilding and might prefer to slow down.
“These builders are coming off of a two-year period where pricing has been pretty much rising constantly and out of control,” said John Starr, a land associate and partner in Boise with Colliers, a commercial real estate services company. “And at some point, they just have to say, ‘You know what, I’m going fishing.’”
In the first three months of the year, the number of lots submitted to local governments for construction stayed about the same as the previous quarter, according to a report from Colliers. The number of permits declined for two quarters in a row before that. Uncertainty in costs means uncertainty in profits. So that’s why some builders might be deciding to finish the projects they’re working on and then wait for their increasing costs to settle down, Starr said. In an inflationary market, producing less inventory means less inventory is exposed to those increases.
Rising costs have been caused by supply-chain problems. A year ago, Starr said, an estimated quote for building materials would stay in place for 30 days. Now, it might last only as long as the phone call before it increases. “That’s a very natural thing for builders to do … to simply build fewer homes, because they are uncertain about their cost inputs, and therefore uncertain about their profits,” Starr said.
CONSTRUCTION TIMES TAKING LONGER
Boise Hunter Homes co-owner Travis Hunter said his company isn’t trying to slow down. Its goal this year is to build and close on 200 homes. Last year, Boise Hunter Homes closed on 183 homes. But because of economic factors, Hunter said the company is on pace to match last year’s output rather than exceed it. That’s a result of materials taking longer to arrive, and thus homes taking longer to build — 50 to 100 days longer on average, he said. “That’s the biggest crippling factor right now,” Hunter said by phone.
COVID-19 sparked a boom in Boise’s housing market and the ensuing labor and materials shortage. By now, though, it’s that boom, not the pandemic, that has held up projects and driven up costs, Hunter said. Hunter isn’t aware of any builders intentionally trying to build fewer homes. But because of the longer time it’s taking to build, they may not have a choice. “That naturally constrains their output as well,” Hunter said.
Elizabeth Campbell, Lysi Bishop Real Estate’s vice president of training and growth, has watched newly constructed homes sit on the market longer as interest rates have spiked recently. To keep demand high, builders would have to lower prices, but Campbell said she doesn’t expect that to happen because their costs have soared. Meanwhile, builder confidence nationwide remains high but has dropped for four straight months, according to the National Association of Homebuilders.
On top of all this, there are fewer house lots available for construction, Allen and Starr said. Less available land leads to less building. That in itself makes it harder to match the numbers from previous years. Starr said cities could speed up their approval process, which would result in more houses being built. He added that a new, local stud plant creating wood for houses, for example, could ease supply issues. Local colleges investing in construction programs could help the labor pool, too. The number of homes that started construction in the Boise market increased each year from 2015 to 2021, according to Zonda. In 2015, construction began on 3,822 homes. In 2021, that number was 7,755.
“It’s pretty clear that the counterintuitive drop in supply is directly related to the experiences over the last couple of years that have to do with rising cost,” Starr said.
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