Nashville struggling to meet demand for new homes

 Getahn Ward

, gward@tennessean.com

10:36 p.m. CDT August 22, 2016

The region's inventory of construction-ready lots has hit an all-time low, new data reveals.

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(Photo: AP)

STORY HIGHLIGHTS

  • Nashville nearly tied with Portland, Ore. for the worst supply of homebuilder lots among large cities nationwide, according to Metrostudy.
  • Over the next five years, roughly 88,000 lots need to be developed across the Nashville region to ensure an adequate supply, according to MarketGraphics.
  • Areas such as Spring Hill, Gallatin, Murfreesboro and Lebanon are seeing an uptake in housing because they're relatively more affordable.
  • New home construction starts in the Nashville metro area rose 11 percent to a seven-year high of 2,320 in the second quarter.

The Nashville area’s inventory of available housing lots has hit at an all-time low, signaling even higher prices in the region's increasingly expensive real estate market.

Construction began on more than 2,300 Nashville area homes between April 1 and the end of June — a seven year-high that reflects a double-digit jump from the second quarter of 2015, according to new data from Washington, D.C.-based research firm Metrostudy.

Although a sign of a strong market, the explosion of construction in neighborhoods across the region has led to a new challenge: Nashville's developers and builders are struggling to meet demand for new homes.

Metrostudy's new data finds that the supply of vacant lots ready for construction would last just 14 months, the lowest number since the firm began tracking housing in the region. Metrostudy considers an 18-to-24 months supply healthy.

For the area's builders, who can only make Nashville's homes so tall and skinny, the lack of inventory means higher costs when they buy lots from developers. And those increases are passed along to buyers already suffering from sticker shock in many corners of the region.

"It impacts our ability to deliver affordable housing to the market," David Lowry, land acquisition manager with builder David Weekley Homes in Nashville, said about the high costs of developed lots. "And so we're going to see home prices continue to rise until there's an adequate supply of lots available for builders to build on."

In the second quarter, the average prices of a new, detached, single-family home in the Nashville area rose to a record $381,100, up from $346,000 at the same time in 2015, according to Metrostudy's latest field survey. "With prices above the $300,000s, affordability may soon become an issue," said Eugene James, the firm's senior regional director over the Nashville market.

The report shows Nashville with nearly tied with Portland, Ore., for the worst supply of homebuilder lots among large cities nationwide. Among Nashville-area counties, Rutherford, Davidson and Williamson had the lowest months' supply. Sumner and Maury had a balanced number of lots at the end of the second quarter but could soon experience a shortage as well amid pent up demand.

Eugene James

Eugene James (Photo: Submitted)

Over the next five years, roughly 88,000 lots need to be developed across an 11-county Nashville region to ensure an adequate supply, according to a separate tracking by MarketGraphics Research Group Inc.

"The chances of that happening is zero," said Edsel Charles, chairman of the Franklin-based new home market research company.

Charles points to a shortage of housing lot developers in the Nashville area market after the pool dwindled during the Great Recession. At the same time, he said, banks have tightened lending for new subdivisions amid more stringent government regulations that followed the economic crisis.

Pursuing affordability

In addition to low inventory and high costs of lots, homebuilders say the wet summer has led to delays in preparing building sites. Higher labor and material costs, along with tougher building standards in some municipalities are also among factors driving up new home prices.

David McGowan, president of Nashville-based Regent Homes, cites requiring larger lot sizes and specific exterior materials, such as all-brick home mandates, as examples of such restrictions.  He also noted Williamson County's plans to impose an average $10,000 new school impact fee on all new homes.

"New home prices always leads (overall) home prices and therefore sale prices of all of the (existing) homes will increase," he said.

Meanwhile, McGowan said developing a new home community in the Metro Nashville area — from purchase of the land to completion of a building lot — now takes two-to-three years, depending on the county and city. That's 30 percent longer than five years ago, he said. That increased length of time is part of what is fueling more infill home-building across the region, since such homes can be built more quickly.

David McGowan

David McGowan (Photo: Submitted)

Lowry, of David Weekley Homes, said the higher cost of land is forcing consumers further outside of the Nashville area to find affordable housing. Areas such as Spring Hill, Gallatin, Murfreesboro and Lebanon are seeing an uptick in housing because consumers can buy a larger house for their money there.

In White House, Tenn., Goodall Homes has 130 people on the interest list for its 51-lot Settlers Ridge community.  "As prices continue to rise, it's pushing things more away to where land is less expensive," said Chris O'Neal, chief sales officer with the Gallatin-based homebuilder that's now part of Berkshire Hathaway subsidiary Clayton Homes.

Pent-up demand

Reflecting strong demand for new homes in the overall Nashville area, Carbine & Associates has sold all seven homes it started building earlier this year at the Tollgate Village subdivision in Thompson's Station in Williamson County. The homebuilding company has also sold all eight townhomes that it started building late last year in The Nation's neighborhood in West Nashville.

"If it's the right price points, they will sell very quickly," said James Carbine, president of the Franklin-based company that bears his name.

Brandon Jenkins

Brandon Jenkins (Photo: Submitted)

Carbine said his company is in a good position with lots because it develops its own home sites. Having its own utility division prevents delays other homebuilders have faced in preparing lots because of a shortage of subcontractors to install infrastructure for the home sites, he added.

Brandon Jenkins develops high-end lots through Brentwood-based Grove Park Land Co. and builds custom homes through Grove Park Construction.

He's seen demand and rising costs of land, labor and materials push the price of building new luxury, custom homes in west Brentwood to the $300 to $400 per-square-foot range or between $1.4 million and $4 million overall.

"The buyers are affording it now, but I'm worried that the end price, if it keeps escalating, is going to price a lot of buyers out of the market," Jenkins said.

Reach Getahn Ward at 615-726-5968 and on Twitter @getahn.

#NEW NASHVILLE

Music City is transforming at a breathtaking rate. In a series of stories launched earlier this year, The Tennessean has set out to chronicle Nashville's explosive growth and what it means for the city's economy, its culture and, most importantly, its people. 

Qualified to Buy, But Renting Instead | GlobeSt.com

By Paul Bubny

Published: August 15, 2016

 

SEATTLE—For additional evidence that renting by choice is a reality, consider a pair of new studies from credible authorities—Zillow and the National Association of Realtors—showing high percentages of renters who could afford to buy instead. Then consider that the two studies reached very different conclusions about the markets where these renters reside.

Zillow’s study, released this past Friday, cited San Jose, San Diego and San Francisco as metropolitan areas with the largest segments of on-market renters with credit scores and income necessary to purchase a home. Los Angeles, New York City and Zillow’s home base of Seattle also made the list of metros with large segments of current renters who are financially qualified to buy a home.

In determining its rankings, Zillow looked at the self-reported credit scores and incomesi of renters who were on the market during the first half of this year. The firm also looked at regional median rental and home values and competition to determine the markets with the highest share of renters who reported a monthly income equal to or greater than necessary to afford the typical rental and median home price.

That tech hubs figure prominently in the rankings points to another long-term demographic trend, given the predominantly younger workforce in the industry. Young adults, affluent and otherwise, are renting longer than ever before as they delay many of the hallmarks of adulthood that typically lead to homeownership, such as finishing their education and starting families.

“When faced with hurdles of high prices and low inventory, first-time homebuyers are renting longer than ever before even if they are qualified to buy,” says Svenja Gudell, Zillow’s chief economist. “San Jose, San Diego and Seattle are among the most competitive places for buyers, and the going isn’t any easier for renters, as they are competing against throngs of financially sound applicants with strong credit and high incomes. This is a conundrum for many young people who move to those cities because of their strong job markets, only to find tight inventory and steep competition standing between them and their dream home.”

However, NAR’s study, issued earlier this month, points out that it isn’t only the tech-centric big cities that have high percentages of renters who could afford to buy. All of the top 10 metro areas highlighted in the association’s study were outside of the West Coast, and each had a share of renters who qualify to buy that was well above the national level of 28%.

Leading the way was Toledo, OH, where 48% of renters qualify to buy homes. Not far behind was Little Rock, AR, with 46%. Rounding out the top 10 were Dayton, OH (44%); Lakeland, FL, St. Louis, MO and Columbia, SC (each with 41%); Atlanta (40%); and Columbus, OH, Tampa, FL and Ogden, UT (each with 38%).

Lower median single-family home prices have a lot to do with the dominance of the Midwest and South in the top 10 rankings, says Lawrence Yun, chief economist at NAR. “Even in a time of expanding home sales, steady job growth and historically low mortgage rates, the homeownership rate recently tumbled to its lowest level in over five decades as many renters struggle to juggle escalating rents without commensurate income gains,” he says. “However, this new study reveals that there are several affordable, middle-tier markets with solid job gains and a large segment of renters who earn enough to buy.”

Another study of renters issued this month, from Seattle-based online legal services provider Avvo, found that although 73% of them are satisfied with their apartments, 70% believe rental prices in their city are too high. The percentage who think the rent is too high varies along predictable regional lines: 76% of people in the West don’t like how high the rents are where they live, compared to 71% of Northeasterners, 66% of Southerners and 63% of Midwesterners.