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VOL. 38 | NO. 48 | Friday, November 28, 2014

Labor, land shortage means rising Middle Tennessee home prices

By Kathy Carlson

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A shortage of ready-to-build lots and skilled tradespersons – plus caution among builders – mean fewer homes will be built and home prices will rise, those in the industry are saying.

“Although we’re not back to the same permit level we once were, we’re seeing a lack of skilled labor in the workplace,” says Nashville homebuilder David Luecke.

Because of the recession and lengthy recovery, he says, laborers left to take other jobs, including jobs outside the construction industry that might pay less but offer more dependable pay. Subcontractors of all varieties – drywall, electrical and roofing – now can charge more for their work.

One potential homebuyer told Luecke back in March she didn’t want to build a new house at the price he was quoting, he says. When the buyer came back this fall wanting the same house at the March price, Luecke couldn’t accommodate her because labor costs had risen.

The days of buying houses at a deep discount from pre-recession prices are over, he adds.

Across the country, builders are extremely cautious not to make the same mistakes and overbuild as they did between 2004 and 2008, when the worst of the overbuilding occurred, says Daren Blomquist, vice president of RealtyTrac, which provides data to the real estate and financial industries.

Over the past two years, housing starts nationwide have been consistently below historic averages of about 1.5 million starts a year.

In addition, a lack of lots will push home prices up, says MarketGraphics founder and board chairman Edsel Charles.

It’s becoming increasingly difficult to build houses in certain price ranges – $300,000 to $400,000, for example – in areas of Middle Tennessee such as Brentwood, where it can cost $140,000 to $200,000 for the buildable, Charles says.

The more expensive the lot, the less house can be built profitably within a given price point. Current construction costs of about $180 per square foot translate into houses of less than 1,500 square feet at the $400,000 price point.

In addition to decreasing the housing stock, the un-built houses represent lost tax revenues for local governments. Assuming the un-built Williamson County houses would each contribute $5,000 in property taxes, local governments would be losing out on $400,000 a year, he estimates.

Charles says Republican victories in the recent Congressional midterm election were a real game changer for homebuilders, who believe consumer confidence will stabilize as a consequence.

Major builders have enormous optimism because they’re hearing a lot of positives from real estate sales agents about the market coming back, he says.

Charles predicts home sales will increase, more lots will be taken down and the absorption of lots in 2015 will be greater than the previous year. But the price trend is up, he says, although potential buyers’ moods are improving.

“As the job market improves for Middle America, as it is in Nashville,” Luecke says, “people are going to get excited about buying a house again.

“... I’m very concerned about longer-term trends of younger people coming out [of school] with massive student loan debt,” he says.

He says he can’t see people with heavy student debt buying a house until the loans have been repaid.

Student debt has “gotten out of hand for a lot of people, and I don’t think we understand the incredible economic impact. … If everyone waits for 15 years [out of college to buy a house], what does that mean to the broader economy?” he asks.

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TNLedger.com Knoxville Editon
RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 0 0 0
MORTGAGES 0 0 0
FORECLOSURE NOTICES 0 0 0
BUILDING PERMITS 0 0 0
BANKRUPTCIES 0 0 0
BUSINESS LICENSES 0 0 0
UTILITY CONNECTIONS 0 0 0
MARRIAGE LICENSES 0 0 0