Article By Brent Godwin | Jacksonville Business Journal
Todd Holder has been building homes in Jacksonville for more than 20 years.
The head of KB Home’s local operation has focused for years on building homes that are affordable for first-time buyers — but that task has gotten far more complicated in recent months.
“Our largest customer segment is first-time homebuyers,” Holder said. “The homes we build address the significant need in many of our markets to create additional housing that is affordable at median-income levels.”
Just this month, KB Home announced a new neighborhood called Stonecrest in St. Johns County along Race Track Road.
The deal is a microcosm of the market. Demand has gotten to the point where the timing is right to develop the infill site, which wouldn’t have been on the radar for homebuilders a few years ago.
While Northeast Florida’s surge in population is mirrored by a boom in residential construction, constraints on the supply of housing material, labor and land upon which to build has made home building a challenge. That goes double for building homes aimed at people buying their first residence, with the price of entry-level homes in the Jacksonville metro area soaring, albeit from a lower base than elsewhere in the country.
Dealing with this situation is vital for the continued growth of the First Coast’s economy, as the residential market struggles to digest the flood of new workers coming to the area.
“The homebuilding industry is experiencing one of the strongest real estate markets in over 30 years,” said Steve Merten, division president of Toll Brothers in Jacksonville. “The increased demand has created constraints on the supply of housing materials and labor.”
Population growth has created demand for housing in Jacksonville at levels not seen for more than a decade. Building permit data for single family detached and townhomes shows 10,345 permits in 2019, 12,555 permits in 2020 and 16,138 permits in 2021. The last time permits were around that level was in the mid-2000s.
But it’s not as simple as just building to meet the demand.
And if dealing with materials and labor challenges wasn’t enough, builders say they are also dealing with an increasingly difficult market for land to develop and evolving buyer needs.
All together, these factors are making the equation of building new homes – particularly homes for first-time buyers – harder and more expensive.
Even still, several homebuilders in Jacksonville say they are focusing on providing affordable product to first-time buyers.
The numbers
Homes for first-time buyers are getting more expensive.
Data from Zonda shows the average entry-level home in Jacksonville now costs $292,000. That’s an increase of 21% year-over-year, and was the largest increase among Zonda’s five top entry-level housing markets, which included Richmond, Virginia, Indianapolis, Chicago and Cincinnati.
Even with that increase, the Jacksonville metro is generally at a more affordable price point compared to other parts of the U.S.
Kristine Smale, Zonda senior vice president of advisory, points out in a recent report that four of the top 10 best-selling new home communities here have an average base price less than $300,000.
But that $300,000 home would have cost much less years ago, when there was less demand and lower cost of materials and land.
First-time buyers are facing increased competition from older generations looking to downsize to investor buyers looking to get into the single family rental market. With fewer of these types of homes being built, that competition is a huge factor in the rising prices.
Though the low interest rate environment is favorable for first-time buyers, they often don’t have the equity or down payment that competitors bring to the table.
To be sure, first-time buyers are buying homes. Zonda data shows the Millennials homeownership rate in Jacksonville is 55%, which is in line with peer cities.
But home prices are expected to continue to rise throughout 2022, and even the “cheaper” homes are getting more expensive.
MLS data for the Jacksonville metro area shows that for homes $199,999 or less, the median sales price has been steadily increasing in the past five years. In February 2016, the median sales price was $110,500. In November 2021, that had risen to $150,700.
In that same time period, the closed sales of homes $199,999 or less have plummeted. There were 1,485 closed sales in that price range in June 2016, and just 549 such sales in November of 2021.
But high demand and short supply isn’t the only factor that is making homes more expensive.
What builders are facing
For homebuilders, the equation to building homes is increasingly complex and expensive.
“It is not getting any easier to deliver high quality homes at an affordable price. Unfortunately, zoning, land use and building codes have only become more difficult with bureaucratic local governments constantly increasing fees and adding regulation, which ultimately is passed along to the customer in the form of a higher sales price,” said Patrick Zalupski, CEO of Dream Finders Homes.
The price of lumber alone has been a moving target for the last two years. Data from Statista shows the price of lumber was at $405 per 1,000 board feet in January 2020, then climbed to a peak of $1,500 in April 2021, and fell again to $482 in August of 2021. The most recent data shows a price of $824 per 1,000 board feet in November of 2021.
Zalupski said recently there has been additional cost pressure with supply chain and labor shortages.
Holder echoed that sentiment, citing supply chain issues as one of the biggest challenges facing homebuilders today.
In order to get components like windows, cabinets, garage doors and certain types of appliances to the job site, these now must be carefully planned and ordered well in advance, which was not generally the case in years past, according to D.R. Horton.
Tyler Mathews, president of Jacksonville-based civil engineering firm ETM, said the company works with builders, land owners, and developers to get their real estate ready to be developed. ETM helps seek master permitting, master entitlements, utility agreements and whatever is needed to take a project from idea to reality.
Mathews says that process takes a long time, longer than people may realize.
“We’re working on projects right now where you won’t see houses come out of the ground until 2024 or 2025,” Mathews said. “We’re talking about 12, 18, or even 24 months or even longer if there’s more complexity involved in the project.”
Those longer time frames just exacerbate the already complex and expensive process of developing new homes.
He said ETM closely tracks the number of vacant developed lots, which are just one piece of a pipeline to building new homes.
“In every section of the real estate market right now, you see compression,” Mathews said. “There’s less opportunity to buy a resale home, less inventory of new homes, less lots on the ground ready for new homes, less land ready for new lots…it’s a whole chain, and everything is connected.”
How buyers are changing
Builders aren’t only having to adjust to increasing costs but also to evolving buyer expectations and needs.
D.R. Horton said it has seen a strong increase in demand from first-time homebuyers in the Jacksonville area over the last few years.
But the size and layout of the first-time home is changing, too.
D.R. Horton said home office or flex- spaces, plenty of natural light and outdoor space, as well as upgraded kitchens are on many homebuyers’ list of preferences. The company said the average square footage for its single family homes in Jacksonville is around 1,900 square feet.
From its perspective, KB Home said homes are serving so many more purposes these days.
“Since the pandemic began, we’ve seen an increase in the percentage of customers choosing personalized homes, particularly younger millennials, who show a strong preference for designing their home to fit their needs and preferences,” said KB Home’s Holder. “Our homes have become our offices, schools, gyms, entertainment centers and health and wellness hubs. Many of our homes offer flex spaces that can serve multiple purposes depending on the homebuyer’s needs, as well as home office options, additional bedrooms and smart technology upgrades.”
Where we’re headed
No one has a crystal ball, but the current situation of a huge imbalance between demand and supply can’t be resolved quickly. Jacksonville is also not the only Florida metro area dealing with these issues in home building.
A few builders see opportunity in the less developed parts of the Jacksonville metro.
“Most entry-level homes are going to be in the more rural areas where land can be acquired at more economical prices,” said Dream Finder’s Zalupski. “Southern St. John’s County, Clay County and W/NW Duval County have been historically more affordable. Clay County is still probably the best value when factoring in the high-quality school system, but there are pockets throughout each county where you can find affordability and good schools.”
In 2021, Tampa’s Metro Development acquired more than 1,000 acres near Cecil Airport with plans to develop a new master planned community. More land deals in the western regions of the metro could begin to take shape.
“On the positive side, we still see Jacksonville as providing more affordability than in most of our other markets, so we believe Jacksonville will continue to be an attractive destination for future potential customers,” Zalupski said.
Another trend is toward less single family detached builds and toward other types of housing.
Information from D.R. Horton shows increased townhome sales throughout the North Florida area. The company said this is a market indicator of rising costs and increased demand for homeownership. It said as the costs of building materials have risen, it has seen an increase in the popularity of townhomes, including floor plans that offer two or three bedrooms, with or without a garage.
Duval County permit data shows 1,020 townhouse permits were issued in 2020 and 1,684 in 2021.
At the end of the day, though serious challenges remain, builders and developers say the ongoing growth is a good thing for Jacksonville.
“We have real potential in Northeast Florida to continue to grow the housing market and attractiveness of this market,” said Zalupski. “However, we need to be careful of over-regulation that tends to be the default position for fast growing municipalities.”
Read full article HERE.