Housing affordability and insecurity is a real issue for millions of working Americans who do not own a home. In this two-part series, I will examine the causes, real numbers, and possible solutions.
These Americans are stuck in a rut of rising housing costs, larger down payments, and a COVID-19 pandemic, which challenges wages and job security. Those who secured housing years ago cannot compare their experience with today’s new crop of potential homeowners, because the housing equation has changed so drastically. Many homeowners who qualified for a home 10 years ago would struggle getting approved for financing as well as finding an affordable property today. Housing affordability is bad and inventory supply is even worse.
According to Florida Realtors®, in December 2020 there was a 1.8-month supply of housing on the market, whereas in 2011 there was a 6.4-month supply. Typically, the sweet spot for buyers is a supply of three to six months and falling too much below three months is a pure seller’s market with multiple offers on a piece of property and much higher pricing. The frightening aspect of a 1.8-month housing supply is this is happening during the worst pandemic in 100 years. Just imagine this summer when people are more mobile and looking to purchase a new home. There are a lot of big-city dwellers who are looking at Florida with a loving eye to relocate after a year of unrest and city-wide pandemic lockdowns. Expect supply to worsen.
Although high demand for housing and low inventories are juicing the price, the cost to build is dramatically increasing in price. Since April 2005, RoMac Building Supply has been tracking the cost of materials needed to build a 2,200 square foot home in Lake and Sumter Counties. This Whole House Commodity Index is shared nationally and reflects real numbers for all materials to structurally build this size home. While the Index does not include electrical, plumbing, HVAC, or décor it accurately predicts the changes in building costs. The Index has increased 39.8 percent in one year (from January 2020) with every item on the list increasing in price. Of course, wood and sheathing commodities have increased the most; however, all the products listed in the Index have incurred significant inflation.
About as bad as the material costs to build a house is the inability to find qualified labor. This shortage of labor has created much higher costs and longer lead times for projects. Many builders have seen timelines to build projects almost double as deliveries of many building products have doubled or tripled in lead times. The labor and supply chain aspects of building are in total disarray.
On top of these cost increases, there is the heavy hand of local governments who are struggling to balance budgets due to the collision of the pandemic and years of overspending. Local building and impact fees are being evaluated to justify an increase. Plus, each year when Building Codes are upgraded, the cost of housing increases. A little reported change in the Building Code for roofing underlayment, which went into effect in January 2021 adds almost $200 in costs to an average-size home. This is a common occurrence in the state of Florida.
In Lake County, before the first shovel of dirt is turned expect to pay $20,000, or more, in building and impact fees. It is hard to justify these fees when a raw piece of land that is improved will provide a 10-fold increase in tax revenue to the county or city for perpetuity. Building and impact fees in Florida are, by far, the biggest contributor to housing insecurity.
In next week’s column, I will examine the real numbers that show runaway inflation in local housing as well as the positive impact of lower interest rates. It is a complex subject with a brutally simple result—people cannot afford to purchase a home or rent a place to live.
Don Magruder is the CEO of RoMac Building Supply and host of Around the House, which can be seen at aroundthehouse.tv.