New-home construction not enough to relieve tight inventories

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Even as the number of homes up for sale remains relatively low in both Wisconsin and the U.S., homebuilders are finding themselves blocked by various obstacles whenever they try to add to the supply.

The Standard & Poor’s CoreLogic Case-Shiller 20-city home price index, released Tuesday, showed that December’s year-over-year increase in U.S. home prices was the fastest seen in the past 11 months as prospective buyers bid against each other for the relatively few homes that were on the market. The news came about a week after the Wisconsin Realtors Association released a study showing that tight inventories are likewise moderating the pace of in-state sales, even as prices continue to rise.

David Clark, an economics professor at Marquette University who analyzes home-market data for the WRA, said tight inventories should almost naturally “generate new construction.” Unfortunately, though, the pace of new construction is doing little to impact tight inventories, he said.

David Belman, president of Waukesha-based Belman Homes and president of the Metropolitan Builders Association, said one hindrance is the fact that it’s still more expensive to build a new home rather than buy an existing one. Belman said the price of existing homes has been steadily increasing, but not by enough to encourage many buyers to consider newly built properties.

Belman said anyone in the market today should remember that new homes tend to more energy-efficient and air-tight than existing ones and can thus cost owners less over the long run. The biggest driver of higher prices for new homes, he said, is red tape at all levels of government. Belman cited a two-year-old study from the National Association of Homebuilders finding that local, state and federal regulations tack on $84,671 to the average cost of a new home.

Brad Boycks, executive director of the Wisconsin Builders Association, said he thinks state lawmakers might have a part to play in encouraging the construction of new homes. As the economy picked up steam over the course of the past several years, Boycks began to hear more from members about a shortage of lots. The WBA’s response in 2017, he said, will be to once again look for ways to streamline the state’s procedures for approving new developments.

Also at the top of the group’s priority list are the property-tax reductions called for by Gov. Scott Walker’s proposed 2017-19 budget. Boycks said the WBA has long been an advocate of freezing or reducing the state’s property taxes. The hope is that a tax reduction would let homeowners use some of the money they’ve saved and put it toward either remodeling projects or purchases of new homes.

Belman cited yet another contributor to the tight housing market: the industry’s long-standing labor shortage. The struggle to find skilled workers is a hindrance in at least two ways. It not only slows the pace of new construction, Belman said; it also tends to result in higher wages, which are ultimately factored into home prices.

“We’re not getting enough new people in the trades to meet the demand that is out there in the industry,” Belman said.

Clark said he expects that the supply of homes on the market will eventually increase — but not necessarily as a result of new construction. More likely, he said, relief will come when prices increase enough to entice more current owners into putting their existing homes up for sale.

Clark was also quick to point out that housing inventories typically tighten in the winter months, and then expand again in the spring and peak during the summer months. But, such seasonal fluctuations aside, Clark said the general trend in recent years has been one of slimmer supplies.

The inventory for homes on the market in December, for instance, was 8.3 percent below what it has been in the same month the year. And the comparable January was down by 11.4 percent from what it had been at the beginning of 2016. Follow @alexzank