Tiny homes, townhomes and other zoning changes needed help ease Triangle housing shortage, experts say

Tiny homes, townhomes and other zoning changes needed help ease Triangle housing shortage, experts say

RALEIGH – With housing in the Triangle hard to find and prices rising, what can be done to alleviate the shortage that is hitting everyone from home buyers to renters?

Build more houses – and adapt zoning to embrace more homes in smaller sizes. So say housing industry experts.

“There are a lot of challenges that we’re faced with,” said Holly Fraccaro, the CEO of the Home Builders Association of Durham, Orange and Chatham Counties. “The biggest challenge for the building industry is that municipalities are making it more difficult to bring new construction communities to the market.”

The Triangle region is growing due to the impressive work of economic developers, she noted. “It’s a very exciting time for the Triangle,” said Fraccaro, “but given the growth, and given the work that so many people are doing to bring more jobs to the area, if we do not use the land available to build new homes, those folks won’t have anywhere to live, and we won’t benefit from the growth of the area.”

There’s growing concern that with rising prices of existing homes — about 21% year-over-year — some first-time homebuyers and some households may be priced out of the real estate market. Developers and builders of new construction neighborhoods like Jim Allen, a residential real estate developer and licensed real estate agent and founder of the Jim Allen Group, tell WRAL TechWire that the current real estate market  is the “most extreme sellers market” he’s witnessed in his four-decade career in real estate in the region.

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Even with supply disruptions and price inflation of homebuilding materials and supplies, builders and developers are still able to generate returns on new construction homes, when they’re able to build, at almost any area in the Triangle, Allen said. Developers and builders are interested in building more homes in order to keep pace with increasing demand.

“As a developer, we have to analyze it with asking whether its profitable enough to develop,” said Allen.  “I’m paying more now than I’ve ever paid before, but it will work, because it does.”

The interest from builders and developers in developing new residential property is present in the current market conditions, said Allen, and it is clear that the demand for residential housing units, particularly for first-time homebuyers, is present in the Triangle.

Allen previously told WRAL TechWire that there is no location in the Triangle that would be a bad choice for an investor to buy property.  That’s due to the expansion of the Triangle region and the economic development occurring in the counties surrounding Durham and Wake Counties, as well as the growth of jobs and population overall.

And he’s betting on the continued growth of the region, at a time when workers may not need to be as close to denser urban commercial districts, he said.

But not all housing developments and proposals receive approval.

A few years ago, Allen purchased a tract of land along the Highway 98 bypass between Rolesville and Wake Forest, and proposed a 100-townhome new construction project.

“It should be a community, near grocery stores, that would provide first and second time buyers a housing option,” said Allen.

Rolesville denied the project, said Allen.

“The marketplace still views townhomes as something they don’t want,” said Allen.  “But if you’re a first, second, or third-time buyer in the Triangle, if you’re not buying townhomes, there’s really nothing to buy.”

Folks who have lived in the Triangle, said Allen, need to reconsider the region.  We’re now a big city, and a desired location for in-migration, said Allen.  And we’ve got more than 22,000 new jobs announced in the region in the last year, added Allen.

“When it takes 3.5 to 4 years to develop a subdivision, how can you catch up when we’re that far behind?” Allen said.  “Pricing will continue to soar, but the unfortunate thing about that, is that these people won’t have a place to rent, either,” he noted.

Are there other solutions?

The City of Raleigh and the City of Durham have taken some steps to increase housing density, noted Allen. “We’ve got to understand that we are a big city,” said Allen. “Raleigh’s got as many people, or more, than Atlanta or Charlotte, but we still think we’re a small town, and that’s the way we live.”

For instance, the City of Raleigh’s Planning Commission unanimously approved a motion to recommend a zoning change within the city limits to allow for the construction of “tiny houses,” which would create a new building type in the local ordinances, according to Keegan McDonald, a planning supervisor for the City of Raleigh.

Such homes would be limited to a maximum floor size of 600 square feet, according to how the legislation is written, and the minimum size lot dimensions would also change to allow for the construction of such a structure on a smaller lot, said McDonald.

This specific legislation won’t make nearly a large enough dent in advancing housing stock to meet demand, Allen said.

“The ability to build those homes does not or would not be representative of creating new lots for these types of urban infill,” said Allen. “It’s more a matter of allowing existing properties to add these than the creation of new lots for these.”

The Raleigh City Council will receive the recommendation from the Planning Commission at the Nov. 2 Council Meeting, and could hold a public hearing as soon as Nov. 16. if adopted, the council would set an effective date, which McDonald said would be at their discretion, though it is anticipated that it would be between 30 and 60 days from approval.

And one change may not enough to meet the demand for housing across the entire region.

“We need Selma, Zebulon, Wendell, we need these smaller towns to accept portions of this growth, which most of them are hungry for,” said Allen. “First-time homebuyers may need to move to these areas to buy a home.”

The opportunity beckons as the region continues to attract jobs that may provide workers a fully remote work environment or a hybrid work model, giving more people the option to move within the region.

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“A challenge for the building industry is that municipalities are making it more difficult to bring new construction communities,” said Fraccaro. “Without growth, there is no affordable housing,” she added.

“Allowing developers to come in, doing a unique mix of homes that allow for some density, like townhomes, smaller lot construction, this is what will allow us to bring those industries in, house workers and families, especially those who will be doing the work we need in high-skill areas like hospitals and medicine,” she noted.

Affordable housing requires more housing

What about the availability of affordable housing?

“We need to educate more folks how important new home construction is to create more affordable housing,” said Fraccaro. “We’re moving away from that, not towards it.”

Fraccaro pointed out that the median home sale price in Chapel Hill is now more than $700,000.  “How can a teacher, a police officer, a hospital worker, afford to live there?” Fraccaro said.

Allen also noted that municipalities ought to consider approving more townhome communities, as they provide a safe community and are governed by covenants, regulations, and restrictions through a homeowner’s association, he said. Townhomes often require less land per housing unit as compared to the construction of single-family homes.

Alternatively, Allen suggested that municipalities begin to incorporate traditional neighborhood development (TND) principles into residential construction projects, whether for entire neighborhoods or for new construction infill on existing lots or lots that were elected to be subdivided by the owner.

Homes that fit well in this style of design, said Allen, are those that can be build on a narrow lot, have access to an alleyway behind the home, provide owners the option of an attached or detached garage.

“That, and townhomes, are going to be the solution for first-time homebuyers,” said Allen. “Our market is growing, we’re growing, we’re expanding out,” said Allen.

But it’s going to take some time to increase building and new construction in order to meet the increasing demand for housing in our region, said Allen. “It takes up to three years to get full approval for a subdivision, and then another nine months to get it in the ground,” said Allen. “And that’s best case.”

One improvement to address the housing shortages in the region, said Allen, would be restructuring the timeline and permitting process to develop new communities. And that happens at the municipal level.

“Educate local municipalities about how bad the shortage really is,” said Allen. “They’re not seeing it,” he added.  “Really not understanding that they are a part of the solution.”

“They are really important in the food chain of the Triangle staying a healthier real estate market.”  And the region continues to grow, noted Allen.

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“Five years ago, people would have said, gosh, no, I don’t want to move all the way out to Louisburg, but they’re not saying that now, they’re saying, gosh, get me a home,” Allen said.  “Louisburg, in Franklin County, was a great location, but even there, prices are moving out of touch for first-time buyers,” said Allen.

“Nash County, Middlesex, was not an area that people were driving to, but now they are,” said Allen.  “An extension of Research Triangle Park that got announced a year and a half ago, and no one was paying attention,” he said.  But Allen has now developed three subdivisions in the area.

“As soon as we list a house, it sells,” said Allen.  “We’ve gone from selling the same house for $224,000 to $360,000 in less than two years,”

“I’m stretching my web even further,” he added. “I would have said there was no chance that I would be developing in Wilson, but here I go in an effort to develop what I consider to be affordable housing,” he said.  “Which what I consider is someone who is in the 60-80% median income range in the Triangle,” said Allen.  “And they can’t really buy anything in the Triangle.”

Hunger for new homes being built

Even for buyers who would consider a new construction home as opposed to an existing property, a new analysis of market data from the technology-enabled real estate company Knock found this week that many potential home buyers being priced out of the homeownership market.

According to an analysis of market data including the most recent data from the from the U.S. Census Bureau on new construction homes conducted by Alexandria Quintana, a research analyst at Knock research and the report’s author, 64.3% of the households in the United States would be priced out of a new construction home at the median new construction sale price.

There is a bright spot locally, however. Knock’s research concluded that Raleigh ranks as one of the top three most affordable housing markets for buyers interested in new construction homes.

“Raleigh is one of the few markets across the country in which the median price is obtainable for the average household in its metro,” said Quintana.  The analysis tracks local data through July 2021 and finds that 50% of Raleigh area households couldn’t afford a new construction home at the median new construction sale price.  The analysis also found that it would take an average of 13 years for a household to save for a 6% down payment for a house at that price point.

Knock Data in Chart Form 1

Image: Knock chart listing, top to bottom, most affordable metropolitan areas when purchasing a new construction home. The Raleigh-Cary MSA ranks third, according to Knock’s analysis.

Home ownership may be even more difficult to attain for would-be homebuyers in the millennial generation, data from the National Association of REALTORS that was shared with WRAL TechWire this week indicates. Some 41% of millennial renters in a position to be able to buy the typical home in the Raleigh-Cary metropolitan statistical area, which includes Wake, Franklin, and Johnston Counties.

Builders are also facing supply chain disruptions and other challenges due to the COVID-19 pandemic, WRAL TechWire reported earlier this week.

Price appreciation affecting new construction, too

There’s another factor at play in today’s market for new construction homes, according to Allen:

The rapid price appreciation in the existing home segment of the market.

Data from the Triangle Multiple Listing Service showed that the median sale price of a home in Wake County in September 2021 was $410,000, an increase of 20.6% compared to September 2020, when the median home sale price in Wake County was $339,900.

It’s not just price appreciation, it’s also the speed of which offers are made and accepted on existing properties, as Wake County and the Triangle region have average days on market in the single digits.  Nationally, a Redfin report released yesterday found that one-third of homes that sold in the past four weeks went under contract within seven days of hitting the market, rising during each of the last six weeks at a time of year when Redfin noted that real estate markets typically cool down.

That’s affecting other segments of the market, too, said Allen, including new construction homes, where the rapid increase in price appreciation is a factor in how builders and developers are pricing their products, said Allen.

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Traditionally, new construction homes sell for higher than existing homes in the same market, which can sometimes be between 20% and 40% of a premium.  Right now, according to the Knock analysis of market data, the Raleigh-Cary MSA price premium is less than $5,000, or 1.33% above the median home sale price of an existing home sold on the open market.

A builder typically will sell some of its homes during a pre-sale period, prior to a home’s foundation being poured.  And, traditionally, the real estate industry has seen an average market appreciation of about 3% each year.

That was all prior to the onset of the global coronavirus pandemic, though.

Now the market conditions have changed, said Wes Carroll, founder of Upright Builders and the incoming board president of the North Carolina Home Builders Association, in an interview with WRAL TechWire.

That includes supply chain disruptions, labor market shortages—particularly in the trades like plumbing, electricians, and HVAC—and the dramatic price appreciation in the local real estate markets of the Triangle.

Because of those factors, builders have changed their pricing strategy, Carroll explained.

“Builders aren’t pricing homes until they’re nearly complete,” said Carroll.  “And as soon as a home is priced, it comes off the market.”

Homes aren’t being left unsold because they couldn’t be sold, said Allen.  “They’re unsold because the builder won’t put a price on it,” said Allen.

Think of it this way, said Allen.  The region saw about 21% in price appreciation in the last year.  “If you’re a builder, and it takes you 11 months to build a house, by the time you finish building it, if it’s going to be worth 21% more, it’s hard to put a price on it, and that’s why builders are holding out inventory,” he said.

“Talk about a great investment, buying in the Triangle right now, if you’re a first or second-time homebuyer, it sets you for life,” said Allen.

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That’s especially true if you went under contract two or three years ago, said Allen, sharing two examples.

“I sold a house for $625,000 that I just resold 18 months later for $1,050,000,” said Allen.  “The only thing a buyer did was adding a $75,000 pool, outside of that, they did nothing to the house.”

“The builder didn’t make anywhere close to what the homeowner did reselling it, less than two years later,” said Allen.  The owner of that property is going to make five times what the builder did building the home, said Allen.

“That’s just one example, but it’s all over the place,” he noted.  Take a project that Allen completed in Durham, off Ellis Road, three years ago.  When Allen pre-sold those homes, they were listed for $189,900.

“Three years later, I just resold one of those homes for $374,000,” he noted.  “More than double, and that’s normal.”

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