I had lunch yesterday with a long-time friend who is a St Louis home-builder who shared with me the continually rising costs of construction he faces. Our conversation was consistent with conversations I’ve had with other builders as well, who cite a variety of things responsible for the ever-increasing costs of new home construction. The areas most often mentioned relate to regulatory and compliance issues, material prices as well as rising labor costs. According to the National Association of Home Builders (NAHB), the average cost to build a new home has inreased 56% over the past 15 years. According to the NAHB, over the past 15 years construction costs accounted for a median of 57% of the cost of a new home.
The gap between new home prices and existing home prices widens..
As the chart below illustrates, over the past 15 years, the median price of a new home has increased 68% while, as the bottom chart shows, the price of homes in the U.S. (according to the S&P/Case Shiller Home Price Index) has only increased 43.6% during the same period. During the past 15 years, new home prices have increased 56% more than home prices overall.
There were 4,642 new home building permits issued for the 7 counties in the St Louis area covered by the St Louis HBA during the 12-month period ended August 31, 2018, just 2 more (0.04%) than the 4,640 that were issued during the prior 12-month period, according to data from the St Louis HBA.
This would indicate that perhaps the new home building market has peaked for the time being which, given that this is the best report for this 12-month period since August 2007 when there were 5,706 permits issued in the prior 12 months, it’s not bad.
St Charles County’s Loss is Franklin County’s gain…
As the table below, which shows the building permit activity by county, illustrates, St Charles County has seen nearly a 14% decline in building permits in the past 12-months from the prior period, while Franklin County has seen nearly a 42% increase. Granted, 32.9% of all the building permits issued in the 7-county area were issued in St Charles County, but a year ago 38.3% of all the permits were issued in St Charles County.
According to a recent report published by the Cato Institute, the state of Missouri ranks 9th in the nation for having the most restrictive zoning regulations. Many anti-development folks may applaud this fact and look at it as a victory. However, many people in the real estate industry, including yours truly, believe that overly restrictive zoning regulations greatly impact the cost of new home construction resulting in increased home prices and less affordable housing. Couple the increased costs along with the reduced density permitted by overly restrictive zoning and you have a real impediment to the development of affordable or “work-force” housing.
Zoning regulations first came about in the U.S. early in the 20th century first around 1908 when Los Angeles adopted municipal zoning and land-use laws. In 1916 the city of New York passed a comprehensive zoning code as well. Other municipalities followed suit and, according to the Cato report, 68 additional municipalities had adopted zoning by 1926. In 1926 the U.S. Supreme Court, in the case, Village of Euclid v. Ambler Realty Co., 272 U.S. 365 (1926) ruled that “If they are not arbitrary or unreasonable, zoning ordinances are constitutional under the police power of local governments as long as they have some relation to public health, safety, morals, or general welfare“. After the Supreme Court decision, zoning regulations exploded around the country and, just 10 years later, another 1,246 municipalities had adopted zoning.
Today, while much of the zoning, and the people that created it and enforce it, are well intentioned, in many cases it goes well beyond it’s original purpose of “health and human safety”. It is common for zoning and land use regulations to include minimum lot sizes that severly limit the development potential of the land thus driving up the cost of the housing. In addition, it’s common for zoning to include design requirements and features, driven by the personal preferences or ideology of elected and appointed officials with nothing to do with health or human safety, thus further driving up the cost of new housing.
It’s not just zoning and land use regulations however that are keeping new homes from being built at a faster rate in St Louis. There are other regulations that negatively impact new home construction and drive costs up such as the clean water act and similar environmental-related regulations which have caused the costs of lot development to more than double over the past few years.
As the table below shows, for the most recent 12-months that new home building permit data is available for from the Home Builders Association of St Louis & Eastern Missouri, there have been 4,610 new home building permits issued in the 7 counties they report on. This is just slightly less than was issued for the prior 12-month period ending April 2017, when there were 4,625 permits issued.
St Charles County New Home Building Permit Trend Continues to Fall…
There were 1,555 new home permits issued in St Charles County in the most recent 12-month period, a decline of 18.54% from the prior 12-month period. Year to date through April, there have been 447 new home building permits issued in St Charles County, a decline of 27%from the same time last year and a 35.2% decline from the same time in 2016.
St Charles County housing market doesn’t appear to be the problem
The overall real estate market in St Charles County is doing pretty well with 6,013 homes sold during the 12-month period ended April 30, 2018. That is a 2.5% decline from the prior 12 month period but still shows the demand is there meaning that decline in new home building permits is most likely not market driven but perhaps more related to lack of available ground.
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New home construction, based upon building permits issued, is up overall for the 7-county area covered in St Louis by the Home Builders Association of St Louis and Eastern Missouri (HBA). For the most recent 12-month period reported for this area, through the end of February 2018, there have been 4,720 single family permits issue versus 4,579 for the prior 12-month period, an increase of 3.08%.
As the table below shows, 5 of the 7 counties reported on by the HBA have seen double-digit increases in new home construction during the past 12-months, Lincoln County and St Charles County being the exceptions. St Charles County has suffered the most, with a double-digit decrease in home sales. The St Charles decline is likely at least partially contributed to a lack of developed lots.
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New home construction in the St Louis area is off to a good start for 2018 with a total of 326 building permits for new homes being issued during January for the 7-county St Louis area reported on by the Home Builders Association of Eastern Missouri. This permit activity in January represents an 11% increase over the activity in January 2017 when there were 293 new home permits issued. During the month of January 2018, 4 of 7 counties saw an increase in building permits from January 2017 (Jefferson County +26%, Franklin County +143%, Warren County +1%, St Louis City +371%) while the remaining 3 saw declines (St Louis County -25%, St Charles County -10%, Lincoln County -29%).
It takes more than a month for a trend…
Just like I often comment with regard to home prices and sales, looking at a single month of activity really does not paint the whole picture and, while it may be a good “leading-indicator” of where things are headed, it’s not going to accurately depict a trend. For this, I believe looking at the past 12-month period and comparing it to the prior 12-month period is more accurate. It takes into account the seasonal fluctuations that occur and adjust for unseasonal weather during a given month that could skew the data if just looking at a one-month period. The table belows the total building permits for the 12-month period ending January 31, 2018 and comparies that activity to the prior 12-month period for each of the 7-counties reported on. As you can see, five of the counties have a double-digit increase in new home building permits issued from the prior 12-month period while St Charles County shows a double-digit decline, and Lincoln County a slight decline.
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New Home Building Permits- St Louis Area – January 2018
New home construction in the St Louis and surrounding areas for the first three quarters of this year is up slightly from the same time last year, according to the latest permit data from the Home Builders Association of Greater St Louis. However, as the table below shows, only 4 of the 7 counties reviewed had an increase in building permits while the other three, including the county with the greatest number of building permits, St Charles County, saw a decline.
St Louis Area New Home Building Permits – Year to Date Through September 30, 2017
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New home construction in August increased in the midwest region of the U.S. by 10.5 percent from a year ago to a seasonally-adjusted, annual rate of 116,000 homes. August new home construction activity in the midwest was up 6.4 percent from the month before as well when homes were constructed at a rate of 109,000 homes per year. This according to a report released today by the U.S. Department of Commerce.
In terms of actual (as opposed to seasonally-adjusted annual rates) new home starts, year to date there have been 80,000 new homes started, an increase of 13.6% from the same time last year when there were 70,400 new homes started.
On a national level, in August 2016, construction was started on new homes at a seasonally-adjusted, annual, rate of 722,000 homes, a decline of 6.0 percent from the month before and a decline of 1.2 percent from August 2015 when homes were started at an annual rate of 731,000 homes.
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New home construction in the midwest region of the U.S. occurred at a, seasonally-adjusted, annual rate of 112,000 homes in July, down 2.6% from the month before and down 6.7% from July 2015 when the rate of new home starts in the midwest was at 115,000 homes, according to a report released by the U.S. Department of Commerce. In terms of actual (as opposed to seasonally-adjusted annual rates) new home starts, year to date there have been 69,100 new homes started, an increase of 15% from the same time last year when there were 60,000 new homes started.
On a national level, in July 2016, construction was started on new homes at a seasonally-adjusted, annual, rate of 770,000 homes, the highest rate since February 2016 when it was 845,000, just about the same rate as in June and up 1.3% from July 2015 when the rate was 760,000 homes.
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New home construction in the midwest region of the U.S. continued strong in March with home builders beginning construction on new homes at a seasonally-adjusted annual rate of 123,000 home, a 41.4% increase from March 2015 when the new home start rate was 87,000 homes. March’s rate was a decline of 21.2 from February when an increase of nearly 90 percent from the year before sent the annual rate to 153,000 homes.
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St. Louis County is entertaining the idea of adding the City of St. Louis to its list of incorporated municipalities. All legal opinions firmly show that the County will absorb NONE of the City’s nancial responsibilities. If this were to happen the City of St. Louis will be no different than municipalities such as Clayton, Ellisville, or Chester eld. It would simply be another city located in St. Louis County. I am an advocate for this move. The City needs to cease County functions and turn them over to the County. Currently, practices and city functions run at inefficient levels.
If the city were to join the St. Louis County roster then we would have about 91 municipalities in the County. It should be noted though that 23 of them have less than 1,000 in population. Why does that make sense for a few blocks of St. Louis County to incorporate? If you ask them, they want to control their neighborhood, perhaps a worthy endeavor. However, we then have 90+ City Administrations for a population of 1.3 million (City and County). Some may suggest that this is very inefficient and a misuse of funds. But how inefficient is it really?
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Home builders began construction on new homes in the Midwest region of the U.S. in February at a pace of 153,000 new homes annually, an 88.9% increase from February 2015 when new home starts in the midwest was at an annual rate of 81,000 homes. February’s spike in new home construction was an 18.6% increase from January’s annual rate of 129,000 homes.
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New home construction activity in St Louis during July showed mixed results around the St Louis area. For the five-county core St Louis market that I focus on (city of St. Louis and counties of St Louis, St Charles, Franklin and Jefferson) permits issued for new homes during July slipped 2.7% to 322 from 331 the year before. The decline was concentrated in just two counties however, albeit the two largest ones, St Louis and St Charles. St Charles county saw permits fall to 142 for July, down almost 25 percent from July 2014 when there were 189 permits issued and St Louis county saw permits fall nearly 13 percent during the same period from 78 permits in July 2014 to 68 in July 2015.
On a year-to-date basis, the 5-county core St Louis market is up 11.2 percent from a year ago with 2,257 permits issued versus 2,030 as of the same time a year ago.
For the St Louis MSA, as the chart below shows, building permits issued for new homes in July was up 13.8% from a year ago.
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New Home Construction in the Midwest declined to a seasonally adjusted annual rate of return of 104,000 homes in May after hitting a rate of 123,000 homes in April. April’s increase in activity brought the rate of new home construction to 23% above a year ago, but in May the rate fell to a point 1% below the same time last year, according to newly released date from the U.S. Commerce Department and U.S. Census Bureau.
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New Home Construction in the Midwest really heated up during the month of may with construction beginning during the month on new single-family homes a the annual rate of 126,000 homes, an increase of 43.2% from March and an increase of 15.6% from April 2014, according to newly released date from the U.S. Commerce Department and U.S. Census Bureau. During the month of April, new homes were completed at the annual rate of 128,000 homes, an increase of 50.6% from March and an increase of 28.0% from a year ago. Building permits issued for new homes did not keep pace with new construction and were issued at the annual rate of 100,000 homes which is still an increase of 1% from the month before and an increase of 5.3% from April 2014.
National Association of Home Builders Chairman, Tom Woods, a builder from right here in Missouri (Blue Springs) said “Our builders tell us that consumers are slowly returning to the market” and added, “This month’s report shows release of pent-up demand and evidence of a sustainable housing recovery.”
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New Home Construction in the Midwest showed mixed results in March with a small increase from a year ago in the number of building permits issued but a decline in the number of new homes construction began on or was completed on, according to data released this week by the U.S. Commerce Department and U.S. Census Bureau.
New home construction activity in the midwest region of the U.S. in March (all figures shown are seasonally adjusted, annual rates)
Building permits issued for new homes:
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New home construction in St Louis has begun 2015 with a slower start than one might expect given the spring-like weather St Louis experienced during much of January and the flurry of activity we have seen thus far this year from home buyers. Permits issued in January for new homes in the St Louis Metro Area were down 7.85 percent from a year ago, according to data from the Federal Reserve Bank of St Louis. As the chart below illustrates, for the bulk of last year, the number of permits issued during the month was down from a year ago.
Percentage Change From Year Ago In Building Permits Issued In St Louis MSA for Single-Family Homes
Source: Federal Reserve – St Louis
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While the number of building permits issued for new single family homes during January 2015 in the Midwest was down 4.8 percent from January 2014, builders were busy starting construction on new homes at a pace that was 73.6 percent higher than the year before, according to the latest data from the U.S. Census Bureau.
Other highlights from the report for January 2015 for the midwest region of the U.S.:
Permits for new single family homes were issued at the seasonally adjusted annual rate of 99,000 units, down 2.0% from December and down 4.8% from January 2014.
Construction commenced on new homes at the seasonally adjusted annual rate of 92,000 units, a decrease of 30.8% from December but an increase of 73.6% from January 2014.
New homes in the Midwest were completed in January at the seasonally adjusted annual rate of 103,000 homes, down 2.8% from the month before and down 12.0% from a year ago.
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After struggling for years, new home construction in the Midwest finished out 2014 with a little more home building activity than the prior year and on a pace that makes me feel pretty optimistic about 2015 for the home building industry.
New Home Building and Construction Activity in the Midwest during December 2014, according to the latest data from the U.S. Census Bureau:
Permits for new single family homes were issued at the seasonally adjusted annual rate of 102,000 units, up 4.1% from the prior month’s rate and up 6.3% from the rate in December 2013.
During 2014, building permits were issued for 101,900 new homes, just slightly more than 2013 when there were 101,800 permits issued.
Construction commenced on new homes at the seasonally adjusted annual rate of 123,000 units, an increase of 7.9% from November and an increase of 0.8% from December 2013.
During 2014, construction was commenced on 105,100 new homes, an increase of 3.1% from 2013.
New homes in the Midwest were completed in December at the seasonally adjusted annual rateof of 108,000 units, up 8.0% from the month before and up 10.2% from a year ago.
For 2014, there were 103,800 new homes completed, an increase of 8.6% from 2013.
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New home construction starts in the Midwest during November occurred at a seasonally adjusted, annual rate, of 107,000 homes, an increase of 5.9 percent from the month before and a decline of 10.1 percent from November 2013, according to the latest data released by the U.S. Census Bureau. Year to date through the end of November, there have been 97,800 single family homes started, an increase of 2 percent from this time last year when construction had started on a total of 95,700 new single family homes.
Only half the new homes built are for sale-
One of the things to keep in mind about the new home construction numbers you hear about is not all the homes being built are for sale or adding to the inventory of homes for sale. Some new homes are built specifically for a client, perhaps on their own property, or are built for rental or other purpose. During the 3rd quarter of this year construction was begun on 32,000 new single-family homes and only 16,000 (50%) of those were built “for sale”. During the same period construction was begun on 18,000 new units in multi-family buildings (2 units or more) and less than 1/2% of those were built for sale, with 94.4% of them being built for rental.
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New Home Construction in the Midwest Region of the U.S. slowed in October with new home building permits being used at a seasonally-adjusted annual rate of 102,000 homes, a decline of 3.8% from September but a 4.1% increase from October 2014, according to data released today by the U.S. Census Bureau and HUD. Year to date for 2014, through October, there have been 89,100 permits issued for new homes, down very slightly from the same time last year when there had been 89,400 new home permits issued.
New Home Starts Fall Dramatically In The Midwest In October-
Construction began on new homes in the midwest in October at a seasonally-adjusted annual rate of 94,000 homes, down 21% from September and down 7.8% from October 2013.
New Home Completions Decline In The Midwest In October-
New homes were completed in the midwest region in October at a seasonally-adjusted annual rate of 99,000 homes, down 6.6% from the month before and down 2% from October 2013.
On a national level, new home permits were issued in October at a seasonally adjusted annual rate of 640,000 homes, an increase of 1.4% from the month before and an increase of 2.4% from October 2013. Year to date for 2014, there have been 541,300 building permits issued for new single-family homes nationwide, an increase of 1.4% from the same time last year.
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St Louis new home building permits issued in September increased by 6 percent from a year ago for the 5-county core area of St Louis (city of St Louis and counties of St Louis, St Charles, Jefferson and Franklin), according to data just released by the Home Builders Association of St. Louis & Eastern Missouri. On a year to date basis, as the table below shows, the city of St Louis is up 13 percent from the same period last year, St Louis county is up 2 percent and the rest of the counties are running behind last years numbers.
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The number of new home building permits in St Louis dropped in August 12 percent from July and were down 2 percent from August 2013, according to the latest date from the Home Builders Association for St Louis and Eastern Missouri. There were a total of 287 permits issued for the 5-county core market consisting of the city of St Louis and Counties of St Louis, St Charles, Jefferson and Franklin, down from 327 the month before and 292 a year ago.
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New home building permits issued in the Midwest region of the U.S. in May was up 1 percent (seasonally adjusted) from a year ago and increased 7.3 percent from the month before, accordion to the latest data released by the U.S. Census Bureau. On a national level, new home building permits issued in May were down 0.8% from the year before but were up 3.7% from April, according to the report.
As the chart below from the Fed Reserve shows, building permits issued in St Louis are definitely on the rise but are still at levels much lower than back during the real estate bubble.
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New home construction is not keeping up with demand in most of the U.S. and could even lead to “persistent housing shortages and affordability issues unless housing starts increase to match up with local job creation”, according to a newly released analysis by the National Association of REALTORS® (NAR).
Lawrence Yun, NAR’s chief economist, discussed in the report the relationship between new jobs and increased demand for housing saying “Historically, there’s one new home construction for every one-and-a-half new jobs,”. Yun goes on to say “Our analysis found that a majority of states are constructing too few homes in relation to local job market conditions. This lack of construction has hamstrung supply and slowed home sales.”
Missouri is not one of the states the NAR report cites as having the biggest disparity between job creation and new homes, instead listing Florida, Utah, California, Montana and Indiana as the states where this issue is most prevalent, but I think we are going to see this, on a reduced scale, in St Louis as well.
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New home building permits issued in the St Louis metro area during the 1st quarter of this year were down slightly (4%) from the first quarter of 2013, according to the latest data released by the U.S. Census Bureau. According to the Census Bureau, there were 979 permits issued for new single family homes in the St Louis MSA during the first quarter of 2014, down 4 percent from the same period for 2013 when there were 1,024 permits issued.
As the table below shows, even though 2014 is starting out a little sluggish compared with 2013, it’s still off to a significantly better start than 2011 and 2012. To put things in perspective though, back in the height of the building boom, 2004, there were 3,009 new home building permits issued in the St Louis metro area during the first quarter, more than triple than this year.
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A residential rental property licensing ordinance has been proposed in St Louis County by Councilman Michael O’Marawhich would prohibit an owner of residential property in unincorporated St. Louis County from renting or leasing their property without first paying a fee and obtaining a residential rental license. The bill, which has been kept relatively quiet and is impossible to find on the website for the St Louis County Council other than listed on the agenda, will most likely be passed at the meeting of the St Louis County Council tomorrow evening.
While there are several municipalities in the St Louis area that currently require some sort of licensing or registration of rental property, and the issue of whether that is an infringement of property rights or not, is a topic I’m not going to address today. Instead, I will just focus on some of the things in this proposed legislation that I feel, in my humble opinion, are egregious violations of property owner’s private property rights. The bill, a draft of which can be read here, is bad in many ways, however below are the parts that violate private property rights the most. followed by my comments on each section:
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New Home Construction in the midwest region of the U.S. is off to a slow start for 2014, according to newly released new home construction report from the U.S. Census Bureau. According to the report, new home construction starts of single-family homes in the midwest during February was at a seasonally-adjusted annual rate of 76,000 homes, down 19.1% from a year ago when the rate was 94,000 homes. Building permits for single-family homes in the midwest issued during February were at a seasonally-adjusted annual rate of 88,000 homes, down 5.4% from a year ago when the rate was 93,000 homes. The only area of increased new home construction activity in the midwest during February 2014 was that of new home completions, which were at a rate of 100,000 homes per year, an increase of 6.7% from February 2013 when completions were at a rate of 94,000 homes.
Below, you will find non-seasonally adjusted new home construction numbers for the modest for February 2014, as well as a real-time chart from the St Louis Fed showing building permit activity in the St. Louis area.
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St Louis area new home construction in 2013 was still very low compared with the normal rate of home construction, however increased 25% from the year before and saw the highest level of sustained activity in years. The decreased levels of new home construction over the past 6 years is leading to a shortage of homes in some areas throughout the country and setting the stage for a somewhat robust recovery of the new home market. Here in St Louis new home recovery will come at a slower pace due to our low levels of population growth here however at least the market is headed the right direction.
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What is the St Louis real estate market outlook for 2014? Where are home prices and sales headed? Are we out of the slump and on the path to recovery in the St Louis housing market? What about St Louis new home construction activity and St Louis new home sales?
I had the pleasure this morning of discussing this and much more with Kristi Carson, host of “Today’s Issues” , her show that airs on KSHE 95, Classical 107.3, KHITS 96.3, 105.7 The Point and FM NewsTalk 97.1. In case you don’t catch the show on the radio, you can get it here.
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