Supply and demand: Lot shortage driving up home prices
A worker installs the roof on a new home in Providence, a development just east of Ashland.
As the economy recovers from the largest economic collapse since the Great Depression, the housing market is starting to bounce back. While Hanover County recently experienced a slight increase in residential sales, one main challenge stands in the county’s way — a lack of available land for new developments.
“There was such an increase over the last 12 months that now [Hanover] is looking at a shortage of lots where builders can build,” said Craig Toalson, chief executive officer of the Home Building Association of Richmond, which represents various builders who construct residential and commercial developments in Greater Richmond.
He added that the county will have to decide, “How do we continue to stay competitive?”
Hanover’s two competitors are Chesterfield and Henrico counties, Toalson said. At the moment, Chesterfield has the upper hand because it has more available land for builders and cheaper water and sewage connection fees.
In Hanover, it costs $13,324 to connect a single family home to water and sewer while Chesterfield’s connection fee is $8,820, according to each county’s website. The connection fee only includes installing the meter and turning it on, Toalson said.
In addition to that increased cost, the county’s lack of land has caused the prices of single-family homes to increase, he added.
“It’s supply and demand,” Toalson said.
Because of the high demand, house prices rose from $290,401 to $304,079 — nearly a 5 percent increase — between June 2012 and July 1, 2013, according to Integra Realty Resources’ annual report.
According to Toalson, driving demand in Hanover are its schools, government and its policies, proximity to I-95 and job growth.
Hometown Realty agent Kevin Currie is seeing an uptick despite the price increase because interest rates remain low. Currie added that buyers also want their “forever house” now, somewhere they can live for the rest of their lives instead of moving every five years or so.
Lenders are making sure interested buyers are being cautious. Currie said that because of the recession, lenders will not allow people to buy homes outside of their budgets as a precaution.
“People are wiser,” Currie said.
But Toalson said the housing market depends on two things: jobs and price.
“If people are employed they’re going to buy housing,” he said. “They’re going to come out of that rental stage that pins up demand and actually go into the ownership market.”
A Richmond housing report by George Mason University’s Center for Regional Analysis showed that Hanover would see 12,028 new net jobs over the next 20 years, with a 25.7 percent change in the previous year’s growth. As a result, there will be a demand of 8,144 housing units between 2013 and 2023, where 7,054 would need to be single-family homes and 1,090 would be townhouses and multi-family homes, according to the 2013 report.
According to Toalson, one thing has not changed — Hanover’s single-family home-centered housing market.
Between the second quarters of 2012 and 2013, there was a 113 percent increase in the number of single-family home permits issued, according to the Integra report.
The housing market is also starting to include other types of housing such as townhomes and multi-family houses, focused predominantly in the suburban service area.
Despite the type of dwelling, one of Home Building Association’s priorities is making sure homes stay affordable. Toalson said the organization does that by working with local governments so that builders can construct affordable houses.
The desire to be able to “work, live and play” in one place is becoming more common. Cluster neighborhoods, or built-in mixed-use communities, allow their residents to easily walk or bike from point “A” to point “B,” whether it be to work or the grocery store.
“It not only offers an opportunity to purchase a home, but we offer the amenities for the neighborhood,” said George Moore, vice president of development at HHHunt communities.
In Hanover, Moore’s company and their partners, Ryan Homes, are building two communities — Rutland and Providence.
When the company builds a new community, planners analyze the town or county and surrounding environment to decide which amenities are appropriate for the consumers.
In 2006, HHHunt developed the Rutland neighborhood, which has a pool, clubhouse, a mix of townhouses as well as several walking trails and sidewalks.
“It provides the kind of place where people feel secure in making that real estate investment because it holds its value better,” Moore said.
Moore said the housing market has “picked up” in the past two years as the economy started to recover from the recession.
In past years, Moore said most developers added on to existing developments instead of starting new projects.
Sales increased 43 percent in the Rutland community last year, Moore added.
The company built Providence as the economy started shaping up, Moore said. This neighborhood near Washington Lacy Park is different than Rutland because it will only have single-family homes.
Once Providence’s 160 homes are completely finished, the neighborhood will have a pavilion for outdoor activities, trails and playground areas. The trail runs around the outskirts of the neighborhood and connects to the park.
“We try to provide not only a quality home for somebody to buy but try to provide a lifestyle that people desire,” he said.
Both communities have homeowner associations that put on various events such as concerts for all residents. In Rutland, homeowners have the ability to work, eat and play in their neighborhood, Moore said. Grocery stores and several restaurants are within walking distance of many homes.
Moore said the two neighborhoods have been successful because of the draw to Hanover schools and the community’s quality.
Often Toalson said these niche neighborhoods are a mix of types of housing and often include commercial and industrial development. For instance Rutland has a variety of single-family homes and townhouses. It also has a shopping center, small business park and community center.
The consumers also drive the market, Toalson said.
“There’s one thing that people always say: ‘Well, if builders would build this,’” Toalson said. “Builders will build what the public demands. It’s the only way they’re going to stay in business.”
People are not re-selling their houses as much and as a result there is a rise in new construction, Toalson said.
But the need for housing still exists.
“People need housing and people need affordable housing,” Toalson said. “The American dream is still alive.”