July 19, 2018

2018 Mid-Year Forecast: Builders concerned about affordability and cost of construction

Permit delays, increase in material costs and lot prices putting upward pressure on new home prices

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Austin, Texas (July 20, 2018) Today, the Home Builders Association (HBA) of Greater Austin held its annual Mid-Year Housing Forecast at the Phillips Event Center for a sold-out crowd of over 350 HBA members and industry partners. The program gives the HBA’s members a snapshot of how the industry is shaping up and insights on what to expect for the remainder of 2018 and into 2019. Vaike O’Grady of MetroStudy presented her analysis of the Greater Austin housing market, concluding that while the market continues the “high-demand” trend, there are simply not enough lots being developed to keep up. The lack of supply will keep housing prices rising — pricing out more and more residents from the housing market; a trajectory that could position Austin in line with other cities in already in a housing affordability crisis.

“The median base price for new homes during 2Q18 hovered around $290,000, as it has for the previous six quarters. To contradict rising costs, developers and builders are moving further out, and building smaller homes on smaller lots. As an example, 60 percent of 2Q18 starts 60 percent of 2Q18 starts were on lot sizes smaller than 54-feet wide,” says O’Grady.

O’Grady says that quarterly closings outpaced new home starts in all of the price segments above $300,000 as well. So the demand is not just at the lower end of the price spectrum. “This demand pressure is starting to cause challenges for builders. We simply don’t have enough lots on the ground to satisfy the market. Overall, the market is at 17.6 Months of Supply (MOS), well below what we consider equilibrium (20-24 MOs).”

Lot scarcity is adding pressure to pricing, as builders compete for lot positions. At the same time, developers are facing pressure from added costs, including costs related to delays in permitting. “The home buyer suffers because delays add cost, and those costs are going to be passed on to the customer,” says O’Grady.

O’Grady reiterates the impact of permitting delays, “The market is being held back because we’re not adding lots fast enough. Developers delivered 4,160 lots in second quarter, down 13.4 percent from a year ago. Our annual lot delivery pace has slipped below 17,000, in a market that starts almost that many homes in one year.” O’Grady notes that almost half of the 20,000 lots currently in the development pipeline are in Williamson County where housing prices are lower.

O’Grady also attributes growth in the top five submarkets to transportation access. All of the top submarkets are situated near the 130 and 183A toll roads — primary arteries for residents to travel for work. “We continue to see the impact of the Highway 130 and 183A toll roads. Along 130, Pflugerville, Manor and Del Valle all saw more than 1,000 annual starts. The 183A toll road and employment growth in the north is behind strong numbers in Cedar Park/Leander West and Liberty Hill,” says O’Grady.

As the market continues at this pace, O’Grady stresses that in order to meet demand, delays need to be dramatically reduced so lots and homes can be delivered more quickly and as a result, at a lower cost.

About the Home Builders Association (HBA) of Greater Austin

Since 1953, the Home Builders Association (HBA) of Greater Austin has served as the leading not-for-profit trade organization dedicated to residential construction and remodeling in Central Texas. The HBA works in six counties (Travis, Williamson, Bastrop, Hays, Lee and Burnet) to advance the practice and professionalism of the home building industry in our community. For more information, visit www.hbaaustin.com.