Housing Housing market gap (split from RTDNTOTO)

[Maister]

Why don't home builders choose to construct 'middle' priced housing anymore? I swear this is becoming a national thing. Someone please tell me I'm wrong about this.

 

[Whose Yur Planner]

Why don't home builders choose to construct 'middle' priced housing anymore? I swear this is becoming a national thing. Someone please tell me I'm wrong about this.

We've got that problem as well, along with starter housing. As a solidly middle class person who finally looking to purchase, it can be an issue.

 

[Planit]

Why don't home builders choose to construct 'middle' priced housing anymore? I swear this is becoming a national thing. Someone please tell me I'm wrong about this.

We see it too.

Large homes (usually custom) = larger profit with less work.
"Affordable" homes = smaller profit with more work (having to build 3 houses to equal profit of one large house), but these are selling.
The middle market is stuck with not as many sales & marginal profit.

 

[Maister]

We've got that problem as well, along with starter housing. As a solidly middle class person who finally looking to purchase, it can be an issue.

We see it too.

Large homes (usually custom) = larger profit with less work.
"Affordable" homes = smaller profit with more work (having to build 3 houses to equal profit of one large house), but these are selling.
The middle market is stuck with not as many sales & marginal profit.

I hate to say it, but could it be the main reason for this is because the middle class is steadily declining across the board?

 

[mendelman]

I hate to say it, but could it be the main reason for this is because the middle class is steadily declining across the board?

I don't think in appreciable numbers. It's just what Planit says.

 

[dw914er]

Why don't home builders choose to construct 'middle' priced housing anymore? I swear this is becoming a national thing. Someone please tell me I'm wrong about this.

There are some on our Council that grumbles if a housing project is proposed that is under $600,000 per home. Despite not really having the regional cache to hit that home price, I have no idea how they expect people to afford this.

 

[Planit]

I don't think in appreciable numbers. It's just what Planit says.

I've been told he's an idiot.

 

[Whose Yur Planner]

I hate to say it, but could it be the main reason for this is because the middle class is steadily declining across the board?

I think the middle class is declining for variety of reasons. The wealth of the country flowing upward and concentrating. Fewer middle class jobs being created-blue, white, grey collar. Houses no longer being seen as a way to build equity. There are other reasons I'm sure.

 

[AG74683]

Why don't home builders choose to construct 'middle' priced housing anymore? I swear this is becoming a national thing. Someone please tell me I'm wrong about this.

We will be accepting a final plat for a small portion of a 500+ lot cluster subdivision. The home builder is setting their entry price point at 250k.

 

[arcplans]

We will be accepting a final plat for a small portion of a 500+ lot cluster subdivision. The home builder is setting their entry price point at 250k.

Is this good or bad? I mean, i live in the 7th most expensive housing market, so our budget for a 635K home has been rather daunting to find something remotely livable.

 

[AG74683]

Is this good or bad? I mean, i live in the 7th most expensive housing market, so our budget for a 635K home has been rather daunting to find something remotely livable.

Mostly good. The housing market is basically non-existent here. Finding good homes at lower prices is impossible. Most of the affordable homes haven't been touched in decades and need a lot of renovations, otherwise they won't sell.

Realistically though, their "target market" doesn't exist here yet, and likely won't for several more years. Their plan is to attract people from Charlotte who want to own a home but can't afford Charlotte prices. New homes regularly start at 450 there. Tract builders are also basically SOL in Charlotte and the surrounding areas because impact fees are so high that the homes are no longer profitable. Our tax rate here is reasonable, we are like 35th in the state, so it's not all together an unattractive place to live. Our service industries are severely lacking though.

The issue is that the main commuter road to Charlotte is still only 2 lanes for various portions. They are widening it to 4 but it will take years before that project is done. Our school system is also a dismal mess. It's improving but it's still a huge detraction to our County. We are building a new central high school right now, but it doesn't solve the early school problems. The elementary school where the kids will be going in this subdivision is over 100 years old and it shows it. Middle school is from the late '50's and again, it also shows.

 

[Gedunker]

When we have homes in "the missing middle" there is fierce competition for them amongst Boomers and Millenials, who seem to compete for the same product. Boomers typically win, since they have the wherewithal to outbid the Millenials.

But, yes, here too, the quality starter home is sorely needed.

 

[DVD]

What ever happened to a nice duplex?

Here it seems to go in waves. The new home builders build things in the $300k plus range. A normal house runs about $300k. Since the prices have gone up more people go to the older housing to buy it for less and then start doing all kinds of additions. Now the older neighborhoods have been rehabed and cost above the $300 average so the old houses that haven't been redone are looking at $300 to start. There are still plenty of dirt cheap houses, but no middle class person wants those.

 

[Super Amputee Cat]

Around here "middle class" housing is too small to meet minimum square footage requirements in many suburbs. It's all jive-plastic McMansions.

 

[WSU MUP Student]

Here in the Detroit area we don't have a housing market gap if you look at the region as a whole - there is plenty of affordable housing in pretty much all of Macomb County or far western Oakland County and most of Wayne County outside of Detroit itself... And then there is Detroit - land and existing housing is cheap, but do you want to deal with the schools or increased insurance costs? If the city was more attractive to families, there's plenty of available land to build new housing to fill that housing gap. Our problem is that everybody with young kids seems to want to live in the Woodward Corridor in southern Oakland County but the area is 100% built out (and has been for decades) and any house that comes on the market under about $300k in many of the communities gets torn down and rebuilt into some behemoth of varying quality, even if it was in move-in ready condition, especially in places like Royal Oak and Berkley.

Royal Oak and Birmingham and Ferndale are generally willing to allow new multi-family housing but then it's either too small of an apartment or condo for families with children or too expensive for most. We are now starting to see some of that demand spill over into neighboring communities like Madison Heights, Southfield, Oak Park, or Hazel Park (that's Hazeltucky if your kids watch The Loud House!). Prices are now starting to jump in those communities but there is still plenty of affordable housing available, the trade off is that the schools generally aren't as good.

Interesting aside: Our neighborhood is large 1950s ranches and split-levels and for decades there were deed restrictions forbidding traditional 2-story homes. That was lifted at the on-set of the housing crash and since we moved in (nearly 10 years ago now) there have probably been about a dozen homes torn down and rebuilt as a 4,000 sqft colonial (some are very nice high quality homes while, some belong in McMansion Hell). Over the past year there has been a big spike in the rebuilds and we've probably got another 20 homes in various stages of being built. All of those look like they're going to be big houses like the rest but there is one ranch being built that I would estimate at maybe 2,000 sqft. This one might actually be smaller than the one it replaced! I'm willing to bet it's the only ranch house built in maybe a 5 mile radius since we've lived here.

 

[Dan]

Here's the deal for the lack of decent mid-priced housing in the Ithaca, New York area. tl;dr: poor economies of scale, large lot/low density zoning, labor shortage, NIMBY, no housing filtration, academic cycle leases.

• Large lot zoning is prevalent in surrounding areas that otherwise have sewer, water, and other utilities to support much denser development. This makes it expensive to subdivide land, because a builder would need more road and utility/infrastructure length to serve the same number of lots than if they were in the 'burbs of one of the Thruway cities. (For what it's worth, road construction standards in the region are lacking -- shoulders and ditches instead of curbs and storm drains, no sidewalks, etc.) Lot sizes and prices also make it hard to justify building smaller entry-level or mid-market houses.
• There's a lack of large or production homebuilders, where there would otherwise be economies of scale. It's one reason why there isn't much middle ground between high-end custom houses, and utilitarian Pennsylvania prefab and site built houses. Forget national homebuilders that can really take advantage of economies of scale. There's only one national building anywhere in the Buffalo / Rochester / Syracuse corridor -- Ryan, which targets "value-conscious" middle-income suburban homebuyers. Pulte, Lennar, D.R. Horton, Toll Brothers, etc won't even think about spec building in any of the Thruway cities, even though the housing market in Buffalo is increasingly hot — and increasingly expensive.
• Townie-oriented builders are all small mom & pop firms. They have limited financial resources, and can't risk building speculative housing for a non-student market. You might see an odd spec build house here and there, but you'll seldom see a subdivision with more than a few for sale.
• A local mom & pop home builder will also need a higher rate of return on investment to make up for financial risk and their low volume operation. A home builder in Syracuse will be looking for a 15% ROI. Here, for the middle end non-student market, they'll be looking for a lot more to make their numbers work.
• Population growth is just high enough to create a demand for quality housing, but also just below the threshold that piques the interest of larger production builders in Buffalo / Rochester / Syracuse / Elmira / etc. It's also why you don't see the same nice, new, amenity-filled apartment complexes that other communities have in abundance. Filling up a new market-rate, middle-end 200-unit complex or "fast casual" building, at prevailing rents, without targeting the student market, would take a long time.
• Building student and high-end custom housing, and sometimes income-qualified / LIHTC housing, is far more lucrative than building for the middle end. If you can make the same amount of money building $600K custom homes for specific clients as four or five $200K spec houses, you're going to focus on the $600K builds, as long as there's a market for them. And there is.
• There's a severe shortage of tradespeople and construction labor. A large project at Cornell or IC can take a huge chunk out of the local labor pool.
• The low vacancy rate in the for-sale and rental market makes older, low quality, and functionally obsolete housing competitive. Adding to that, many home buyers in the area have "rustic" tastes, and don't mind what they see as "patina", "character", or "charm". This means there's little incentive to update existing housing, especially if there's a bunch of well-off bohemian types who are more than willing to pay top dollar for houses that haven't seen a refresh since the Johnson administration. A side effect -- the few speculative new builds you'll see will often have a lower level of finish and improvements than what you'll see elsewhere -- basic builder grade kitchens/bathrooms, formica countertops, gravel driveways, thin vinyl siding, and so on. Why? Because with a low inventory of decent quality houses, and a lack of competition among home builders, it's as good as it's going to get. The mediocre becomes middle end. Even if buyers demanded better, they don't have much of a choice.
• Because construction of market rate housing for the townie market happens at a glacial pace, so does the process of housing filtration, where households with smaller housing budgets move into older housing left behind by households who are upgrading to newer homes. Making matters worse, this area has never really had an equivalent to a Cheektowaga or Elmira Heights -- lower-middle class suburbs with a big supply of smaller but still decent entry-level houses that were built after WWII. New luxury apartment buildings targeting student tenants free up older housing units, but the units that hit the market are more likely to be at the bottom end of the student rental market -- old-school "college ghetto" units in student-heavy neighborhoods.
• Missing middle units -- owner-occupied townhouses, duplexes (paired houses) and triplexes, condominiums, and the like -- are not as common here as in peer and larger cities. Blame it on old zoning codes (which some communities are slowly updating), and the mom & pop builders that don't have the means to build more than a few units at a time.
• Academic cycle leases aren't just common here; they're the norm. The result is something like a Montreal-style "moving day". It's very expensive to break a lease if you're moving between August and June of the following year. (I had to pay about $5,000 extra for my house, if you consider lost rental deposits and lease breaking penalties.)
• Miscellaneous other things: lack of on-campus housing at one of the major universities in town numbers don’t work for teardowns of functionally obsolete housing in the city, city homeowners hold on to adjacent vacant lots instead of selling them for housing development, NIMBY and the lack of certainty in the zoning / review / entitlements process that it brings, low salaries for non-academic jobs (captive labor pool of academician spouses and people who choose to Ithaca for the lifestyle), no local factories making prefab housing (which is more common in the area than the Thruway cities). I didn’t mention high property taxes because it’s an issue everywhere in Upstate New York.

Some very quick-and-dirty numbers: let's say you're building new, and your budget is the region's average home price of $250K - $300K. If a typical 0.5 - 1.0 acre building lot on a subdivision street (not a county road) with sewer and water costs $80K, and construction costs are $125 to $150/square foot at the very least (here, that gets you basic builder grade or a utilitarian prefab), the end result is a 1,400 square foot house. One small builder is planning a cottage court of 1,100 - 2,100 square feet prefab houses "from the upper $200s to the low $400s".

Let's compare it to Buffalo. A 75 x 120 lot (9,000 square feet, considered large by Buffalo standards) in a new subdivision in a middle class second ring suburb -- on a street with sidewalks, curbs, and street trees, not ditches and shoulders -- will set you back $40K. $125/square foot gets you a site built house with move-up finishings, thanks to competition and economies of scale. Your $250K would result in a 1,680 square foot house -- one with a basement, a concrete driveway (the norm in Erie County), and basic landscaping.

There are local home builders that do site-built new builds in the $200K-$300K range which (often) don't look like glorified trailers. However, they target the hippie / permie / eco-conscious market. Think Tiny Timbers, or the "Appalachian folk contemporary" style that you don't see much outside of the area. The houses will be much smaller than new builds in the Thruway metros for the same price, they won't have basements, and they'll have odd "features" -- wood heating, 7' ceilings throughout, weird floor plans, cladding designed to take on a hard weatherbeaten look in a few years, etc.

 

[Doohickie]

We've got that problem as well, along with starter housing.

The other thing going on here is McMansions not only make more money for the developers, they make more money for the city in property taxes.

Our fair city just rejected an apartment complex. At least 10% of those units would be set aside for households making at or below 30% of the median household income, according to a news article. On our local planning site one person commented, "I think if this was a high end development then we wouldn't even be discussing this. It would have passed with little to no resistance."

Higher end apartments, condos and single family homes are favored by developers (to make money), cities (to collect more tax dollars to draw the "right crowd") an local residents (who want to keep the "wrong crowd" out).

So the entry level buyer is stuck buying an older home (which isn't necessarily bad, but a lot of people would like to at least have the option of buying new). A city can get away with this, though, only if they have existing housing stock that sells in that starter home range. Fort Worth is relatively fortunate in that sense, but even since we bought our house two years ago, prices in our "old stock, but not quite historic" neighborhood are increasing steadily. Homes going for about $100 per sq ft are now $130 and up.

 

[Suburb Repairman]

One thing to understand is that it is expensive to build new construction now. Materials are expensive and labor is increasingly expensive.

We're seeing production builders active in building SF detached, SF attached (townhomes) and duplexes, as well as including ADUs (typically garage apartments) as an available option, so there is definitely geographic variance based on other comments in this thread.

You don't see them jump up into the triplex and quadplex because that transitions from the International Residential Code (1-2 family units) to the International Building Code (3+ units and commercial). That transition triggers a few different requirements that are more costly and also just a pain in the ass to get right for a normal contractor crew used to residential construction.

Doohickie is correct though: builders make serious bank on "move up" housing. It doesn't cost them a lot to upgrade finishes, etc. for a more luxurious product, which they then charge a much higher premium for. They also don't have as many buyers back out as compared to entry housing typically targeting 1st time homebuyers.

And like it or not, the regulations we administer play a huge role. Builders often aren't building other product because they either don't have the zoning already to do it, or they recognize and don't want the brain damage that comes with pursuing the zoning change.

There are interesting bills starting to float around to help with this missing middle issue. This one is especially promising.

 

[Gedunker]

<snip>
Higher end apartments, condos and single family homes are favored by developers (to make money), cities (to collect more tax dollars to draw the "right crowd") an local residents (who want to keep the "wrong crowd" out).
<snip>

Some states, such as here in Indiana, have imposed property tax freezes. That means that our assessed value can only go up each year by a fixed percentage (in Indiana it is 5%). So, even if we somehow added the whopper of all property tax value, our AV would only increase 5% and all the excess above that would go to the state. In our case, we aren't in it for the tax dollars and drawing "the right crowd". You might be surprised at how distressingly few Hoosiers know this.

**

The Missing Middle housing vacuum has been filled by rental housing, and especially housing choice vouchers. One could argue that rental housing is another way of denying wealth to black and brown Americans because if you can't find an affordable house to own, you can't pass on your equity in it to your heirs. That's a big topic for somebody smarter than me, though.

 

[Doohickie]

Yep. One of the things I learned recently is that after WWII, the GI Bill only benefited white Americans. Blacks could not get a VA mortgage. This was a significant contributor to the wealth inequity between races now.

 

[kjel]

Yep. One of the things I learned recently is that after WWII, the GI Bill only benefited white Americans. Blacks could not get a VA mortgage. This was a significant contributor to the wealth inequity between races now.

The formal name for it is redlining. It still happens in more subtle ways.

 

[DVD]

It's really embarrassing when you're sitting with a customer and you pull up the plat for their area and it says things like no blacks, Asians, Mexicans, jews, etc. The least I can do is explain that's not valid anymore and those are sad times when that used to be done.

 

[kjel]

It's really embarrassing when you're sitting with a customer and you pull up the plat for their area and it says things like no blacks, Asians, Mexicans, jews, etc. The least I can do is explain that's not valid anymore and those are sad times when that used to be done.

I had to explain to my immigrant husband that this was an actual thing the other day.