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SEPTMEBER Friday Morning Breakfast

Posted By Heather Garbarino, Friday, October 4, 2019


Rising Demand, Soaring Costs

 

The next wave of Valley homebuilding will be a wild ride

 

Constructions costs. Labor issues. Tariffs. Impact fees. Land costs.

 

The demand for housing in the Valley isn't the only thing that has changed since Arizona came out of the Great Recession. It’s been a “perfect storm” and combination of rising material costs to labor shortages to plan review fees increase.

 

It’s no secret that the costs of development and homebuilding have steadily grown and impacted the overall cost of housing in Arizona. With 200 new residents moving to Valley each day, experts have expressed concern with the ability of homebuilders to combat hyper-inflation and supply enough affordable housing options as the industry deals with these ever-increasing costs.

 

The September Friday Morning Breakfast brought together an expert-driven discussion on the rising demand and soaring costs that are impacting development and homebuilding in the Valley.

 

Moderating the panel was Jim Belfiore, Founder & President, Belfiore Real Estate Consulting. Panelists included Susan Demmitt, Partner, Gammage & Burnham; Jeff Gunderson, Sr. Vice President, Lennar; Ron Hilgart, Land Managing Principal, HilgartWilson; and Jeremy Ramsdell, VP Land, Ashton Woods.

 

Belfiore led off the discussion detailing the bump in interest rates and housing demand post-Great Recession. As one was high and the lower, single-digit growth resulted. It’s a different story now.

 

“Demand is very healthy today,” Belfiore said. “Lower interest rates have opened the market and made it (home buying) accessible to more. However, we’re not seeing the discounted lots anymore. During this period of time we have seen increases in homebuilding costs and land development, construction and labor. The issue is, ‘who is going to afford housing in the next coming year.’”

With the cost of underwriting deals increasing, developers are beginning to feel the pinch as well.

 

“Deals are harder to underwrite; that’s no secret,” Gunderson said. “We're still experiencing a lot of upward cost pressure on the vertical side. The land development side had been relatively unaffected until two years ago. Land deals have been scary the last 10 to 14 months.”

From his perspective, Hilgart said the biggest issue is labor.

 

“There was a time when contractors weren’t making. Guess what? They are now going to make money. That’s to be expected. But a shortage of labor is a huge problem right now. It’s being felt by both the contractor and the homebuilder.

“Some contractors are forced to hire an employee they wouldn’t have hired before and keep them on. Production rates are down. A lot of them are not that worker that’s been sit out in the hot sun and producing. That person with 5 to 10 years of experience still capable of working through the hot day is gone,” Hilgart said.

 

Demmitt, who works with the various Valley municipalities, said her clients are experiencing another side of the homebuilding issues.

“There is so much that requires us to change. Delays. Negotiating. Across the board amenities,” she said. “Open spaces. On the architectural side … a detail here or there. Twelve elevations for every floor plan.”

 

Ramsdell pointed out how tariffs are having an effect on his customers in the design center by driving up final costs.

“We have a perfect storm,” Belfiore said.

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