New homes too pricey, too distant for many in central Ohio
The Columbus Dispatch
Rising costs and changing demand have left homebuilders struggling to capitalize on the biggest housing market that central Ohio has ever seen.
Last year, 2,607 new homes were sold in central Ohio, the best year since 2007, according to Binns Real Estate Services, which tracks the central Ohio housing industry.
But those homes accounted for only 7.9 percent of all central Ohio homes sold last year, the second consecutive year that new homes have accounted for less than 8 percent of the housing market, according to a Dispatch analysis.
New homes have accounted for less than 10 percent of central Ohio home sales for eight straight years, despite an enormous increase in demand and a shortage of competing new homes on the market.
By comparison, during the boom years of the early 2000s, new homes made up more than 25 percent of central Ohio home sales.
"We simply are starting only about half the number of units we need to keep up with household formation," said Jonathan Smoke, chief economist with Realtor.com.
In an effort to capitalize on unmet demand, central Ohio builders are rolling out new designs and locations.
They know, in general, where the sweet spot lies: new homes under $300,000 in good school districts close to the city. But land costs, home features, regulations and labor costs have made it all but impossible to deliver such homes.
The average price of a new home climbed to $334,000 last year, almost twice the median price of existing central Ohio homes sold last year.
The gap between new-home and existing-home prices is far wider in Columbus than elsewhere. Nationally, new homes cost about 33 percent more than existing homes, Smoke said.
In Delaware County, the gap is even more extreme. There, the average price of a new home climbed to $411,000 last year, the first time it has topped $400,000, according to Binns.
"Affordability is a big problem," said Jim Hilz, executive director of the Building Industry Association of Central Ohio. "When you look at the gap between new homes and the average price of existing homes, there's a big gap there, and prices aren't going down for new homes. ...
"When you can't build new homes for that first-time buyer, that's a significant market not being met."
The trade group is so concerned about rising costs that it has formed a committee to analyze the problem; the panel is to meet for the first time this week.
"At the price points we're at, we're simply not going to recover market share," Hilz said.
Labor and material costs have risen, but builders say the biggest obstacles to delivering affordable homes are land costs, utility fees and zoning restrictions, especially restrictions on density that prohibit small lots or require much of the land to be devoted to green space.
The average price of the lot for a new central Ohio home rose to $83,000 last year from $65,000 five years earlier. In Delaware County, the average new-home lot cost $100,000 last year, 22 percent more than just four years earlier, according to Binns.
Builders say that land costs are compounded by density restrictions that drive up prices and prohibit innovative communities that buyers might enjoy.
At a recent gathering sponsored by the Urban Land Institute, Robert Schottenstein, M/I Homes' chief executive officer, mentioned visiting two Orange County, California, developments featuring homes built close together.
"These were two of the most eye-opening projects I've ever seen — and you couldn't get them approved within 50 miles of here," he told the audience. "Regulations make it very difficult to do some of these things."
Compounding builders' problem are changing demographics.
The lion's share of today's home purchases are by retiring empty-nesters and millennials. But neither group is an ideal match for central Ohio homebuilders' bread-and-butter product: a $400,000 two-story with four bedrooms and 3 1/2 bathrooms in a suburban cornfield.
But those downsizing empty-nesters and young buyers coming out of apartments expect high-end touches, even in lower-priced homes, which adds to the cost.
"People living in these apartments today aren't living with vinyl flooring and laminate countertops and cheap light fixtures," said Jack Mautino, the Columbus division president of Westport Homes.
"They're living with hardwood, stainless, granite. They've become very accustomed to finer finishes. For us to get that buyer out of the apartment, we're going to have to do similar things and make it affordable."
Westport's answer: move well beyond the Outerbelt, where land is cheaper.
"We're having to chase ground further into the suburbs, the Pataskalas, Commercial Points, Lithopolises, Bloom-Carrolls, Sunburys and Delawares of the world," he said.
When Brandon and Amanda Hammond realized that they couldn't afford a home in Pickerington, they found what they wanted in Westport's Rolling Acres community in Lithopolis.
"I was trying to stay near where I grew up, in Pickerington, but we were shut out," Brandon Hammond said. "We couldn't afford there, so we looked in Lithopolis. It was more our price."
Using a Department of Veterans Affairs loan, the couple ended up paying $241,000 for a four-bedroom, two-story home.
Other builders are taking different approaches to capture elusive buyers. Many are targeting baby boomers, who builders universally agree are underserved in central Ohio.
The builder Romanelli & Hughes has found big success with patio homes in last year's Parade of Homes site, Verona, in Powell.
"Our whole first phase is three-fourths sold," said developer Gianni Romanelli. "We are definitely going to break ground on the second phase this year."
Jerome Village in Union County has targeted the same audience by opening part of the community to empty-nester builder Epcon Communities.
Central Ohio's largest homebuilder, Pulte Homes, recently opened its first retirement-focused community, the Retreat at Sycamore Creek near Pickerington, offering detached ranch homes starting around $200,000.
"I think we see the strongest opportunities for demand in that particular segment," said Jim Marcero, president of Pulte's central Ohio division.
Marcero said Pulte also plans to roll out a line of lower-priced homes this spring to try to get first-time buyers in the door.
Pulte's chief Columbus competitor, M/I Homes, has done the same by introducing what it calls its Smart Series line of homes at its new Village at Minerva Park. They will start at about $200,000.
That development, on the site of the former Minerva Park Golf Club, also illustrates builders' willingness to pursue sites they might have bypassed before in favor of Delaware County cornfields.
M/I plans to pursue an even more unusual development this year: 44 homes in a Harrison West location near Downtown.
"This will be a completely new series, for someone who doesn't need or want to be in the suburbs," said David Balcerzak, M/I's vice president of sales and marketing.
Finally, builders are rethinking the very idea of the subdivision in an effort to draw buyers.
Houses will start going up this year in Evans Farms, a 1,250-acre Delaware County development that will include custom-built homes in traditional styles nestled around a small downtown.
Even though lots won't be delivered until at least June, developers Dan Griffin and Tony Eyerman say that almost 100 of the 142 lots in the development's first phase have been spoken for.
"We're booming because we have diversity of product and a walkable community," Griffin said.
Charlie and Carrie Birch, who live near Evans Farms, had looked unsuccessfully for a new home before putting a deposit on an Evans Farms lot last year.
"Most of the new neighborhoods, if not all, were different variations of the same old thing," Charlie Birch said. "There wasn't anything that really enticed us to investigate further."
The development received approval for lots as narrow as 40 feet across, similar to lots in older neighborhoods such as Clintonville and far smaller than ones typically allowed in suburban projects.
But even with lot prices starting at $58,000, Evans Farms will be unable to deliver homes in the low $300,000s, as originally hoped.
"We just can't do it," Eyerman said. "Now, $325,000 will be the minimum."