Why building more homes can't solve the region's growing demand.
Central Ohio’s real estate market has more buyers than existing homes, so why aren’t builders just building more houses to fill the demand?
The hard reality of a red-hot housing market is that it is not that simple. First, the median price buyers paid for a house in the fall was $240,000. While that was $34,000 higher from the previous year, it was way less than the minimum price of a new build.
“They can start in the low $300,000s but that is about as small a house as you can build,” says Vince Squillace, executive vice president of the Ohio Homebuilder’s Association. “The market is underbuilt and it is exacerbating in Columbus because we have great population growth with great demographics for construction.”Like what you’re reading? Subscribe to our weekly newsletters.
Three million people are expected to call Central Ohio home by 2050, an increase of one million residents. So, permitting activity needs to increase two- to three-fold to meet projected housing needs, according to Vogt Strategic Insights, a real estate research firm.
A Mid-Ohio Regional Planning Commission housing study released in September was topped with a headline that “Central Ohio is at a critical inflection point.” The report noted that as more homes are built at higher price points, existing affordable options are lost.
For demand to be met, something must give, say builders and real estate agents. Developers say their hands are tied by land availability, zoning, density restrictions, regulations, construction costs and a lack of skilled workers.
Jim Lipnos, president of the Homewood Corp., says with the current tight market, buyers are in stiff competition for affordable housing, but the cost of a new house puts it out of reach for many.
“New housing gets so expensive it is not an option for some people,” Lipnos says. “Where there is a housing shortage on either side of new or existing, it definitely impacts the other side.”
In the fall, just under 3,000 homes were listed in the market, about half the number from the previous year.
While the average price for a new home is around $340,000, up to 30 percent of that cost is dedicated to meeting regulations. Another challenge for developers is density limits imposed by local communities, says Jon Melchi, executive director of the Building Industry Association of Central Ohio.
“The size of the lot … drives up the cost significantly and that is the biggest challenge we have with local governments,” Melchi says. “They want large lots. Some consumers want that but most new homeowners don’t.”
Creativity to attract buyers is often employed, says Doug Turlow, a broker and owner of Home Central Realty.
“They might offer some sort of financing incentive say on a $350,000 home where you are paying the same as a $325,000 existing home so it makes up the difference,” Turlow says. “They try to make it where it equals out a bit.”
Meanwhile, as Turlow and others say, “The market is through the roof."