10th Annual Builder & Developer Luncheon

Peoples Company hosts largest event yet.

Friday, March 3, Peoples Company hosted its 10th Annual Builder & Developer Luncheon at the West Des Moines Sheraton. The event has grown steadily since its inception; about 375 attended this year.

Peoples Company has always sought to use this occasion to share information about local projects and potential development opportunities. But the past several years, organizers have also brought in a keynote speaker to offer a national perspective on the economy and the construction and real estate markets.

Friday’s speakers included Lt. Governor Kim Reynolds, economist Ernie Goss, and new construction expert Kalen Ludwig.

In her presentation Reynolds noted that the three keys to a healthy economy always are jobs, skilled workers to fill those jobs, and affordable homes where those workers can live. Two of those factors have been of concern to the construction trades of late: skilled workers and the availability of affordable housing.

For the past several years, Iowa’s unemployment rate has remained low, with more jobs available than there are workers to fill them. Though that’s typically a positive economic indicator, it’s a challenge for employers. What’s more, those who are looking for work too often lack the skills to qualify for the position. “That’s one reason we’ve supported pre-apprenticeship programs at the high school level,” Reynolds said.

These programs, like those in the works in the Des Moines Public Schools and the one in place at Dallas Center-Grimes, prepare a skilled workforce that is ready to begin a career upon graduation and help bridge that skills gap employers have been battling.

Reynolds added, “Jobs bring people to town, but the home makes people part of the community.” Reynolds supports programs like the various Workforce Housing programs Iowa has introduced, which offer loans and tax credits and other economic initiatives for either home buyers or communities to support economic growth efforts.

Reynolds urged attendees to be active not only in their industries but in the political process as well. “Affordable housing starts the spiral upward for the economy. But the entire community plays a role,” she said.

Economist and Creighton University professor Ernie Goss echoed that idea when he said, “The idea that the Federal Reserve can regulate growth is nonsense.” He added that growth is a result of individuals, not government, and that government intervention does more to hinder growth than to encourage it.

The morning of the luncheon economic forecasters were predicting an 80% chance that the Federal Reserve would raise short-term interest rates, which have already risen over the past year.

Goss also noted that although Iowa’s housing industry is naturally tied to the agriculture industry, even a sluggish agriculture economy has not had an overly negative effect on home sales. “Home price growth nationally is at 6%, predominantly the result of shortages and lack of inventory in other parts of the country,” he said.

As often seems to be the case, national statistics do not accurately reflect the local situation. For example, “Building permits are 30% higher in Iowa than the rest of the country,” Goss said.

He also suggested that multifamily construction is an overbuilt market nationally and likely overbuilt in Iowa as well. Other experts have indicated that multifamily housing is the solution locally to the lack of new construction at a price point for first-time buyers.

The two unusual factors that Goss stated are indicators of another economic downturn are rental prices, which have risen dramatically over the past two years, and wages, which have remained stagnant despite rising prices.

Overall, the message at the 10th Annual Builder & Developer Luncheon echoed that of the previous few years. A cautious optimism prevails—caution regarding the national situation and optimism about the local market.

A Decade of Growth

Like the construction market itself, the annual Builder & Developer Luncheon has seen dramatic changes in the past decade.

“The first year, the event was held in the back dining room at Bear Creek Lodge, and the room could only hold about 30 people,” says organizer Kalen Ludwig.

This month, the 10th Annual Builder & Developer Luncheon took place at the Sheraton Hotel in West Des Moines. Nearly 400 people attended.

“This has always been an event to provide information,” Ludwig says. “In the beginning, at a time when the market was struggling, we saw it as an opportunity to get together with builders and developers to market our own developments and to provide information about where we saw the market changing and growing.”

That objective remains the same, but both the audience and the perspective have grown significantly. “About the third or fourth year, we began to take a more national view in addition to the local statistics,” Ludwig explains. “We started bringing in keynote speakers as well as our local presenters.”

The speaker selection and some other event details begin shortly after the previous year’s luncheon ends, but Ludwig says the key statistics are an ongoing process. She tracks this information throughout the year and incorporates the very latest numbers possible. The final statistics are typically not tallied until just days before the event.

The first meeting back in 2007 was a smaller, local affair, but the Annual Builder & Developer Luncheon maintains its original focus.

By watching the national trends and tracking the local markets, Peoples Company offers a unique service to area professionals. “We’ve just always wanted to help them understand where to build, where to market themselves so the metro can continue to grow and remain vital,” Ludwig says.

The Local Perspective

As in the past, the Builder & Developer Luncheon concluded with a look at the local construction and real estate market. Peoples Company’s Kalen Ludwig, whose blog tracks the residential construction trends in the metro area, offered a perspective on the 2016 statistics and the outlook for the year ahead.

One of the most dramatic statistics was the inventory of homes on the market. With only a 2.4-month supply of homes, inventory is at an all-time low. “A 6-month supply is considered to be a sign of market stability,” Ludwig said. “So the low inventory of homes, which is only slightly down from last year, continues to contribute to the seller’s market.”

New construction, however, remains strong. “What we’re seeing in this segment is healthful and notably higher than the resale market, 6.2 months’ supply,” Ludwig said.

In addition to the strong market for new construction, Ludwig noted that home sales have risen steadily over the past several years and have almost doubled since the housing bubble burst in 2008, a good indication that the recovery is nearly complete.

The availability of buildable lots continues to be a factor. “Indications are that developers are developing a good number of lots, but maybe not at the right price point,” she said.

Although Ludwig suggested that even a 1% increase in mortgage rates could significantly reduce buying power for many borrowers, she said the market remains strong, and local builders have been tracking their best winter in several years.

These are some of the key stats from Ludwig’s presentation.

  • Total homes sold in last 12 months: 9,231
  • Total new construction sold in last 12 months: 1,519
  • Average increase in new construction sale price in 2016: 4%
  • Average cost of new construction: $338,000
  • Top Metro Communities for New Construction
    1. Ankeny 24%
    2. Waukee 14%
    3. Grimes 9%
    4. West Des Moines 9%
    5. Bondurant 7%
    6. Adel 5%
    7. Des Moines 5%
    8. Johnston 5%
    9. Urbandale 5%
    10. Norwalk 5%
    11. Other Des Moines-metro communities 12%

See all of Ludwig’s slides and statistics on her website, KalenLudwig.com