Annual Builder & Developer Luncheon looks back at 2020.
In the very immortal words of Jerry Garcia, “What a long, strange trip it’s been.”
Anyone involved in the housing industry over the past year would agree, and that long, strange trip makes it even more challenging to forecast what’s ahead for 2021.
This year’s Builder & Developer Luncheon put together by Peoples Company and Diligent Development reflected the current social restrictions but offered the same detailed look at the market it has always provided.
Held virtually with speakers presenting from Texas, Ohio, and Iowa, the event still boasted attendance of about 350, comparable to 2020’s live event. As always, keynote speakers offered a national perspective on the economy and the housing industry, followed by a look at the local statistics (see “Highlights”).
According to Peoples Company’s Kalen Ludwig, the company decided in the fall that this year’s event would be virtual. “Our Land Expo was a combination of virtual and in person, and it was a great success,” she says. “The virtual option just seemed like it would work well with attendees of the Builder & Developer Luncheon with all the factors that had to be considered.”
Emceed by Eric O’Keefe of The Land Report, the event was held Friday, February 26, and included two national speakers. The first, NAHB Chief Economist Robert Dietz, was a returning guest, having presented at the luncheon a few years ago.
Dietz offered a look at the housing and construction market across the country, as well as the economy overall. He said the 3½% growth we saw in GDP in 2020 was better than anticipated, considering the length of the required government shutdowns throughout the year.
Despite criticism of the government’s response to the pandemic, the U.S. GDP saw milder financial consequences than most nations did. “Australia and Russia had similar drops, around 3%, but France and the United Kingdom saw the worst change in almost a century,” he said, France losing more than 9% and the UK about 11%.
Looking ahead, Dietz said 2021 should see the economy continue its recovery. “I anticipate a 5% to 7% growth for 2021” as the economy picks up again before it slows down to a more typical pace in 2022.
He said the key challenge for the housing industry is that rising prices are steadily pushing more and more buyers out of the market. “For every $1,000 increase in home price, more than 1,700 buyers are priced out of that median home market in Iowa.”
“Interest rates are still historically low,” he added, which will keep the market strong. However, with prices rising faster than income, that may slow sales eventually, and supply side issues play a major role in that trend. “When surveyed about factors affecting home prices, 96% of respondents said shortages and delays in materials affected their business in 2020,” he said. Delays in processing permits and approvals and the continued difficulty of finding skilled labor meant most construction professionals were faced with record challenges along with their record business last year.
Dietz said rapidly rising material costs, like the 184% rise in lumber costs, has not only added more than $20,000 to the average price of a new home, but it has caused difficulties for appraisers, too. Accurately valuing properties becomes nearly impossible when the cost of materials, the effects of delays, and the low inventory are steadily driving prices up.
With such a rapidly changing industry and the unpredictability of outside economic factors like the worldwide pandemic that will continue to have an effect for years to come, attempting to gauge the future of the market can seem futile, he says.
The afternoon’s second speaker, Texas developer and land use designer Steven Spears, Principal of GroundWork and Momark Development, believes the future of the housing industry lies in finding the right balance when it comes to community development.
He agreed with Dietz’s assessment of rising home prices. “The rule of thumb has always been that purchasing power was three times the annual household income.” Until 2006 the average American’s purchasing power was higher than the median price of a home. That’s no longer the case. And the disparity between median income and home price continues to widen, with income remaining level and home price rising significantly.
Spears said the housing industry has to address this challenge on several levels, all related to community development. “Development needs to provide density and a variety of housing on the most sustainable land. That includes providing ample places for connection, for placemaking,” as he calls it—spaces for residents to gather and enjoy their neighborhoods, especially if developments are going to be designed with a denser population in mind.
He believes that sustainability is about more than being green. It includes connecting with nature—incorporating parks, agrihoods, and other similar features. But it also involves planning communities that are financially sustainable. “Integrating employment and retail that is closer to housing,” he said, draws residents and sustains a community’s growth.
“We have to take the long view when we look at land use,” he explained. Designing communities that meet the needs of residents will ultimately meet the needs of the cities, too. “I believe retail follows rooftops typically, not the other way around. Home buyers choose to live in communities like agrihoods as a placemaking decision. They look at what’s going on there, and they say, ‘I want to be a part of that.’”
Creating communities that offer what home buyers crave—neighborhoods, connection to green space, walkability—and doing that in a way that incorporates a variety of housing options at different price points can only come with the combined efforts of every entity involved. “The government, the investors, the community all have to come together to make these ideas and these communities possible,” Spears said.
As more adults are working from and spending time at home, as homeowners are rethinking their living spaces, and as municipalities are looking at ways to grow that are financially and environmentally responsible, the concept of sustainable community development is more appealing than ever. It seems ironic that a pandemic that drove the world into isolation has also sparked even greater interest in community-oriented development.
Kalen Ludwig, new-construction specialist, closed the annual Builder & Developer Luncheon with an overview of the local housing market in 2020. Here are a few highlights. Her full presentation, along with a recording of the event, can be viewed here:
- Average home price rose to more than $331,000.
- Based on median household income, only 38% of residents can afford an average-price home in Iowa.
- Home sales surpassed 10,000 in 2020 (almost double the 2010 home sales).
- Ankeny and Waukee again topped the list with the number of homes sold.
- Other communities that continued steady growth included Bondurant, Indianola, Urbandale, and Johnston.
- In 2020 West Des Moines nearly doubled the number of permits pulled compared to 2019.
- Lots in development increased at a slower rate than new construction.
- Demand for townhomes increased in 2020, resulting in a lower supply than at this time last year.