Crunching the Numbers
Drew Realty data report offers an honest look at development activity.
“Caveat emptor.” Let the buyer beware. According to that principle, the burden lies with the buyer when it comes to making smart purchase decisions. Fortunately, not all brokers and sellers feel the same.
“When I got into brokerage,” says Drew Realty owner Nathan Drew, “I started tracking data for clients so they could make educated decisions. I want my clients to be able to look at the data and make the decisions that best fit them.”
Drew’s clients range from builders looking for lots to developers interested in land. “If you’re an agent or a builder, the data related to new construction is appropriate because it looks at permits pulled and lots in development,” he says. “But my clients were needing broader data. With all the information I’m gathering quarterly, I can look at all the quantifiable data points of any platted lot in the metro.”
Other sources provide new-construction statistics on a regular basis. Drew looks at land in development, land available for development, costs of developing that land in the various communities, size of lots being developed, and more.
Over the past several years, the Des Moines metro has struggled with an imbalance in supply and demand. That’s even more evident in this year’s hot seller’s market. “As of early October, we have 6,000 lots currently ready for construction. The demand is closer to 10,000,” Drew says.
Add to that the challenge developers and builders are facing to make homes affordable, and the local construction industry is facing quite a dilemma. The inevitable result is smaller lots so that the final cost of construction can be brought into line with the market. But even that is more difficult to do in some communities than in others.
“The Des Moines metro market encompasses 17 communities, and there isn’t a single standard or required fee that’s consistent across the board,” says Drew. Because of that, the same-size lot with the same features can be listed for significantly more from one community to the next, quite often the result of municipal requirements rather than developer pricing.
“There just is not enough available ground right now,” he says. “Between land-use regulations, utility needs, and additional infrastructure costs, it can sometimes be prohibitive for developers to work with the ground that’s on the market.”
Municipalities are facing budget crunches as well, so rather than invest in infrastructure costs in order to lure developers, it’s becoming more common for cities to require the developers to cover more of those costs.
People want construction growth to be developer-driven. That means, ultimately, the homeowner is paying those costs with the price of the home instead of in taxes.
Drew says, “Prices are still increasing overall because of the current demand, despite developers working to get smaller lot plats approved. We’ve seen a 17% to 18% increase in just the past year.”
Throughout the metro, both builders and developers are looking to see more lots become available in order to alleviate some of that pressure on pricing. Drew says he sees progress toward that goal. “In Waukee, for example, we saw over 200 lots enter the market in one month. There were lots in a variety of sizes and price points, which hasn’t been the case in some of the fastest-growing communities in the metro.”
Generally, Drew says there just isn’t a large quantity of lots coming on the market. “Lots are still being developed, but not at the velocity the market demands right now.
He sees every stage of the process in his line of work. “I do development services for hire, land brokerage, and lot sales to builders. Because of that, I consistently work with the same people over and over at various stages in the process.”
He says that’s why it’s important to see the whole picture, not just the number of homes sold from one community to the next. “I sort of fell into this business after building a couple of houses while I was in college,” he explains. “I liked selling the homes, but not the building process itself, so I got my real estate license and then got into the brokerage business.”
Drew was a member of Iowa State University’s first graduating class in the Masters of Real Estate Development program this past May. “I already had an MBA from the University of Iowa,” he says. “I’d been working in development for a while when I started the program. But the academic side was, in some ways, just as practical, learning the principles behind what I was doing on a daily basis.”
Drew provides his clients and readers that same academic yet practical perspective in his quarterly email blast. “It’s a straightforward overview with charts and analysis,” he says. “But the data doesn’t lie.”
You can’t get more practical than that.