Why Are We Building Luxury Homes In An Affordable Housing Crisis?
With Hillsborough County in the midst of an affordable housing crunch, developers continue building luxury homes and apartments, especially in Tampa's trendy neighborhoods and downtown. Despite a growing demand for more affordable single-family homes and rentals, private developers aren’t building them.
It’s a common refrain you hear from residents when they're talking about affordable housing: “Why do I see so much construction in Tampa, but it’s not anything I can afford?”
Many private developers interviewed by WUSF about the role they play in the lack of affordable housing were reluctant to talk. Those that did say they're not the bad guys. They're just doing business.
Kevin Robles, Chief Operating Officer of Tampa's Domain Homes, said it’s the cost of building, not greed, that's driving up the cost of new housing.
"In a 'for-market' environment that we are currently in today, I can barely put forth in the market anything less than high $200,000's, low $300,000's. Anything below about $285,000, you just can't produce it" and make a profit, he said.
A lack of affordable, single-families homes in Tampa has big implications for first-time homebuyers. And a higher cost of building leads to higher rents that are out of reach for many.
In order to figure out why much of the new building seems to be so unaffordable, WUSF spoke with Zillow Research's Senior Economist Sarah Mikhitarian:
It seems like we’re in a boom right now for luxury housing. Is that really the case?
Sarah Mikhitarian: “A lot of the newer inventory that is coming online and being built are on the upper end of the housing market. Relative to what we see in other metro markets and the U.S. as a whole, those higher-end homes are growing more quickly in Tampa. Nationwide and in Tampa, we’ve seen this huge shortage of inventory for entry-level homes, which is creating this affordability problem. Part of the reason for that currently, is that it’s really expensive to build right now.”
And why is that?
“The cost of building has just gotten more expensive, especially throughout the recovery. So part of the reason that we’re seeing builders say things like ‘I can’t even feasibly build a single family home that isn’t way beyond what you would consider a typical home purchase price to be’ is because the inputs to building are really really expensive right now: the cost of labor has gotten really expensive as the economy has rebounded.
In addition, these projects can take multiple years and sometimes go over budget. They really need to consider that this home needs to eventually sell for a profit or it doesn’t make sense for them to build it in the first place”
What about the cost of tariffs? Has that affected building prices at all?
“Definitely. We’ve already seen tariffs impact the cost of building new homes across the board. Single family homes in particular are prone to being impacted by the fact that lumber has become more expensive due to tariffs. Steel is something else that has new tariffs associated with it. That’s really more the multi-family or rental side where you see increases in price because building a multi-family home usually has more steel than a single-family home would.”
So given the pressures that we just talked about on builders and developers, do you see us getting to a point where we’re building more affordable apartments or we’re building starter homes again?
“I think if a builder can figure out how to build a more affordable home and turn a profit on that, they will be wildly successful. There is huge demand for that right now, not only in Tampa, but across the county. But from everything we’ve heard and seen in the data, at the moment it’s just not feasible for a builder to build these more affordable homes.”
So, what can people expect going forward? Is the market showing any signs of leveling off or are people going to be stuck with higher rents and home prices as we head into 2019?
“I think things are starting to slow down a bit, so for people who are looking to buy or rent a new home, hopefully they aren’t going to be fighting appreciation rates that are as high as they have been over the last couple of years. That said, both rents and home values will continue to rise.
"Going into 2019, you should expect that if you want to purchase a home or rent a home you’re probably going to need to shell out a little bit more cash than you would if you were to start that process today.”