Starter home sticker shock

Houses priced too high may push first-time buyers toward condos

With new home construction becoming less profitable for developers, young first-time home buyers could be pushed more to apartments and condominiums, according to Jesse Holland, president and founder of Sunrise Management.

Holland and other local real estate and economic experts spoke Thursday at the Institute of Real Estate Management’s 2019 Economic Forecast panel discussion.

Things like higher labor and insurance costs, as well as rising interest rates, are driving the price of homes up, meaning apartment dwellers are having a harder time buying “starter” homes than in past decades, according to Holland.

“Cost-wise, it doesn’t work,” Holland said of building smaller, more affordable homes. “The land costs, regulatory costs and development costs on a single family house are so high that you can’t afford to build that house that now sells for $100,000 or $150,000. And that’s why (smaller homes) are not being built.”

And according to the National Association of Realtors, more than a quarter of 2018 first-time home buyers said debt delayed them from saving for a home down payment for five years or longer — a sign that student loan debt has increasingly forced younger buyers to wait on their first home purchase.

But Holland says there’s a much bigger supply of apartments in the Capital Region than there was five to 10 years ago. That’s helped to make up for the limited inventory — and higher prices — of houses for sale, he said.

“We now have, really, a lot more choices in the Capital Region of the types of housing people are looking for,” Holland said. “Now you’ve

got everything from high-end luxury, to micro-apartments in the cities, many different price categories, amenity packages. So a lot of variety to meet a lot of different needs in a diverse population.”

Holland added that younger buyers looking to settle down in the area longterm could shift toward buying or renting a condominium, rather than move into a traditional house.

Condominiums “are now more likely to be starter homes,” Holland said. “But even those are $200,000-plus.”

On the commercial side of real estate, it’s become significantly cheaper for companies to buy existing buildings for office or industrial space with plans of “rehabbing” the locations.

“Prices are lower for existing products than for new construction, and the time frame is a lot less on that,” said Laurie Tylenda, an associate broker with CBRE group, a commercial real estate firm. “In the central business districts, we’ve seen some of the older warehouse buildings come off the market and then being repurposed for apartments.”

Holland said technology has acted as the biggest “disruptor” for the real estate industry. He pointed out how people can better search for and find apartments online, pay rent or put in a maintenance request.

“Technology is at the core of the resident experience,” Holland said. “There’s a large move to change that customer experience from ‘Here’s an apartment, do you want it or not?’ to really attracting (customers) and handing them those extra amenities.”

Another trend the industry is expecting is a “silver wave” in 2022 — the expected spike in Americans turning 75 and older. This will likely put pressure on the senior housing market to expand, according to Michael Uccellini, president and CEO of the United Group of Companies, a real estate development firm.

Other challenges facing the real estate industry include a lack of skilled construction workers, and the sharp cost increases for building materials like steel and lumber after President Donald Trump’s administration placed tariffs on a wide range of imported goods.

But Tylenda remained confident that the real estate market will stay healthy into 2019, and said the community has seen the positive results of real estate investment and development in recent years.

“Together, it’s more the sum of the parts. Everything is cumulative,” Tylenda said of the different property developments that have taken place around the Capital Region. “We’re starting to see some positive change from it all.”