Those who work in Charlotte's for-sale and multifamily industries were hardly surprised by findings from a comprehensive housing study by the Childress Klein Center for Real Estate at UNC Charlotte.
But panelists at the housing summit hosted by the school last week said they hope having the up-to-date and volume of data will help move the needle on issues the city is facing today, including a shortage of inventory, escalating housing prices and policy issues that some say are prolonging the time it takes to get developments rezoned, permitted and built.
"We are one of the most supply-constrained metros in the country," said Mark Boyce, founding partner of True Homes, a prolific homebuilder in the Carolinas. "If we were to acquire a piece of raw land, it would take us 24 to 36 months to deliver product ... there is a concern about where we’ll be in the upcoming years.
"We think the problem is getting worse at a faster pace," Boyce continued. He said there are five L's that homebuilders pay attention to: labor, laws, land, lots and lumber. Laws, or regulatory issues, is the one that has kept him up at night the most these days, he later added.
Jennifer Gooch, Charlotte regional director for Metrostudy, noted Charlotte currently ranks 22nd nationally for supply constraint, adding only about 9.6% of new home starts in the Charlotte region are priced below $200,000 — echoing the study's research, the region's lower price point housing is seeing the biggest squeeze. There's less than two months' supply on the market in that price range, Gooch added.
That's making it more difficult for first-time homebuyers to enter the market as well. And, Gooch said, the move-up market is now also affected. Not only have home prices appreciated, mortgage rates are rising. If someone bought a starter home here a few years ago and is ready to move into a slightly larger home, buyers are finding it would cost them more money to buy the exact same house today and even more money to move into something bigger — therefore, many homebuyers are opting to stay in place.
"People who live in (homes that would cost) $200,000 to $250,000 aren’t moving, which is constraining that bracket even more," Gooch continued.
Laura Belcher, president and CEO of Habitat for Humanity Charlotte, said she would add another "L" challenge: lending.
"We are mostly underwriting all of the cost and are self-financing everything," she said.
But land prices are an even bigger challenge for Habitat in Charlotte, Belcher continued. Lots the group buys are primarily in neighborhoods where the cost of land has gone up as much as 242% in the past two years.
"There's a whole lot of speculation and investment buying going on," Belcher said. NIMBY-ism, or "not in my backyard," is also still in play when it comes to building both affordable for-sale homes through Habitat or rental properties with income-restricted units, she continued.
Gooch said vacant housing is needed to grow a market, an observation noted in the Childress Klein Center for Real Estate's report. She noted that the Charlotte metro recently finished last in a survey of 36 markets on a vacancy basis.
If these trends continue, the homeownership rate will start to decline and, by 2023, the market would likely tip into oversupply because demand would go into other sectors, like apartments, Gooch said.
As for solutions to address the current challenges, Gooch said more high-density product can help affordability, especially in ring counties. Boyce suggested collaborations with nonprofits, faith organizations and other groups to think differently about mixed-income housing, while Belcher indicated a need to address affordable for-sale housing in addition to rental units, the widely discussed sector in the affordable-housing conversation.
On the rental side of the market, rising land cost is also dramatically affecting how affordable a project can be.
Steve McClure, chief operating officer at The Spectrum Cos., said in 2011, land would cost around $10,000 to $15,000 per unit — today, it’s $20,000 to $25,000 per unit. On the other end, all-in costs for a project were about $93,500 per unit in 2011. Today, that same product is about $155,000 per unit.
"We’re fighting four to five other developers" on land acquisitions, McClure said. "It’s definitely pushing land prices up, which correlates to higher costs, (then) we have to charge higher rents and (get) lower returns for investors."
Even though thousands of apartments have been added to Charlotte's supply in the past several years, developers can't build enough units, he continued.
Tim Sittema, managing partner at Crosland Southeast, said ancillary costs that come from regulatory requirements like having a certain sidewalk width or a tree planting strip have created headaches and impacted pricing for new development in the city.
"When you add it all up, you’re forced to build bigger lots and a bigger site to build the same house," he said, adding that the boom of Class A apartments — the majority of what has delivered here in this cycle on a multifamily front — have actually helped the overall market by incrementally freeing up supply that others can move into.
Fulton Meachem, president and CEO of the Charlotte Housing Authority, said his agency continues to experience what the UNCC study found. He said in 2014, CHA opened its waiting list for the first time in seven years — in less than a week, more than 30,000 people had applied for housing, demand that hasn't waned since.
"We’re also seeing REITS and large investors coming in and purchasing what once was affordable housing, tearing them down or raising the rents and taking that supply out of the marketplace," he said, referring to a loss of naturally occurring affordable housing, market-rate units that aren't subsidized, are older and outdated and command below-market rents.
The city is working on a policy to divert some public dollars to preserving NOAH, with those who work in affordable housing frequently citing the loss of NOAH as one of the most urgent challenges facing the affordable housing stock in the city.
As it relates to policy, Meachem said timing is of the essence when it comes to approving projects that use low-income housing tax credits, noting that funding from the U.S. Department of Housing and Urban Development is only issued twice a year and, if those timelines are missed, credits will go elsewhere.
"It's extremely important for us to expedite these processes, especially for the affordable-housing component because it comes with gaps already," he said.
Sittema said reduced lot sizes, increased density and "better land stewardship policies" could help ease the cost of developing new housing. Crosland Southeast is the lead partner in a group that was last year selected to redevelop Eastland Mall, a city-driven real estate project. Sittema said it will take the city revisiting guidelines and principles that contribute to development challenges to make that project a success.
McClure noted when the city reworks policy, including the establishment of a unified development ordinance, it will be important for policymakers to get input from developers and the private sector.
"It needs to make sense for the customers and the capital coming in to build it," he continued.
Meachem said there persist major gaps in the marketplace across the entire income spectrum, including workforce housing, and cited an inability for CHA households to move up.
"I have individuals working every single day, but they have no bridge out of my subsidized housing," he said. "There's no housing market for them to go to."