Housing starts hit 10-year first quarter high

But regulatory and labor costs still hamper builders

Belman Homes currently is building additional homes in the Rolling Oaks subdivision in the Town of Waukesha.

The residential housing market has been plagued for more than a year with low inventory, which has affected home sales and driven up prices.

But the tide seems to be slowly turning.

With 332 housing starts in the greater Milwaukee area during the first quarter of 2017, homebuilding in the metro area is stronger than it has been since 2007, according to the Metropolitan Builders Association.

“It has been slowly going up for a while and we anticipate we will be in slow growth mode for the next couple of years,” said Kristine Hillmer, executive director of the MBA, which covers Waukesha, Washington, Ozaukee, Jefferson and Milwaukee counties.

Any sign of growth is welcome.

New housing starts in the greater Milwaukee area were up 7.4 percent during the first quarter of 2017, compared to the same period the previous year. This is coming off of 2016, when housing starts were up 15 percent over 2015.

The three communities with the most housing starts during the first quarter were Menomonee Falls with 46, Mequon with 31 and Pewaukee with 23.

For the first quarter of the year, there were 3,325 homes sold in the greater Milwaukee area, up 3.9 percent from the same time last year and up 7.7 percent from the first quarter of 2015, according to the Greater Milwaukee Association of Realtors.

“Market conditions are ripe for a strong spring and summer market,” said Mike Ruzicka, president of GMAR. “Job security and prospects look good, and interest rates continue to hover around historic lows.  The biggest cloud on the horizon is the supply of homes, both existing and new construction.”

Housing inventory has been tight for more than a year on existing homes, which is why the new housing starts are so important. The new homes being built typically cost at least $300,000 and are purchased by people moving out of starter homes, which are needed for first-time home buyers.

In March, inventory was 4.4 months. The ideal housing market has six months of inventory, which leads to a balanced market. When inventory is tight, it is a sellers’ market and homes become overpriced.

Despite the increase in housing starts, Hillmer said there are a few factors that will continue to give builders pause.

Increasing labor costs are the biggest concern, with carpenters being among the most difficult to find skilled tradesmen, Hillmer said.

The MBA and six builders will host Building Career Day on May 19 for more than 200 high school students at one of the Parade of Homes sites in Menomonee Falls to talk about careers in the building trades.

“This is the first time we are doing this and we are over-the-moon excited,” Hillmer said.

Source: MTD Marketing Services LLC
Source: MTD Marketing Services LLC

A 2016 National Association of Home Builders report found that on average, local and state regulatory costs total $84,671 per home built. Those fees also have slowed down the pace of home building. That, coupled with the cost of land, make it difficult to build a house for less than $350,000, Hillmer said.

The average home being built in the metro Milwaukee area costs $376,629 and is 3,047 square feet, according to the MBA.

“It is economically not viable to build a smaller starter house,” Hillmer said. “Three-fourths of the costs are borne on the development side. Until the regulatory burden is under control, there is no way inventory in the new market will be in the starter home range.”

Tim O’Brien of Pewaukee- and Madison-based Tim O’Brien Homes, does about 14 to 16 housing starts per month in the Milwaukee area and another six to eight in Madison.

O’Brien said he looks for supplier or trade partners to lower the cost of doing business and also tries to work with vendors to find different products to mitigate costs.

Tim O’Brien Homes also has been able to offer home and lot packages as part of its “Smart Start” homes for under $300,000. The lots are located farther north and west from the metro Milwaukee area, on land that was developed prior to the recession.

The Smart Start homes typically are located in western Waukesha County, northern Washington County or in Ozaukee County.

“The lot pricing has driven affordability,” O’Brien said.

So far, the Smart Start homes have been a popular sell, he said.

“We continue to refine the strategy and are looking to target the move-up, first build buyer,” O’Brien said.

David Belman, president of Waukesha-based Belman Homes and MBA president, currently is adding homes to the Rolling Oaks subdivision in the Town of Waukesha, which will consist of 45 homes when complete.

The company also is building Woodland Hills, which consists of side-by-side ranch-style condominiums in Waukesha.

Belman said the cost of lumber and metal have gone up significantly since the beginning of the year.

“The icing on the cake is labor costs,” he said. “We lost half our workforce from the Great Recession, so we are trying to do more with less, which puts pressure on labor prices as well. That being said, it’s a good time to build because the existing homes are selling so quickly, they rise very well in value.”

Sign up for BizTimes Daily Alerts

Stay up-to-date on the people, companies and issues that impact business in Milwaukee and Southeast Wisconsin

No posts to display