RI's housing crunch: prices rising amid low inventory, little construction
PROVIDENCE, R.I. (WPRI) - If you or someone you know has been looking for a house lately, it’s not your imagination: Rhode Island’s housing market is red hot once again.
A decade after the housing bubble burst and the Great Recession took hold, all signs now point to a seller’s market. The median price of a single-family home in Rhode Island hit $255,000 last year, up 13% since 2015 and 34% since 2012, according to the Rhode Island Association of Realtors. Houses were on the market for just 65 days in
February, down from 110 days in 2015, and the number up for sale was down by half versus 2012.
That’s causing a housing crunch for a growing number of Rhode Islanders, particularly younger families looking to buy a starter home, experts say. “There’s huge demand to live in Rhode Island - contrary to what folks think, right?” said John Marcantonio, head of the Rhode Island Builders Association. But he sees people being priced out. “There’s not a desire to leave the state, so much as a lot of folks feel like they have to, financially,” he said.
Timothy Owens, who currently lives with his wife and their yellow lab in a small apartment in Wakefield, is among those on the hunt for a house. The couple started to search after they got married last October.
“I was very naive going in and have quickly realized that it’s a lot harder than I initially thought,” Owens said. He said he’s been surprised by how much money some sellers are seeking, and he’s seen houses bought before they even formally hit the market.
“It’s been a challenge,” Owens said. “There’s just not a lot out there right now.”
Sarah Isabella, a real-estate agent at Randall Realtors in Wakefield who’s working with the Owenses, said she’s counseling buyers like them to be patient. “This low inventory is going to continue potentially,” she said. “It’s frustrating I know for buyers and sellers - and myself.”
Real-estate analysts are also seeing more homeowners holding onto their houses rather than putting them up on the market. Isabella said a mortgage originator she works with told her there is growing concern about the Federal Reserve’s plan to raise interest rates, which will increase the cost of a mortgage.
“They want to maintain the interest rate they have,” she said.
A 'very tight' market in RI
More than 11,000 single-family homes were sold in Rhode Island in both 2016 and 2017, compared with fewer than 7,000 during the downturn, according to HousingWorks RI, a research and advocacy group at Roger Williams University. While the median sale price is still well below its peak of $282,900 back in 2005, home values are significantly above where they were in the 1990s.
Timothy Warren, CEO of the Warren Group real-estate information firm, said single-family homes sales have “increased dramatically” in Rhode Island in recent years. “I’d say that Rhode Island real estate is doing very, very well,” and even better than Massachusetts and Connecticut, he said in an email.
In fact, the market has gotten so hot that the president of the state Realtors group, Joseph Luca, has publicly expressed hope that the pace of sales will “moderate” this year compared with 2017. “We don’t want to get to a point where affordability issues are creating havoc with the market again,” he warned over the winter.
It’s not just buyers feeling the effects - renters are, too. The Providence area was tied with Manchester, New Hampshire, as the tightest rental market in New England last year, with a vacancy rate of only 3%, according to data from the U.S. Department of Housing and Urban Development. Average rents rose 5% in 2017 to $1,393 a month.
“The housing market in Rhode Island remains very tight,” said Brenda Clement, director of HousingWorks RI. “We have been under-producing housing at all income levels for many, many years now. … That means obviously that as supply is low or stagnant but demand increases, housing costs go up.”
Clement said the squeeze is worsened by the fact that even though Rhode Island’s population is barely growing, the average number of people living in a household is declining due to demographic trends - meaning more housing units are needed for the same number of residents.
Fewer building permits issued
Yet relatively little new construction is happening in Rhode Island. Fewer than 1,200 building permits for new housing units - including homes, apartments and condominiums - were issued last year, and that number was actually down slightly compared with the prior year, according to HousingWorks.
That’s far below the more than 3,000 new units a year Rhode Island should be adding to meet demand, according to a study HousingWorks conducted for Rhode Island Housing in 2016. It’s also down from prior decades: permits for new housing units averaged more than 2,000 a year in the 1990s and 2000s, and more than 4,000 in the 1980s.
“In Rhode Island, we build high-end housing and we build subsidized housing; the middle stuff is really hard to do from scratch right now because of the price points and the cost of construction and a lot of issues on the local level,” said Marcantonio, the Builders Association’s CEO.
“The way I summarize it is, our cities tend to act like towns, and our towns tend to act like gated communities,” he said. “So cities don’t like density; towns hate density.” He pointed to the debate in Cumberland over a proposal for new condominiums off Mendon Road as an example.
School costs concern towns
Marcantonio said the biggest reason municipalities resist adding new housing units is taxpayers fear the cost of educating more children in the public schools. “We’re looking at kids - our future - as a liability,” he said. “That’s the fundamental problem when it comes to residential housing. We’re afraid to have families live in our state, to stay in our state, to repopulate the state.”
Ashley Sweet, the town planner in Exeter and legislative liaison for the American Planning Association’s Rhode Island chapter, acknowledged that the number of children who will live in a new housing development is “part of the discussion” when communities consider potential projects. Part of the reason: Rhode Island relies more heavily on local funding for K-12 education than states in other parts of the country.
“A residential subdivision will always come out on the negative side when you do the math,” she said. “Using simple numbers - if a house contributes $5,000 per year for taxes to the municipality, we’re looking at somewhere around $15,000 to educate the child. So we’re already at a net loss and we haven’t even provided any other services besides the school system at that point.”
A 2015 study the Builders Association commissioned from Ed Tebaldi, an economist at Bryant University, argued that the lack of new housing for families was hurting Rhode Island’s economy. But it also acknowledged local leaders’ concerns.
“In essence, because local municipalities still struggle to pay for the costs associated with educating children, many work against state efforts to grow this important population by hindering or preventing the development of family housing,” Tebaldi wrote. He suggested state leaders should focus on reducing the burden.
Zoning rules also cited
Another challenge: land costs. A recent study by the Cato Institute, a libertarian think tank, said Rhode Island has some of the most restrictive rules on land development in the country. Marcantonio, Sweet and Clement all cited zoning restrictions as a factor increasing home prices in Rhode Island, including requirements for houses to be built on multi-acre lots and height restrictions in larger cities.
“Density is the key to affordability,” Marcantonio said.
However, Sweet warned, “changing zoning is a monumental task in many communities. People are uncomfortable with change, and they become accustomed to the idea of living on a bigger lot, not necessarily seeing or hearing their neighbors. And then when you propose to push things back together and densify housing, people become uncomfortable with that idea.”
Rhode Island is hardly alone among coastal states in struggling with housing affordability. California is currently
embroiled in a debate over proposed legislation that would overrule local zoning laws to allow more development near transit hubs, while Massachusetts Senate President Harriette Chandler recently labeled the Bay State’s housing situation a “crisis” that threatens its economic growth.
Marcantonio praised Gov. Gina Raimondo and state lawmakers for a number of new laws passed in recent years he thinks will make it easier to build, including changes to the permitting process and land use rules. He also said discussions are happening about reducing the cost of connecting new developments to water and sewer systems.
As for Timothy Owens and his wife, while they’ve discussed the possibility of moving out of Rhode Island to find a more affordable home, they remain committed to searching until they find one in the Ocean State.
“I mean, we’ve talked about it,” he said. “But with work and all, most of our family’s around here - so this is the area
we want to stay in.”
see original article here: http://www.wpri.com/money/ris-housing-crunch-prices-rising-amid-low-inventory-little-construction/1098813556