- The Washington Times - Wednesday, November 12, 2003

Despite a record-setting real estate market and the strongest buyer demand in more than a decade, Washington-area home builders are not enjoying a banner year. Weather, zoning battles and land shortages have combined to slow builders’ activity despite a growing demand for new housing.

“Our biggest problem this year has been the weather,” says Louis Genuario Jr., 2003 president of the Northern Virginia Building Industry Association. “Sales activity has been far higher than our ability to produce homes, and the weather we’ve experienced is to blame.

“It wasn’t until August that, finally, we had some periods of dry weather, and then a hurricane came along,” Mr. Genuario says. “Now, because of Isabel, Virginia Power is so far behind that some builders have completed homes without any power.”

Because builders have been unable to deliver homes as fast as area buyers demand them, their share of the overall housing market has fallen.

This year, new-home sales account for only 18 percent of all home sales in the Washington metropolitan area. That’s quite different from the market of a decade ago. In 1993, builders captured 38 percent of area home sales.

Most of that shift, however, stems from an extremely active resale market. Existing home sales totaled 110,000 last year, compared with only 53,000 in 1993.

Still, new-home sales figures don’t reflect the tremendous demand among home buyers. Sales in the region this year are up 2 percent over last year but down 16 percent compared to 1999.

Consumers would like to buy more new homes today, but it just hasn’t been possible. “And customers don’t like the fact that they can’t buy a home,” says Peter Byrnes, 2003 president of the Maryland National Capital Building Industry Association.

“They feel put off when they are told they have to wait — there is even a little bitterness or sourness when they are repeatedly told, ‘We don’t have anything to sell you,’” Mr. Byrnes says.

It sounds strange, even un-American, to tell interested buyers they cannot buy something, but builders have run into trouble in recent years by overcommitting themselves.

A few years ago, a shortage of skilled labor hindered builders’ ability to complete structures. Delivery times stretched to four, five or six months. This year, the problems have been too much bad weather and too little land.

As a result, most area builders are quoting delivery times of six to nine months. That is a long time in an active market, and much can change between sale and settlement.

“I think builders are going to become a little more cautious,” Mr. Byrnes says. “It is becoming more risky and less profitable to have a lot of backlog.”

This year, Montgomery and Prince George’s counties increased the impact fees charged for each new home. Because there is no “grandfather clause” on these impact fees, builders have to eat the additional expense on homes that have been sold but not delivered.

Also, the sudden leap in the price of plywood this summer is another example of the risks builders take with large backlogs.

“That problem alone added as much as $4,000 to the cost of building a single-family home,” Mr. Genuario says. “Some builders have a provision in their contract to protect themselves against such fluctuations, but most do not. So now they have to take those increased costs into account on their future sales.”

Weather, labor shortages and lumber prices are passing problems. The largest issue facing area home builders is where to put the homes.

The Washington region is growing, with lots of new, good-paying jobs drawing new residents to the area. According to some economists, the region has a housing shortage of more than 100,000 units. Yet builders don’t have enough land on which to build.

“The biggest question our industry faces is where the land will come from,” Mr. Byrnes says. “Area governments will have to get creative about higher-density redevelopment; otherwise, we will price ourselves out of the national job market.

“If Washington becomes a place that is too expensive to live, it won’t be an attractive area to employ people, and companies will stop expanding here,” he says.

The land problem has grown through the years. New-home sales fell in 2000 and plummeted in 2001 as builders ran out of land to develop. Most of today’s construction is happening in two areas: small lots in established communities (known as “in-fill”) and outlying counties far from the District.

“There really are only two answers to the land shortage,” Mr. Byrnes says. “We will either continue to sprawl into the second- and third-tier counties that are permissive of growth or we will get more creative about creating high-density living closer to the District.

“People who really want an affordable, large home will make the commute,” he says, “and the others will adapt their lifestyle to a more urban setting. And I think people will have to become more realistic about the size of their homes. The truth is, people don’t need the big, sprawling homes that have become so popular. I think this land shortage will cause buyers to focus on a higher-quality interior in a smaller home.”

Current land scarcity has accelerated the region’s expansion into the hinterlands.

In 1993, 47 percent of area new homes were sold in the “outer ring” suburbs of Spotsylvania, Stafford, Prince William, Loudoun, Frederick, Howard, Anne Arundel and Charles counties. The other 53 percent were sold in the Beltway jurisdictions of Fairfax, Arlington, Alexandria, Montgomery, Prince George’s and the District.

Since then, new-home sales have steadily moved outward, farther from the District each year. Today, the Beltway communities account for only 37 percent of sales. The more affordable, but farther out, counties are where 63 percent of today’s new homes are being built.

However, prices are rising rapidly, even farther out.

According to Kim Ambrose, sales and marketing manager for Newland Communities, the least expensive town home in the company’s new community in Clarksburg — in Montgomery County near the Frederick County line — is going for $375,000.

“Finding land has really been tough,” Mrs. Ambrose says. “Newland is in big-time acquisition mode, but it is harder to find the kind of land we need. This company looks for bigger tracts of land, because we specialize in creating new communities with plenty of amenities, places like Cascades and Broadlands.

“But it has become so hard to find that kind of land that developers are looking as far as West Virginia these days,” she says.

The land shortage has also forced builders to become creative in what and where they build.

“Today, you are seeing large builders doing projects of only 10 to 20 homes, or even as few as five homes on a small in-fill lot,” says Mr. Genuario. “Some of this has become possible because of some smart rezoning by area jurisdictions.”

Fairfax County, for example, has promoted higher-density construction near Metro stations. Some land near the Vienna Metro station has recently been rezoned to allow four homes per acre, instead of the original two.

“Now you have three times as many people living on that land, very close to the Vienna Metro,” says Mr. Genuario. “Sprawl creates traffic, and no one wants that. So redeveloping our close-in communities is very smart.”

That’s the specialty of Stewart Bartley, a principal at the JBG Cos.

“We have focused on higher-density in-fill developments, especially ones that are close to the Metro,” Mr. Bartley says. “These kind of developments are important today because of factors like traffic.

“More people are looking for the advantages of urban living, like entertainment and being close to work,” he says. “I was just speaking to a woman who commutes to the District from south of Woodbridge. ‘I just want a life,’ she told me. ‘I’m either at work or commuting to work, and I’m sick of it.’”

While some “no growth” advocates seem to protest every new building that is proposed, many local governments and residents have cooperated with development near the Metro stations.

“We aren’t chewing up farmland — we are replacing strip malls and parking lots,” Mr. Bartley says. “It think that’s why jurisdictions have been very amenable to this kind of development. You can remove a low-density retail center with surface parking and replace it with a five- to six-story mixed-use structure with its own parking.”

Builders are finding that properties they rejected in the past are now attractive. Land that was once too expensive to develop because of soil conditions, accessibility of water and sewer lines or other issues is now profitable to build on.

Skyrocketing home prices has had a lot to do with that. Today, it makes sense to tear down a $400,000 home and replace it with a $1 million home or to put 10 town houses in its place.

That strategy can be particularly profitable in today’s market. In Montgomery County, for example, the median base sales price for town homes this year is $370,000, up 24 percent over 2002. Other jurisdictions are even more expensive, such as Arlington County, where town homes are going for $700,000, and Alexandria, where they exceed $1 million.

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