City’s affordable housing effort faces rising construction costs

photo by: Journal-World File Photo

Two homes sit within the location of a formerly blighted property at 908 LaSalle Street, in this photo from Sept. 14, 2017. The homes were a project of Lawrence Habitat for Humanity and Lawrence Tenants to Homeowners and were paid for in part with $100,000 from the city’s affordable housing trust fund.

Those in the business of building and selling new homes in Lawrence are seeing a trend that may not bode well for the city’s affordable housing shortage.

The average sale price of new homes in June was about $342,000, up about 30 percent from the same period last year, according to recently released data from the Lawrence Board of Realtors. That’s compared to an increase of about 6 percent for existing homes. LBOR leaders say what’s needed to bring the price of new homes down is more of them, but therein lies the problem. Builders in Lawrence say that rising labor and materials costs are driving up the cost of construction.

Regarding the increase in sales price of new homes, Lawrence Home Builders Association Executive Director Bobbie Flory said there are three factors: lagging inventory of both existing and newly constructed homes, a shortage of labor and rising costs of building materials across the country. She said what’s happening is not exclusive to Lawrence.

“In this past year specifically, a big problem has been the input costs,” Flory said. “Everything has increased. There are some biggies that jump out, like lumber, sheetrock, steel and concrete, but virtually everything has had an increase.”

Though some trends are beginning to turn around, the cost of construction materials has generally been rising since last year. Framing lumber prices today are 38 percent higher than they were at the start of 2017, according to the National Association of Home Builders. The NAHB has stated that tariffs on Canadian lumber imposed in December 2017 have exacerbated rising lumber prices.

Shortages in the labor force have also been cited as a factor in rising home prices across the country, and Flory said that’s been an issue in Lawrence, as well. The national unemployment rate is currently 3.9 percent, with Kansas’ unemployment rate even lower at 3.4 percent.

Regarding labor for the building industry in particular, Flory said that, after the 2008 recession, many tradespeople left the market and there were few people replacing them. She said, though local efforts, such as the programs at Peaslee Tech, are underway to attract more workers to construction, the market is still behind. She said a similar concept is at play with building materials, as a lot of production facilities either closed or consolidated following the recession.

“And when the industry starts gaining momentum and growing again, then our production facilities aren’t up and running at that same level to be able to provide the supply to meet the demand,” Flory said.

LBOR President Henry Wertin also noted the cost of land, labor and materials, and he added that last year’s hurricanes and the ensuing rebuilding efforts mean a lot of construction labor force has traveled to those areas to work. Regarding the recent sale price data for new homes in Lawrence, Wertin said it comes back to supply and demand. He said the construction of more homes will be a critical element in stabilizing the market and keeping homes more affordable.

“We are just out of supply,” Wertin said. “In the spring market, it was a sellers’ market: Buyers were in multiple-offer situations, houses were selling for above asking price, appraisers were chasing the numbers trying to keep up with the equity. And so, I believe that if we have more development, more new housing, it will create affordable housing.”

Wertin said that the price range of homes in highest need in Lawrence are those from about $150,000 to $250,000, which he said are “very aggressively selling.”

However, after months of rising costs, there have been some signs of a potential turnaround. Though the past year included record-breaking prices for lumber, from June to July, the price of a thousand board feet of framing lumber fell, according to lumber trade publication Random Lengths. In addition to lumber, Flory said that prices for other materials have also seen some moderate price decreases recently after the months of increases.

All this is happening as the city prepares to devote about $1 million per year to addressing the affordable housing shortage in Lawrence. Those new dollars, the proceeds from a newly allocated local sales tax, will go to a program that will provide grants for affordable housing projects and programs, such as vouchers.

Affordable Housing Advisory Board Chair Shannon Oury said the cost of construction materials has come up in the board’s discussions, as it affects nonprofits such as Habitat for Humanity and the Lawrence Community Housing Trust, which build and rehabilitate homes for affordable housing.

Oury said that, once the new grant dollars are available next year, the board will be able to do bigger projects and could potentially provide grants to housing developments if they were to make a percentage of the homes affordable.

“I think we are open to all avenues and making sure the grant opportunity is available for both homeownership and rental housing, to try to make progress on this issue,” Oury said.

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