DOVER — Three major organizations teamed up to host their first Delaware Housing Summit focused on residential real estate and the state’s struggles with building, selling and buying affordable houses for all, drawing in about 150 people for the event.
[caption id="attachment_240264" align="alignleft" width="300"]
Home Builders Association of Delaware President Mark Riemann talks about how construction costs impact the affordable housing market during the Delaware Real Estate Summit. | PHOTO BY KATIE TABELING[/caption]
The conference, held at Bally’s Dover Casino and Resort last week, brought major players in the Delaware residential building boom, namely members from the three organizations that organized the day, including the Delaware Association of Realtors, the Home Builders Association of Delaware (HBADE) and the Delaware State Housing Authority. It also included leaders from top residential construction firms and realtors, as well nonprofits like Housing Alliance Delaware and mortgage lending institutions like WSFS.
The conference is believed by many to be the first of its kind for the residential real estate industry where builders, renters, realtors, economic development officials and mortgage lenders all joined to discuss their roles in the affordable housing crisis in Delaware.
Today, the home construction industry supports 22,000 jobs and generates $1.62 billion in income for single family homes and another $179 million in multi-family construction, according to the HBADE.
“We’ve been working to collaborate with other associations in the industry for some time, and collaboration is really important to me, especially when it comes to this issue,” HBADE President Mark Riemann told the Delaware Business Times. “I think we all have to come together to solve these problems and bring our groups together to educate about the issues at hand that impact the market.”
Delaware government leaders have been wrestling with how to keep housing prices affordable, even as the housing boom in Sussex County continues to see more retirees relocate there. As of August, the median home price in Delaware has reached $385,483 while the average cost of rent sits at $1,500 per month, according to some reports. Meanwhile, state planning officials have seen building plans filed for 25,000 homes between 2021 and 2023.
But as the state faces a housing deficit of 20,000 affordable units, the question remains — how high will those price points be for those houses?
The Delaware Housing Market
[caption id="attachment_240266" align="alignright" width="300"]
Bright MLS Chief Economist Lisa Sturtevant talked about the broader trends of high interest rates playing out in the First State, especially as residents from Washington D.C. and Baltimore continue to move to Sussex County. | DBT PHOTO BY KATIE TABELING[/caption]
Home prices in New Castle County are 50% higher in August 2024 than they were in August 2019, according to Bright MLS data. Residences in New Castle County sold at a median price of $380,000. Sussex County topped that with prices rising 60% in the past five years with the median home price sitting at $445,000 this year.
Leaders in the industry say interest rates have caused some of those issues. When interest rates hit a record-setting low of 2.75% in early 2021, many homeowners opted to refinance their mortgages and to live in the residence a little longer. With lower inventory across the state due to fewer sellers on the market, homebuyers have started turning to building new homes to meet the growing demand.
Nationwide, interest rates hit 8% over the past four years, though the Federal Reserve cut rates by 50 basis points in September. Such high rates would typically give home buyers pause, but Bright MLS Chief Economist Dr. Lisa Sturtevant said the opposite happened.
“In a normal time when inflation runs really hot for so long, people sit tight and make different decisions,” Sturtevant told conference attendees. “They did not. In 2023, home sales across the country were the lowest we’ve seen since the 1990s. And year over year, prices have been rising since 2019. I will say, this is one of the weirdest housing markets and economies we’ve been in.”
The other driving force behind the skyrocketing home prices in Delaware may also be who is moving in — and out— of the state. In New Castle County, residents from Cecil County, Md., and Philadelphia, Delaware County and Chester County, Pa., were moving into the county with the average household income of those new residents at $73,250. In comparison, those moving out of the county reported a household income of $94,500, according to Sturtevant.
Sussex County is drawing more residents from Washington, D.C., Baltimore, Md., and even neighboring Salisbury, Md., with a household income of $115,550. Those moving out of the southern county have a household income of $78,560.
“If you are a first time buyer, or you have a young family or have a moderate income, this is a very challenging time to be in the market,” Sturtevant said. “There is no evidence to suggest that home prices are going to fall in Delaware significantly. There's no housing market bubble. There's nothing to burst. We need more supply, and that will help ease price growth.”
The cost of meeting demand
[caption id="attachment_240265" align="alignleft" width="300"]
Preston Schell of Ocean Atlantic Companies talked about the residential push back plays a major factor in land use policy in Sussex County. | DBT PHOTO BY KATIE TABELING[/caption]
To meet that supply though, the home builders have to add inventory to the market. Sussex County has seen several residential neighborhoods crop up and plans are in the works for more ambitious projects like 1,260 single-family homes with amenities on 637 acres in the unincorporated area of Cool Springs and the 758-unit complex along Route 9 near Lewes known as Northstar.
Preston Schell of Ocean Atlantic Companies, which has local subsidiaries such as Schell Brothers, pointed out that much of the existing undeveloped land in Sussex County is zoned agricultural residential, which currently allows for two units per acre. He argued that it would open the door for developers to focus on subdivision planning to make the financials work instead of working to find mixed-use projects that could be palpable for the neighbors.
“We’re part of the problem because every time we sell a home to a retiree, that’s someone who comes when a new project is approved next to them. The time period associated with project approval is two to three and a half years, and it keeps getting longer with new hurdles in a tough housing market,” Schell told attendees.
It’s also getting more expensive to build new homes. During his presentation on housing economics, Riemann said that regulatory costs from meeting building codes, traffic and environmental impact studies, setbacks builder fees and more, are $93,870 per new home, or 28% of the price.
As a case study, Riemann, who also works with Becker Morgan Group, walked the audience through building a four-bedroom home in Sussex County on a half-acre lot. Land costs alone are $156,500, factoring in the land purchase and costs associated with engineering, permits, site work, road work, inspections, etc., coming in at about 33% of the cost of home construction alone.
“Every year, the National Association of Home Builders does a study, and it is found that for a $1,000 increase in the cost of a home, 140,000 people can not afford it. In Delaware, that’s 351 households,” Riemann said. “For the past 20 years, we’ve been adding hundreds and thousands in permit costs, and that’s also affecting the bottom line.”
