I first began to investigate the state of Delaware’s residential housing market after seeing the signs for myself.
And I mean that quite literally.
Around my Middletown-area home, the signs for new developments commonly read “Starting in the Mid-400s” or even “Available in the Mid-600s.” In our weekly property sales research, it’s now common to see new home sales in the Middletown area in excess of $800,000 – a thought that is mind-boggling for an area that was still largely farmland less than 20 years ago.
Editor
Delaware Business Times
When we first moved to Middletown about seven years ago, it was fairly easy to find single-family homes in the $300,000 range. That’s no longer the case.
Developers of new construction communities, contending with their own rising costs of land, lumber and labor, are passing along some of those costs to homebuyers and reaping the spoils of a hot real estate market in Delaware, where median prices have risen faster than they did in the five years preceding the pandemic.
That boom is driven by the increasing number of retirees who are selling their primary residence and downsizing or finding somewhere close to the beach. Yet that trend doesn’t quite explain the Middletown-Odessa-Townsend corridor, which sits nearly 90 minutes from Rehoboth Beach and still is developing much of its infrastructure and amenities.
The answer is rather simple: taxes.
In our neighborhood, it’s more common to see license plates from New Jersey, New York, Maryland and Pennsylvania than it is Delaware. Nearly all of the neighbors I’ve talked to are still working and have noted that Delaware’s lower cost of living helped drive them to the First State.
Delaware has the 42nd highest top marginal personal income tax in the country at 7.85%, which normally wouldn’t be something to brag about. But that is considerably lower than most of our neighbors, including Maryland (8.95%), New Jersey (11.75%) and New York (14.78%). Even though Pennsylvania has a slightly lower rate of 6.91%, many chose to move here for a much lower cost of living after factoring in higher property and sales taxes.
As remote work has increased following the pandemic, I know of several families who left their homes in other states to lower their costs here in Delaware but are still working for their companies out-of-state.
It’s an economic development advantage that Delaware can surely exploit as new employers can and should look to recruit these arriving workers to companies closer to home.
But their arrival is inflating housing prices at a time when the costs of homebuying are also rising. Mortgage interest rates have tripled from pandemic lows as the Federal Reserve tries to tame lingering inflation in the economy. Buying the same $400,000 home would cost at least $800 more a month.
That has created new pressures on the housing market, particularly first-time homebuyers – or the workers of tomorrow.
When I was growing up, the common equation for the average American home was predicated on a value of $250,000. In Delaware today, that value would easily hover $100,000 to $150,000 more depending on where you are looking.
With purchase prices so high, and therefore raising the necessary threshold on down payments, homebuyers will be forced to look elsewhere, potentially exacerbating Delaware’s current workforce shortage. We’ve invested a lot of time and money into training a new generation of young people to fill vital roles in the economy of the future, we cannot shortchange their ability to live here too.
Fixing the imbalance will require creative thinking, government intervention and a reassessment about our feelings about housing types. Luckily, there are options.
Sussex County has already done an admirable job in launching the Housing Trust Fund to help counteract some of those costs. Assisting lower-wage earners in affording down payments and helping to subsidize developers’ costs on affordable housing units.
The Sussex County Rental Program has also recognized that some trade-off in increased housing density will be necessary to lower the rental costs of units, whether they be apartments, townhouses or duplexes.
Another tactic that could be effective is shared equity homeownership, something I’m unaware of being used in Delaware.
In that model, government subsidies help to fund construction of new homes with the agreement that sale prices are capped at affordable rates. That affordable price is then held in perpetuity, meaning a purchasing homeowner could benefit from a lower housing cost and therefore build generational wealth, but also agrees to cap the amount of profit they could make on a later sale. In essence, the program creates a forever starter home.
There are about 250,000 households in the U.S. who live in a shared equity home, according to Grounded Solutions Network that advocates for the model. Lisa Sturtevant, chief economist at Bright MLS, the real estate listing service for Delaware, told me recently that it is particularly popular in the Washington, D.C., metro area, where housing costs have long remained high. She even lived in one such home when she first moved to Alexandria, Va.
“It seems to me that there are more and more communities looking for these kinds of public-private partnerships, because if the market will bear a $400,000 home price, then there’s no reason that builders are going to sell it at $300,000,” Sturtevant said.
She’s right, and if Delaware doesn’t begin to think about its continuum of housing, not just the lowest and highest ends, then we regret it in the near future.
