Residential market active, but builders see hurdles

New Hampshire communities issued a total of 419 permits for single-family housing construction in January of this year, the largest January total since the building boom of the 1980s. But while the market for new homes remains strong, many builders and brokers in the Granite State say rising land prices and municipal growth ordinances continue to squeeze lower-priced homes out of the marketplace.

“Demand is strong, especially at the lower end of the market,” said Jon Lariviere of R.J Moreau Companies of Bedford. “Affordability is the key. If you can produce and deliver a product for reasonably close to $200,000 with a reasonable commute to the workplace, you can’t build it fast enough. But it’s very difficult because of the cost of new development, the cost of the site improvements and the ever-increasing standards for public improvements on things like roadways. That, coupled with impact fees and a multi-year approval process in many communities makes building at that price very difficult.”

A dwindling supply of available land is one factor driving up the cost of new homes in the southern part of the state, said Hampstead broker Jay McGillicutty, president of the New Hampshire Association of Realtors. “Land is becoming more scarce and they’re not developing as much,” said McGillicutty. “Right now, we’re seeing building lots at anywhere from $125,000 to $150,000 and more. Last year at this time, they were probably peaking out at around $100,000. There’s not a lot of land that developers can go and carve out and sell all their lots out.”

Most new construction is in the $350,000-to-$400,000 range, said McGillicutty, and they’re not being built until a buyer has signed the dotted line. “I just think there are not as many spec homes as there used to be”, he said. “The demand is still there, but the supply is limited in terms of where we were last year and the year before.”

Concord Realtor Nancy Morrison sees some softening in the upper end of the market, especially in the Capital City. “You have someone buying a $500,000 home in Concord, and he has to swallow not only the price, but the tax burden,” she said. Morrison also sees a decline in spec building, meaning buyers must wait six or seven months for their new homes.

“If you’re building a $400,000 or $500,000 home, you’ve got a lot of debt service,” said Morrison. “You don’t want those around too long. It’s not like the days when they could put up a lot of spec homes at $200,000.”

The scarcity of homes in that $200,000 range is an “ongoing problem” for much of New Hampshire’s population, said Kendall Buck, executive vice president of the Home Builders and Remodelers Association of New Hampshire.

“We’re finding that the affordability gap between income and housing prices is widening,” he said, adding that he sees land use policies adopted in many of New Hampshire communities contributing to the high cost of land and housing.

“You find many communities passing bond issues approving the purchasing of concept of open space and to protect critical environmentally sensitive areas. That makes a lot of sense,” he said. “But sometimes areas that are prime for residential or commercial development are inadvertently taken off the market.”

Growth limits

Moratoria on new construction and long-term caps on building permits and large impact fees on residential development all contribute to “upward price pressure on housing,” said Buck.

A total of 39 New Hampshire communities have adopted various forms of growth management regulations, including annual limits on building permits or subdivision approvals, according to Christopher Northrop, principal planner at the state Office of Energy and Planning. “Three or four years ago, it was probably half that number,” he said. “I’m assuming they’re feeling the pressure of growth and feel the need to slow things down until they can catch up,” said Northrop.

Some builders insist growth management in many comminutes has been taken too far. Starter Building and Development in Londonderry expects to build about 100 houses in New Hampshire in the $200,000-to-$225,000 price range this year, said Chris DeRosa, a partner in the firm. But building at any price becomes less feasible when the approval is stretched form months to years, he said.

“Years ago, you could buy a piece of land and have all your approvals within six months,” said DeRosa. But today, for example, a plan to build 36 single-family homes in a development for residents 55 and over is still before the Londonderry Planning board after 4 1/2 years, he said, while the builders have been required to contribute $200,000 for an off-site road reconstruction.

“They put in regulations that squeeze down what the land will support as far as buildable lots,” DeRosa said. “Then they throw in whatever they can get out of you additionally by doing something for the town — widening roads, donating land. Typically towns love over-55 developments, because there is low-to-no impact on the schools.”

But in Londonderry, he said, “They’ve told us they don’t like single-family housing because of the impact on schools and they don’t like commercial (development) because of traffic. That doesn’t leave much in the way of options.”

Andre Garron, Londonderry’s director of planning and economic development, said the impact fees and growth management regulations adopted in Londonderry reflect voters’ decisions about the kind of development they want and how to meet the costs associated with it.

“They’re not sitting on the planning board with an attitude of ‘Oh boy! Here comes another residential development,’” said Garron. “If the project meets the regulations, it will get approved. If it doesn’t, it won’t.”

Salem’s planning director, Ross Moldoff, claims builders have created a myth about municipalities contributing significantly to the cost of housing. “I think it’s a bunch of baloney, in fact,” Moldoff said, noting that the cost of housing has risen dramatically since Salem removed its growth restrictions several years ago. Nor does the town have strict requirements for lot sizes, he said. “They’re building $500,000 homes on half-acre lots in Salem,” Moldoff said.

The school impact fee of $2,315 for each new home is “less than 1 percent of the cost of new house,” Moldoff said. “People pay more for kitchen cabinets than they do on impact fees in Salem.”

‘Action’ in the middle

Even in the North Country, where land is more plentiful and growth management is seldom an issue, new housing is getting pricey, said Lancaster Realtor Peter Powell. “We’re seeing prices now in the $300,000-to-$400,000 range, which would have been unheard of three or four years ago,” said Powell. There are fewer homes of any kind available for $100,000 or less in the economically depressed region.

“We’re seeing more construction, higher prices, more activity,” said Powell, as retirees sell their homes in the southern part of the state and bring their greater purchasing power to the housing market up north. “The concern is that it’s driving up prices to the point where it’s going to be leaving out a lot of local people, especially young people.”

Throughout the state, demand for new homes is flattening out at the upper level, but remains strong in the mid-price range, said Russ Thibeault of Applied Economic Research in Laconia.

“The high end is quieting down a bit because a lot of those buyers have bought a place over the last couple of years,” he said. “And the manufacturing jobs we’ve lost means a lot of upper-level mangers aren’t getting the bonuses they used to get and don’t have the job security they used to have. So they’re pulling back a bit.”

The result is increased demand for those $250,000-to-$350,000 homes.

“At the lower end, you’ve got the demand, but you can’t produce the units,” said Thibeault. “At the upper end, you can produce the units, but the demand is weak. So the middle is where the action is.”