Forward Janesville - TheReport - Third Quarter 2021

THIRD QUARTER 2021 • 7 The City of Janesville recognizes that the needs for housing in the community are a significant barrier to attraction of workforce to the community. Since the 2018 Housing and Development Summit, which the City and Forward Janesville partnered on, Janesville has made significant strides in positioning itself to address the housing needs of the community. After the Summit, the Economic Development Office worked through the process to modify the Economic Development Policies to allow the city to apply Tax Increment Financing (TIF) to multifamily housing projects outside the downtown. The Summit demonstrated that the lack of multifamily development for 13 years had created a significant gap between the cost of construction of such projects and the potential rent that could be expected. Essentially as owners of multifamily units waited to see what the long-term impact of General Motors’ closure meant; the cost of new project development continued upward while rents stayed essentially static. Since then, the City has partnered on three multifamily projects, each addressing a specific sector of the marketplace. The Glade, a high-end apartment project on the east side; Diamond Ridge, developed on the former Boys Baseball site along Woodman Road; and River Flats, a workforce housing project in Downtown. Each of these projects have seen full absorption of the units in the marketplace in less than 60 days after opening. All 316 units brought to market thus far are spoken for. Since the Forward Janesville conference call, the City has learned that 46 of the 48 units to be brought on market by Hovde at The Glade in building three are already spoken for, and Hovde will move forward with the final two buildings this fall, two years ahead of the original schedule. This demonstrates how strong the current market is in Janesville. On the single- and two-family front in 2020, Janesville had 105 permits creating 111 units with an average permit being $202,048. By mid-2021, the City had 43 permits for 49 units with an average cost of $278,225. The City has seen its first new subdivisions being platted since before the 2008 recession. The market continues to trend upwards with the number of new units and the overall cost of construction of those units. Paul Schieldt said it correctly during the conference call, when I said we needed 500 multifamily units in the market: he called it wrong. After 300+ units to date we need ANOTHER 500 units to actually fit the need within Janesville. Earlier this year, the Janesville/Beloit area was ranked as one of the hottest real estate markets in the country by realtor.com . However, at the time of this writing, our market is now out of the top 25 and, at the same time, we are seeing declining lumber costs and some initial signs of softness in the market. As we move forward, it is vital that we keep things in perspective and look at a longer-term view. Our position: the market is likely stabilizing verses a significant slowdown. At present, it may be slowing from a peak level of activity, but in the larger view, the market will be more predictable moving forward. Stabilization will be good for all of us. The larger view is centered around five key areas: 1. Home inventories are still low. 2. The supply chain is stabilizing as demand stabilizes. 3. The U.S. remains underbuilt. 4. People are more mobile than ever. 5. Interest rates remain low. Inventories: Available home inventories remain in short supply, continuing to fuel single-family home construction and keeping the risk of spec building low. In many communities across the country, there is a housing shortage (ours included), which is great for the residential construction industry, as well as the overall economy. Supply Chain: It is obvious that the various supply chains that support the residential construction industry were in no way equipped to support the increase in demand we experienced over the past 10 months. Supply chains are designed to be optimal not robust, which explains the shortages in multiple industries, including housing/building components. That said, as we move off our period of peak demand, the supply chain will begin to stabilize. We have recently experienced this with the reduction in lumber prices, and the industry should also begin to witness lead times returning to a more normal state. Underbuilt: Looking at overall construction over the past few decades, we need to remember what Robert Dietz, National Association of Home Builders Chief Economist wrote about last year: The U.S. was substantially underbuilt from 2010-2020. This is a foundational issue that we believe will support strong levels of construction activity, at least, for the midterm. Mobility: With the growing acceptance of remote employment, many people now have the ability to work anywhere. As people consider Janesville as a place to call home, we can attribute that to the quality of life our community offers. Given the fantastic community we live in, we have an opportunity to become a true “talent importer” verses a “talent exporter”. Interest Rates: Interest rates remain historically low, and this is perhaps one of the biggest drivers in the housing market. Interest rates are something to keep an eye on as the market will cool off considerably with any material rate hikes. That said, we are not seeing any significant rate hikes in the immediate future. In conclusion, when you consider the various drivers behind our housing market, we are seeing the longer view of market stabilization. Consequently, we are confident the housing market in our area will continue to remain healthy and relatively robust for the short to midterm. Is the Housing Market Changing? By C. David Hiller, CEO • Amwood Homes / Advantage Homes Housing Continues to be in High Demand By Gale Price • Economic Development Director, City of Janesville