If you haven’t noticed, most housing markets are booming right now, and Boise has been one of the cities leading the charge for more than a year. Anyone who drives around the Boise area will surely see new home construction all over the city and especially in the outskirts of town.
One of the primary drivers of Boise’s flourishing housing market and bustling new construction is the extremely low supply of housing available for sale, currently at inventory levels not seen in Boise for more than a decade.
Home prices in Boise have improved much faster than most projections, but prices on the whole are still far too low for homeowners who purchased a home or refinanced between 2005 through 2008. These homeowners still have zero or negative equity in their homes, which is constraining them from putting their homes on the market.
A limited supply of housing in Boise is actually the best thing the city could have hoped for in getting its local economy heating up. All you have to do is look at the recent sharp drop in unemployment in Ada County. The U.S. Bureau of Statistics reports that Ada County had an unemployment rate of 8.9 percent in January 2011; now the rate is less than 5.5 percent. A major factor in why our unemployment rate is dropping so quickly is new construction.
The National Association of Home Builders estimates that every new, single-family home built creates three new jobs. The NAHB also estimates that each new home generates $90,000 in government revenue, $67,000 in federal taxes and $23,000 in state and local taxes.
Close to 1,500 homes in Ada County were built in 2012. Using NAHB estimates, those homes generated 4,500 jobs, $100 million in federal taxes, and $34 million in state and local taxes.
Is there a threat of overbuilding? Eventually, yes. Right now, the inventory of homes on the market is so low that my opinion is build, build, build. As long as the supply of homes remains historically low, and demand is strong, there is little fear of overbuilding.
For the last few years, building a home in the Boise area was a great bargain. Building costs were low, the prices for lots were rock-bottom, and builders were forced to price competitively to keep sales up.
However, if you speak to any builder in the Boise market today, they will tell you the cost of building new homes is skyrocketing. The strong demand for housing materials has risen faster than what the manufacturing sector can keep up with, so material costs have gone through the roof. High demand has pushed up labor costs, which is great for the local workforce but raises the cost of building considerably. Builders have to increase their prices after every build job due to cost increases in materials, labor and lots.
Homebuyers are considering new construction due to low inventory, but the costs of building are rising so quickly that it could ultimately lower the demand for housing in Boise.
The good news is that the Boise market is still far from being overbuilt and overpriced, at least when compared to similar cities. The demand to live in Boise remains strong, and the demand for housing is likely to continue to follow suit.
Mike Turner is a Boise real estate agent and founder of Front Street Brokers, and host of the Boise Real Estate Radio Show on 89.9FM. Mike specializes in selling high-end residential homes, new construction and custom-built homes in Boise.