With very little stock on the market and construction prices on the rise, it’s not a pretty picture for those looking for entry-level and lower-income housing in Clark County – but a law passed by the Legislature in 2017 could start easing some of the pressure and opening up more buildable land, some real estate experts say.
The top of Clark County’s housing market continued to boom through the second quarter of 2018, while lower-income and entry-level housing remained extremely scarce. Overall, total sales for 2018 have been stronger than any year since 2005, and more listings continue to come onto the market, but a lack of new inventory and buildable land remains a major hurdle to families looking to buy their first home, said Mike Lamb, a real estate broker with Windermere Stellar.
“When people talk about affordability, they think about what kind of subsidized housing is there, but they don’t usually think about market forces,” Lamb said. “The challenge is it’s become so expensive to build a house. Even back in 2004 or so, we were getting to the point where builders couldn’t afford to build entry-level housing in Clark County. And most new construction houses cost over $400,000 – and there’s a reason for that.”
The reason is there are a lot of regulatory hurdles and fees that developers have to follow before construction starts. With impact fees, environmental assessments and other paperwork, about 25 percent of the cost of a new home can come from regulatory work, Lamb said.
“Much of this is not in the control of the local jurisdiction,” Lamb said. “For instance, drainage is under control of the state, but there’s a lot of overlapping jurisdiction. The process is so complex, nobody really understands it unless they’ve been involved in it.”
With those fees and rising labor costs the market looks like it will remain tight, because construction of starter homes just isn’t financially feasible for developers right now, said Rian Davis, public affairs director for the Clark County Association of Realtors.
“There’s been activity year over year but it really hasn’t caught up with stock in demand,” Davis said. “We need more buildable land to meet population growth, and we’re just not going to keep up until that happens. We’re growing at about a 50 percent greater pace than anticipated.”
Davis said he’s hopeful that a bill sponsored by Sen. Joe Fain (R-Auburn), SB 5254, which passed in the 2017 legislature and went into effect on Oct. 19 of that year, can help open up more buildable land stock. The bill requires municipalities and counties to use real-time market data to open up lands, along with other measures aimed at dealing with the state housing crisis.
“That passed, and right now it’s in the phase of being legally interpreted in regards to how counties can implement it and stay in compliance with the Growth Management Act,” Davis said.
The Growth Management Act was a means to prevent urban sprawl by discouraging rural development. But most counties haven’t managed their inventory very well or kept it up to date, Fain explained.
“It’s an expensive process to determine how useable a piece of land is,” Fain said. “Sometimes you’ll see reports that say land is perfect for 30-40 units, and then when you actually go look it’s encumbered by wetlands. If we’re going to continue to restrict growth in rural areas, then we’ve got to be better at green lighting areas where we are encouraging growth.”
The law requires municipalities to keep their inventory up to date with the latest market data, but because of the expense of that, the state also needs to provide resources to help. Right now, the state is meeting with a stakeholder group to determine what should be included in that data and what resources are needed to help, Fain said.
“This is one part of a larger conversation when it comes to increasing the supply of affordable housing in our state,” Fain said. “Some people think government-owned housing is the only way to fix things. Some people think only the market rate and market demands should control that. The reality probably requires something in the middle.”
Fain said he also thinks opening up buildable land in second-tier cities like Spokane, Vancouver and Yakima could spur a new wave of economic growth.
“I really think the next iteration of development in our country will be in second tier metropolitan cities,” Fain said. “So, instead of Seattle it’ll be Spokane or Vancouver or Yakima. I think we’ll see a lot more attraction to developing those areas soon.”
Fain said he’s not sure exactly when his bill will go into full effect, because the stakeholder group is still working out the kinks. But he expects it will happen within the next year or so.
The Trump Administration’s trade wars with Canada, Mexico, China, Asia, the European Union and other countries may also wreak some havoc on the local housing market in coming months, Davis said.
Steel and aluminum tariffs are being absorbed by the industry and passed on to customers, but the potential trade issue that has housing developers significantly worried is Canadian lumber.
So far, the trade war hasn’t hit Canadian lumber, but that could easily change, Davis said.
“I’ve heard from the local building community that the steel and aluminum tariffs have impacted their costs, which they’ve passed on to the consumer,” Davis said. “But possible tariffs on Canadian lumber would be huge. That would impact building significantly, especially in the northern part of the U.S.”
A lumber shortage would impact the entry-level and single-family home building sector a lot more than steel and aluminum have, because the main building material in most homes is wood, whereas metals like steel are used more for industrial buildings, he said.
“Housing – any impact on the lumber industry is going to have more of a direct impact on residential buildings,” Davis said. “The metal tariffs? That’s affecting more industrial buildings.”
But even speculation about lumber tariffs seems to be having an impact on prices, Lamb said.
“Builders are talking about lumber costs,” Lamb said. “And we get almost all of our lumber from Canada. It could impact us quite a bit. Lumber costs have actually already gone up about $10,000 a house in the last month or so, and I don’t know why. But that’s big.”
In the future, if more buildable land opens in Clark County and the trade war allows, Davis said he expects to see a building boom in some of the unincorporated parts of the county to the north and northeast.
“Orchards, 164th Avenue, Brush Prairie – that’s where a lot of activity is going to happen,” Davis said. “I think sooner or later we’ll also see more activity in La Center. There’s a lot of conversation about what’s going on up there. And Ridgefield already has a ton of development coming online. It’s the fastest growing city in the state.”