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New Construction Activity Down in 2018

by Connie Yoshimura

The MOA building safety report, which compiles all new construction activity requiring a building permit, was recently released for the first four months of 2018 and it is not good news for the construction industry. All construction activity is down 19.77 percent when compared to the same time span in 2017. The report categorizes all residential types as well as commercial activity, including alterations (remodeling) and change orders. The permits value the cost for vertical construction only according to a formula internal to the department and does not necessarily reflect market value. It also does not include any valuation for the land. Its purpose is to provide fee income to development services and to assure the public of its health and safety in both commercial and residential construction.

Most of the 19.77% decline has come from the commercial sector. Residential construction permits have actually stabilized with even a slight increase in activity. Unfortunately, this new bottom of ‘normal’ still doesn’t help Anchorage’s housing crisis. Eight new single family starts in 2018 have increased the number to 54 from 2017.  Duplex permits are down 50% and 67 new multi-family permits were obtained year to date, an identical number to 2017. A multi-family permit is categorized as any building with three or more units. Spinell and Hultquist Homes remain the largest builders in Anchorage, clearly outpacing all other builders with fourteen permits for Spinell and thirteen for Hultquist Homes. Combined they make up 50% of all residential activity for single family and duplexes. Spinell also builds in the Valley and Eagle River while Hultquist Homes has a division in the Seattle area. In single family, the owner/builder outpaces both of Anchorage’s leading builders with twelve permits. An owner/builder is usually someone from the trades who does not have a residential endorsement. An owner builder may also be someone who hires a general contractor to build their home but obtains the financing and permit in order to keep more control of the project.        

The permits also track elevator applications which are down from eighty-two to forty-three, an almost 50% drop. No mobile home permits have been issued so far this year which clearly indicates a lack of consumer confidence in the long term financial sustainability of trailer parks which are, ultimately, an interim land holding use. Structural, electrical and mechanical/plumbing permits have all increased substantially. Given the overall decline in permit valuations, perhaps that is an indication that now is a good time for owners to consider remodeling as general contractors try to keep their employees engaged and prices reasonable while waiting out the third year of Alaska’s real estate recession. 

A Perspective on Our Current Housing Market

by Connie Yoshimura

There was a time long ago between 1980 and 1984 when Anchorage had a record of 18,168 new housing starts. The real estate crash of the late 1980’s followed shortly thereafter and between 1985-89, permits dwindled to less than a thousand per year. During another up tick in activity between 2000-04, 7,062 more housing units were built. These numbers included single family, duplexes and multi-family.  Fast forward to 2015-2017 and there were only 888 units built, according to Susan Fison who prepared the data from the MOA Building Property Appraisal Records.  

 

The recently published Building Safety Activity Report for the first quarter of 2018, continues to show Anchorage on a trajectory of historic low residential permits, although single family increases can be counted on one hand with an increase from 27 to 32. Duplex units actually decreased by 5 from 12 to 7 for the first quarter. There are, however, 54 multi-family units permitted so far this year, an indication that Anchorage’s dwindling land base is forcing higher density development. Nevertheless, it is unheard of for a city with a population of over 198,000 to continue to have such a shortage of new homes.

 

The difference in value between a resale home and a brand new home has reached an epic spread according to Multiple Listing Statistics. In 1998, the difference was $43,630. In 2010, MLS reported a difference of $110,995 and in 2016, the reported average price of a home sold was $360,000 while MLS reported new construction well above $600,000. 

 

Obviously, I like numbers and as some people will argue, you can make them do whatever you want but the best use of numbers is to look at trends through an historical prism and so the numbers are pretty compelling if Anchorage, and Alaska, has any sort of positive economic bump, our shortage of housing will reach a critical status, if it has not already. Today’s buyers are faced with the dilemma of buying a home that was built in the 1980’s which is now more than thirty-five years old or buy new and pay more for the security of energy efficiency, lower maintenance and no major or unexpected repairs or replacement costs.

Landlords’ housing for homeless a positive in spendy market

by Connie Yoshimura

Congratulations are in order to Cook Inlet Housing Authority and Weidner Apartments for their joint effort to provide housing and support for some of Anchorage’s homeless. It’s a small but important step forward between public and private partnership that perhaps other landlords in Anchorage will take to heart. It’s similar in intent to the Section 8 housing voucher system that allows qualified renters to integrate into market housing through a federal subsidy program managed by the Alaska Housing Finance Corporation. The integration of lower income and homeless into market housing allows for many social benefits and creates an opportunity for upward social mobility not available in ‘projects’. This new program also recognizes the need for other than monetary assistance when it comes to socially integrating mixed income tenants, including job training and internship opportunities. It’s a significant partnership and should be applauded for its commitment to the community to help take some homeless out of camps and off street corners.

Fair Market Rent (FMR), as determined by HUD in 2018, ranks Anchorage as 98% more expensive than other U.S. cities which is a contributing factor to Anchorage’s homeless, many of whom have some limited income but not enough to have a permanent residence. Fair Market Rent for a two bedroom apartment, according to HUD, is currently $1,337 per month in Anchorage. Efficiencies and studio apartments are $944. One bedrooms have an average rent of $1,081 and three bedrooms’ rate is $2,000.   

Most of Anchorage’s rental housing stock was built between 1980 and 1984 when over 18,168 total units were built. Compare that to the years 2015-17 when only 888 units were constructed. Today’s landlords continue to struggle with aging properties requiring significant structural and mechanical repairs and more maintenance while at the same time, both landlords and tenants face increasing costs for gas and electricity as well as recently increased taxes on rental properties.       

Although there is no data for 2018 available from the Dept. of Labor or AHFC, other online data sources show that Anchorage has slowly seen a rising vacancy factor due to the Alaska’s three year recession. Vacancy rates have slowly crept up from 2.6% in 2012 to 5% 2017, although nationally a healthy vacancy rate is considered 5%. However, just to keep vacancy rates in perspective, during the real estate recession of 1988, Anchorage vacancy rates were over 25%. During the recession of 2006-2008, vacancy rates hovered around 8%.

Lack of newly built multi-family units over the past ten years has kept Anchorage’s vacancies low or average with the nation. Anecdotally, 2018 has brought some minor rent concessions such as one month’s free rent or a longer time on the market, particularly with older properties that may have not been kept up by the small investor. Anchorage needs more housing of all types. Most apartments built over the past thirty years have been two bedrooms. Our changing demographics points to a need for new efficiency and three bedroom units. 

 

Thoughts on Our Local Housing Dilemma

by Connie Yoshimura

It’s hard to describe the current local housing market. Perhaps, the best way is a mixed bag of disappointments and opportunities. More inventory means more choices for last year’s frustrated buyers to move-up, move down or take that millennial first step toward home ownership. Comparing 2018 inventory to 2017, for the first three months of this year we saw 233 more homes for sale. Yet, time on the market shrank by 29% when compared to last year.

 

Three of the million dollar homes sold just last week. So did another brand new 4-plex for $775,000 with just sticks in the air. Foreclosures are way down. A quick look at the 17 short sales and foreclosed properties on the MLS market last week, reveals that 15 were built in the 1970’s which makes you wonder if homes built in the 1970’s aren’t beginning to lose their economic value. Yet, over 20% of our housing stock was built between 1970 and 1990 so listen up Anchorage! We need more housing yet the bureaucratic bungling of Title 21 continues to drive up our costs, making almost any new single family home out of reach for the average home buyer. The number of homes sold has declined by nine percent and total sold single family volume has decreased by 6%. In my service industry, 20% of our local realtors are earning less today than they did a year ago.

 

So what’s it all about, Alfie? - to use an old song phrase. Is what’s happening in Anchorage like what I read in the editorial pages of my favorite paper, the Sunday New York Times, that the rich are getting richer and the poor are struggling to find a home? On average, there is only a 2.5 month supply of homes between $300,000 and $400,000. Add to that mix the need for a well-built and maintained home built after 1990 and no wonder the average home buyer is frustrated with the Anchorage housing market. 

 

Rising interest rates are forcing buyers to make a move before the end of the year. Yet, keep in mind these interest rates are more than just about the cost of the monthly mortgage payment. These rates also propel an increased cost for land acquisition, development and the ultimate new home. Anchorage is a very small community of land developers and builders and we borrow money for development. Higher interest rates mean higher costs for the consumer. My advice to buyers in this mixed bag of opportunities is to buy now. And to sellers, if your home is thirty years or older sell now or face future disappointment.

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Dwell Realty
561 E. 36th Ave., Suite 200
Anchorage AK 99503
907-646-3600