New construction in Atlanta remains strong but faces challenges

by Richard Lawson

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When the latest home sales figures came out last week, Atlanta Realtors President Bill Murray noted the increase in home prices and inventory stability that continues along with the positive economic signs.

But, he added, “These healthy trends, however, depend on homebuilders adding new inventory to keep pace with demand.”

And that’s where the challenge for Metro Atlanta could be going forward.

The number of building permits has declined year over year for much of Metro Atlanta, according to data from DEC International. That follows a national trend of slowing in single-family permits. But Eugene James, senior regional director for Metrostudy, said housing starts have increased year over year, bucking the declines in housing starts nationally and in the South generally.

The number of permits fell from 2017 in all of the Atlanta area’s biggest counties:

  • Cherokee County: 36 percent.
  • Fulton County: 14 percent.
  • Dek County: 14 percent.
  • DeKalb County: 55 percent.
  • Gwinnett County: 17 percent.
  • Forsyth County: 25 percent.
  • Cobb County: 11 percent.

“We have seen a slowdown in construction, but very, very little,” James said.

Metrostudy data shows housing starts are up 9 percent year over year. “We expect to see the end of the year at about 26,000 starts,” James said.

He said Metro Atlanta isn’t seeing the double-digit growth of a couple of years ago, but demand for new construction is still outstripping supply. “It’s more manageable,” James said.

New supply construction now sits at about 2.5 months, compared to the norm of 3.0 months. With resale homes, James said the 3.0-month supply on average is at about half the norm.

Some areas of Atlanta, such as Decatur, have a little over a 1-month supply, according to Atlanta Fine Homes Sotheby’s International Realty’s 2018 Fall Market Report. James said inventory for homes above $500,000, though, is where inventory is growing and soften the market for those homes.

But there is a major shortage at lower price points in new construction, according to Corey Deal, executive officer of the Greater Atlanta Home Builders Association.

“A lot of people would buy a new home for $250,000, but they just aren’t out there,” he said.

And there are major reasons for why that’s happening. Labor costs continue to climb because of a shortage in skilled workers. Materials costs have increased along with land prices. Then there’s the regulatory environment to consider, with municipalities creating more stringent design standards, for example.

James said municipalities have slowed the permitting process down and take much longer to issue permits because of reviews and requirements. Instead of 12 to 18 months between permit and housing start, builders now begin construction not long after receiving the permits.

Even though the economy is strong and unemployment is low, high construction costs are hampering the supply.

“People have jobs, but the builders can’t build to the demand,” Deal said. “Something had to give.”