Housing starts in the Chicago metropolitan area during 2014 increased 17 percent over 2013 by one measure and 19 percent by another, making builders optimistic that 2015 will be an even better year for this industry, which creates jobs and stimulates local economies.
“The Chicago area was somewhat unique. During 2014 we saw a decline in new-home construction in many markets around the country but the Chicago area’s numbers were up pretty significantly,” said Chris Huecksteadt, regional director for Metrostudy, a housing market research firm based in Elgin. “We recorded 5,708 housing starts in the 12-counties we monitor, compared to 4,865 starts during 2013.”
Dodge Data and Analytics, based in New York, quantifies the increase differently, by dollar volume. It recorded more than $4.29 billion in residential building contracts in a 13-county area around Chicago during 2014, up from $3.6 billion the previous year.
“Much of this is due to the national builders constructing homes on lots that have been written down to a price point that is below their replacement value in places like Pingree Grove, Oswego and Huntley,” Huecksteadt said. “You could not buy a parcel of land and develop it into lots at the price they are selling these lots. They are giving them away in the communities on the fringes of the metropolitan area so that they can redirect their efforts to smaller, infill parcels closer to the city where they can sell homes at a better profit.
“The recession we just experienced, in effect, halted the urban sprawl here — at least for the present time,” he said.
The large, national builders have decided huge developments, which might take ten years to complete, are too risky and are generally redirecting to smaller communities of 50 to 75 houses where they can build and be out in a year or two, Huecksteadt said.
“Caution” is the watchword with buyers, too. The millennial generation, those born in the 1980s and 1990s, are also slow to become first-time buyers.
“There is lots of fence-sitting still going on,” he said. “Many millennials saw what happened to their parents and hesitate to buy a home because of that experience. They are also marrying later and changing jobs every few years, so they seem less inclined to get tied down. Buyers also seem less willing to commit to a long commute in order to get a bigger house.”
Huecksteadt said the industry had gotten away from the old “location-location-location” mantra for awhile and now it is back, with builders “taking another look at the old suburbs and even watching for teardown possibilities, feeling that that option is better than buying a cornfield on the fringes and then hoping the buyers will come.”
So builders are concentrating on buying land in closer-in suburbs like Glen Ellyn, Hawthorn Woods, Naperville, Elgin and Lisle, Huecksteadt said. They believe there’s more demand to build 20 homes in Hawthorn Woods than to build 100 homes in Marengo.
“You need ‘rooftops,’ as they call them, in order to encourage national stores like Walmart and Starbucks to build stores in a community. So when a community attracts new-home construction, the national chains take notice and consider locating there, too. That is one of the ways new homes add to a municipality’s bottom line,” Huecksteadt said.
National Association of Home Builders statistics agree. They indicate that for every 100 new single-family homes built, in the first year alone, $21.1 million in local income is generated, as well as $2.2 million in taxes and other revenue for local governments and 324 local jobs.
The annual recurring benefit from building those 100 homes is $3.1 million in local income, $743,000 in taxes and other revenue for local governments, and 53 local jobs.
“The bigger, better concept of housing is no longer leading the charge,” Airhart said. “Size is no longer our buyers’ first question like it was back in 2002 and 2003. Now they are more concerned with amenities, flexibility and if the home is designed to make their lives easier.”
For instance, it used to be that the laundry room and mud room were the same space. Today, buyers are willing to sacrifice bedroom space to get a second-floor laundry room and they want a true mudroom with benches, hooks and charging stations, Airhart said.
“The ergonomics of a house is of primary concern to buyers today. They also aren’t willing to put in a luxury tub that they will never use. They would prefer a nicer shower. Similarly, buyers are no longer willing to drive further west to pick up 1,000 more square feet that they don’t need. They know they will just have to spend more to heat and cool that additional space. Instead, they would rather put in more amenities like hardwood floors throughout the first floor,” he said.
Ryland Homes has always been careful not to put all of its eggs in one basket, said Division President John Carroll. It makes sure it is both geographically diverse and market diverse in terms of whom it tries to attract.
“The reasons those communities were started are still solid. The economy is different and the marketing is different, but the locations will still attract buyers. They are places with good value and good schools where buyers are not pioneering in any way,” Carroll said.
William Ryan Homes “only does what buyers want us to do,” said Debbie Beaver, vice president of operations. “They no longer want to drive a great distance. They want to live in the closer suburbs because their lifestyles are more important to them than their homes are now. Living in the middle of nowhere is no longer appealing,” she said.
In 2015, William Ryan Homes plans to open communities in Hawthorn Woods, Addison, Bartlett, Volo and Romeoville and it recently opened a community in Hampshire. The largest of the communities features 75 lots on which homes remain to be built.
“William Ryan has never taken on huge projects. We never want to get too far ahead of ourselves,” Beaver said. “We gain efficiencies by using the same 13 plans in all of our communities but tailoring our amenities to the location. The same house might have hardwood floors and granite countertops in Barrington, for instance, but vinyl floors and laminate countertops in Elgin. Our core construction is the same everywhere and it is phenomenal.
“We are expecting 2015 to be good and we are budgeting for growth, not through selling more houses per community but through selling a consistent number of homes in more communities,” she said.
By Jean Murphy
Daily Herald 2/7/15