Ten years after the Great Recession, a new housing crisis has developed in America. You’ve been hearing reports all week on Morning Edition and All Things Considered, about those who’ve been shut out of the housing market. Here's a look at how the homebuilding slowdown is playing out in Bloomington-Normal.
Tom Armstrong says the last decade has been eye-opening experience for his family’s third-generation homebuilding company, Armstrong Builders.
First, there was the Great Recession. And then the endless churn of State Farmers willing to buy new homes slowed to a crawl. Now opportunistic buyers are looking to cut a deal, and if they can’t, they’ll just go down the street and buy a really nice existing home.
Armstrong is not doom-and-gloom about the Bloomington-Normal real estate economy, but he said it’s changed in big ways. If you’re asking Armstrong why homebuilders aren’t building much anymore, he says you’re asking the wrong guy.
“It’s not me. I’m merely a cog in the wheel that turns. I’m building homes based on need. If there’s no jobs, there’s no need. Jobs create the need for more homes,” he said.
A dozen years ago, homebuilders were selling 500 new homes a year in Bloomington-Normal, with new subdivisions coming onto the market routinely. By 2017 it was just 138. It’ll likely be even less this year.
It’s not just a Bloomington-Normal issue. New home construction across the country has slowed to its lowest pace since the 1980s, NPR reported this week. In Illinois, homebuilders are only doing 10,000 to 11,000 projects a year now, down from 50,000 to 60,000 at their peak, according to the Home Builders Association of Illinois.
These days Bloomington-Normal may not need 500 new homes every year, but today's pace is still perceived as slow, said John Armstrong, local Realtors association president.
“When you get a bunch of Realtors (together), that’s the elephant in the room,” he said.
One reason, he said, is because higher-priced existing homes have become more affordable.
“That 2,400-square-foot house that you can build for $330,000, when you can buy it for $290,000 existing … if you can save 6-7 percent and buy existing, why wouldn’t you do that?” he said. “There are certain people out there that just don't want anything but new. They don't want to live in somebody else's house. So those people are willing to pay 6 or 7 percent more. They're not willing to pay 15 percent more.”
Consumer confidence in Bloomington-Normal is low, Tom Armstrong said.
“Nobody wants to get stuck with a big price tag, a big number, at the end when they want to move and retire. You don’t want to get stuck in a home and sell it for a loss,” he said. “So everybody wants to negotiate $30,000 to $50,000 off the price, which I can’t do in new construction. Because costs are fixed. I’m buying a 2-by-4 for $2.50 just like everybody else.”
It’s changed how people think of housing, he said.
“Nobody is using their house as a vehicle to make money,” Armstrong said. “They're using it as a place to live. And they're hoping that they can get their money back out of it when they move or retire.”
So how are homebuilders responding? In a lot of cases, they’re going out of business, or leaving the state. Membership in the Home Builders Association of Illinois (HBAI) has fallen from a pre-recession peak of around 5,000 to around 1,600-1,700 today, said HBAI Executive Vice President Bill Ward. He said data from the National Association of Home Builders shows Illinois is dead last in the U.S. in new home construction, based on construction starts per capita.
“In Illinois, a lack of confidence in the state’s economy is hurting home purchases,” Ward said. “But it’s a reality. It’s our reality. Our guys need to start accepting that and trying to figure out, in their marketing strategy, how they go about building in the future.”
Armstrong Builders is one of the survivors, and Armstrong said it’s no accident. They’ve retooled their business plan to build what they can sell. They’re not just working in their own subdivisions anymore. Instead, they’re building in more rural communities like Goodfield, Delavan, and Farmington, where lots are cheaper. Armstrong said he’s only doing pre-sold projects now—no more speculative or “spec” homes with no buyer lined up in advance.
"We're all scrapping to try and make money right here. We'll do anything we can."
“We’re all scrapping to try and make money right here,” Armstrong told GLT’s Sound Ideas. “We’ll do anything we can. The rehab business. Snow removal. Mowing yards. Whatever it takes to make ends meet during this time.”
Nice But Smaller
The average price for a new home in Bloomington-Normal’s market last year was $301,500. That average fell to $283,873 during the first five months of 2018. (Data is not yet available for June or July from the local Realtors association.)
“Everything’s dropped. Nobody wants the big mini-mansions anymore. They want to be efficient. They want everything to be nice—really nice, upper-end appliances and everything in their home—but smaller,” Armstrong said.
Agents say low inventory is holding back the local real estate market, especially in the more moderate price ranges. The average price of a home sold in Bloomington-Normal last year was $175,389, with 95 percent of sales existing (or resale) homes.
So if the market needs more cheaper homes, why don’t the homebuilders (who need work) just build them?
The cost of land, labor, and materials makes it extremely difficult, Armstrong said.
“I could build at $200,000, but nobody would want it,” he said, referring to the amenities that would be inside. “It’s very difficult to even get to $250,000.”
McLean County’s farm-friendly soil makes land difficult to acquire cheaply, said John Armstrong. Some developers are working in places like Lexington where land is cheaper (maybe $18,000 to $20,000 a lot) than in Bloomington-Normal (around $60,000 a lot), he said. Conventional wisdom is that 20 percent of your project should be in land acquisition, he said.
“So if you’ve got a $60,000 lot, you should build somewhere around a $300,000 house, so you’re not over-improved for the lot,” Armstrong said.
The Nonprofit Model
There is one homebuilder who’s managed to stay busy—even expand—while building homes that most working-class families can afford.
It’s Habitat for Humanity of McLean County, which is building six new homes this year in Bloomington-Normal, with ambitions to jump to 10 with help from additional revenue from the new Restore remodel that opened this year.
Habitat’s goal is to build a home that will yield a mortgage of around $500 to $530 a month, including taxes and insurance, said Executive Director Jim Walters.
“We see a lot of people who are living in rental properties that aren’t very safe or well-maintained. Perhaps they’ve got bad HVAC, or an infestation, or the foundation is falling in. We’ll have multiple families living in a dwelling that’s meant for one family, so overcrowding,” Walters said. “For many of our homeowners, it’s the first time they’ve had a chance to own a home. Or that their life has become so challenging in adulthood, they thought it would be out of reach of them.”
GLT interviewed Walters outside a three-bedroom, two-story home under construction on Mulberry Street, just west of downtown Bloomington.
The same style of home was built across Mulberry Street in 2017, and it appraised for $117,000. A nearly identical home they built on Church Street in Normal appraised for $145,000.
“Our houses appraise very well. We are recognized as one of the better homebuilders in town, on top of being a nonprofit,” Walters said.
Habitat’s homes are so cheap in part because they’re built by volunteers. (They also put $70,000 of materials into the house.)
Another advantage is they get the land for free. Every one of Habitat’s 29 properties in its inventory were donated by the City of Bloomington, Town of Normal, or a private individual, Walters said.
Could a similar model work to reinvigorate for-profit homebuilders?
Bill Ward from the Home Builders Association of Illinois thinks so. He said he’s trying to work with the Illinois Housing Development Authority to sketch out a program to build new homes for working families and seniors. He envisions aging, dilapidated homes being torn down and replaced by new construction. Incentives such as tax increment financing (TIF) districts or other mechanisms could be used to “provide a profit margin” for the builders or give the lots to the homeowners, Ward said.
You might able to drive the price of a duplex down from $125,000 to $100,000, he said.
“You could generate new housing in our small and medium-sized communities that really need it, because our housing stock is decaying,” Ward said.
Whatever happens, local builders like Tom Armstrong are already adjusting to their new reality. He said yes, consumer confidence is low here, but it’s improving.
“I truly believe this area is very solid. State Farm is going to stay with us. They’re not going anywhere. They’re gonna keep a certain amount of jobs here for the time being,” he said. “I’m really looking forward to finishing up the lots we have, the land we have to develop, and trying to figure out a balance between need and want.”
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