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Ramseys: Population, price and permit issues slow new construction

Barbara,Clair Ramsey

As the Anchorage real estate market continues to improve, even a casual look around the city shows very little new construction activity. Why? Let's look at population, price and permits.

Population

The state's population has been growing rather slowly, just more than 1.2 percent the last couple of years, and was estimated at more than 732,000 people in 2012. Anchorage's population only grew a modest .93 percent in 2012 compared to the previous year, with slightly more than 300,000 people in 2013. An oversimplification would be that new construction is not needed if a city isn't growing in size. However, a number of factors affect our city's population growth.

The first factor is natural increase. Anchorage has a relatively young population. In 2012, the median age was 33.4 years (males 32.88 and females 34.1), with males outnumbering females by just more than 3,500. However, the ratio reverses around age 70, when females begin to outnumber males. This segment of the population has increased some in recent years, up 7.33 percent in 2012 compared to 2011, which was 5.85 percent more than in 2010. Perhaps the reason is more retiring baby boomers are choosing to stay close to kids and grandkids.

The highest total population numbers are in the prime child-bearing years: 1) 25- to 29-year-olds, with 25,403; 2) 20- to 24-year-olds, with 24,878, and 3) 30- to 34-year-olds, with 22,647. Overall, our population gains have come from natural increases (births minus deaths).

Price

Multiple factors drive new construction costs. The first is the increase in material costs, such as lumber. A recent Bloomberg report showed a 40 percent increase in United States lumber prices because of increased demand in China and a pine beetle infestation in Canada.

A second factor is financing. While interest rates remain at historic lows for the homebuyer, construction interest rates are 1.75 percent or higher for the builder. Lenders also require builders have at least 30 percent in upfront capital -- up from 20 percent previously.

The lack of affordable vacant land is the third factor. A recent search of the Multiple Listing Service for Anchorage showed only 261 vacant, residentially zoned land listings (under 5 acres) with a median price of $159,500 and an average price of $198,558.

Many of these lots are higher on the Hillside in southeast Anchorage. Hillside lots are more costly to develop because the additional expenses of steeper elevations, higher winds and installation of a well and septic system.

Lot costs also affect the eventual price of a home. Lenders typically like to see the total home value be at least three to four times the value of the lot. The median lot price of $159,500 means a homebuyer would need to qualify for a $478,500 to $638,000 home. At those prices, building a new home is out of reach for many.

Permits

In 2001, single-family permits reached a high of 1,039. Unfortunately, April's year-to-date single-family permits were only 103 in 2013, compared with 79 in 2012 and 71 in 2011. This lack of construction explains why many builders have left town, retired or gone out of business.

One alternative a homeowner may have to building is to remodel instead. Many homeowners appear to be taking advantage of the Alaska Housing Rebate program and/or remodeled their current homes based on the number of structural, electrical, mechanical/plumbing permits. Remodeling may be the only alternative some builders have to diversify and keep their construction crews busy during leaner times.

Eventually, at some point in time, aging neighborhoods or houses that aren't maintained and updated will reach the point where demolition and starting again may be more feasible than remodeling. However, that is a topic for another time.

Barbara and Clair Ramsey are local associate brokers specializing in residential real estate. Their column appears every month in the Daily News. Their email address is info@ramseyteam.com.


Barbara and Clair Ramsey
Housing