9 November The Builders’ View by Jacky Mueck Membership 0 0 Comment 638 Maryland REALTORS® talked the housing crisis with the CEO of the Maryland Building Industries Association, Lori Graf. Maryland REALTORS® members know full well the current state of the housing market. Each month in recent history has played the same tune: very little inventory amidst steadily increasing prices, buyers being priced out of the market, and an ongoing housing shortage crisis that may be as high as 150,000 homes—or higher. What can be done with new homes construction? We posed this question, and several others, to Lori Graf, Chief Executive Officer of the Maryland Building Industry Association (MBIA). The association’s goal is clear: to advocate for the building industry with a commitment to maximizing business opportunities for its members. MBIA, formed from the merger between the Home Builders Association of Maryland and the Maryland National Capital Building Industry Association, advocates strongly for its members in Annapolis and on the public stage, as well, where it seeks to promote a positive image of the work its members do in the cities and neighborhoods where its members work. Maryland REALTORS®: What is the state of Maryland’s home building industry today? Lori Graf: It probably depends on who you talk to, but if I had to use one word, it would be “frustrating.” It’s been very challenging the last couple of years. Obviously, we had the pandemic, which created some unforeseen circumstances dealing with supply chain issues and those types of things—or just being able to actually build a house. Right now, the challenge is being able to get through the entitlement process in a timely fashion. A lot of our jurisdictions have a lot of hurdles and a lot of barriers to being able to build. As you are well aware, there’s a housing shortage. So, it’s been very challenging over the last couple of years to actually get these projects from ‘point A’ to actually finishing them and selling them. Maryland REALTORS®: Freddie Mac estimates that Maryland is 3.26% undersupplied in housing. That translates to our state ranked as the 11th highest in housing deficit among states. As you alluded to, we are in the midst of a housing crisis within this state, with a shortage of at least 150,000 homes for Marylanders. What needs to happen to get more housing into the pipeline? Graf: It’s simple supply and demand, basic economics. What we really need to do is figure out a way to create more housing, protect the environment, protect all the other things that we want to protect as what we love about being in Maryland—and I think that the issue is really sitting down with our elected officials in the various jurisdictions and figure out ways to make it easier to get these housing projects moving forward: affordable housing, market rate housing, townhouses, multifamilies, all types of housing. Maryland REALTORS®: Yet getting these new projects moving has been challenging, nonetheless. The National Association of Home Builders (NAHB) has estimated that anywhere from $100,000 to $200,000 of the cost of a home is due to regulation. What financial impact do you think regulation has on the cost of a home here in Maryland? Graf: Yes, regulations significantly add to the cost of the house. We often say that 30 to 35% of the cost of the house is the cost of compliance with regulations. If we can figure out ways to streamline the process and to make it less expensive on the regulatory side, that would help with cost of the house for the end user. We know there are lots of fees that are added in, impact fees and all those other fees. They all add up to make the house more expensive. So, we have to figure out a way to streamline the process in terms of time and money. These are for-profit builders; they have to make a little bit of profit. It would shock you how little profit they actually make. Maryland REALTORS®: From your perspective, how can the process be streamlined? Graf: Obviously, every jurisdiction is different. Land use is a very local process, and each jurisdiction has its own challenges. A lot of jurisdictions have moved to the e-permitting process, which certainly helps as far as getting the process done quicker. What we really need to do is take out some of the red tape. There are a lot of duplicative efforts, a lot of different reviews that need to be done. If we could simplify those processes, that would make the process easier, more cost-effective for the county as well as for the builders, and quicker so we can get these houses built more efficiently. Maryland REALTORS®: The NAHB estimates that for each $1,000 increase in the home price, you’re excluding hundreds of thousands of buyers from the market. Do you have any thoughts on how this reflects on Maryland’s market? Graf: Nationally, for every $1,000 you add onto the cost of a house, 140,436 people are priced out of that house. That’s quite significant. When you begin to add $5,000 to $10,000 to the price of a house, it exponentially increases the number of people who can’t afford it anymore. For Maryland it’s 2,881 people. That, again, is significant. We’ve been going through regulations dealing with electric vehicle charging stations and other things that we must add to these houses, and every time we add something to it, you’re pricing 2,881 people out for every $1,000. It may not sound like a lot to add $4,000, $5,000, to the price of the house, but at that point the person just can’t afford it. At the end of the day, it’s about their monthly payment and if they can’t afford the monthly payment, they can’t afford the house. Maryland REALTORS®: You mentioned EV hookups. They are going statewide beginning this month. Graf: Howard County and Frederick County currently require them, and yes there’s going to be a statewide regulation starting in October that requires the plug to be put in, so ‘EV ready’ in all new construction for single family and townhomes that have a dedicated parking area. That’s a new regulation. It costs money. It’ll cost about a thousand dollars per house, but again, it’s another added expense that goes into these new houses. Maryland REALTORS®: It speaks of the challenges that you have to deal with when working with local zoning. Between the state, counties, and local jurisdictions, how do you manage and juggle the needs of individual communities? Graf: That’s a big part of the conversations we’re having right now. We live here, we work here, we want to make our communities better, but zoning in all these different jurisdictions is very challenging. Quite honestly, we don’t have enough land available to build the number of housing units that we really need. There’s a big movement to get away from single family housing, but there’s not a lot of land left that’s zoned the correct way to be able to do townhouses or multifamily. It’s going to require a lot of creativity, a lot of working with various jurisdictions to figure out ways to redevelop in a more cost-effective manner, like redeveloping commercial properties that are no longer needed, that type of thing. Maryland REALTORS®: Are you finding that some local jurisdictions are using APFOs as simply an excuse to slow or stop development? Graf: The short answer is yes. It’s been a challenge. Montgomery County has just reversed some of its regulations; there’s no longer a moratorium based on school capacity. APFOs can certainly be helpful in a lot of areas, but at the same time there are a lot of concerns about how it affects the ability to create new housing. We’ve been working with a couple of jurisdictions to try to figure out ways to be able to make sure schools get built and schools are not over capacity. Nobody wants overcrowded schools, but to be able to build housing in those jurisdictions remains really important. Maryland REALTORS®: In June, the sales price of a home exceeded $500,000. What sort of things can builders do to introduce housing that takes into account more diversity in price points and home sizes? Graf: Currently, there’s not a lot of control over the housing supply. We have to build to where the zoning is. We need to figure out ways to be creative for missing middle housing, ADUs, and the like, which I know your association has a keen interest in. We need to be able to create different types of housing, the types of housing that favor higher density, which could make housing more cost-effective for people. And then there’s the issue of supply. Honestly, if you had more supply, housing prices will go down. So that’s another factor. But we definitely need to start looking at zoning while also looking at missing middle housing. From our builders’ perspective it’s very challenging to build that type of product. Maryland REALTORS®: What makes it challenging for the builders? Graf: Especially for bigger builders, it’s the way that they purchase things. When you’re building missing middle housing, not everything’s the same size. So, when you’re trying to build on a larger scale, it creates a lot of challenges for them. Maryland REALTORS®: How do you and your members counter the NIMBYs (“Not in My Back Yard”) that are in every community that oppose much the type of housing that could be built? Graf: Yes, this is a challenge. It’s everywhere. One of the challenges that we have, and this is somewhat controversial, is that in Maryland there is so much local control over land use. This creates a lot of challenges for local councils because they are so close to NIMBYism, and at hearings you get the “squeaky wheel gets the grease” arguments. The councils in many cases have a lot of political pressure on them to stop building and stop construction, even though they understand at the end of the day we need more housing. It’s a matter of how we combat the political pressure that these council members face. One of the things we’ve talked about is what can the state do to help local jurisdictions counteract some of that? It’s very challenging, and it’s pretty controversial as well, but we’ve started to think about some ways that we can try to incentivize local jurisdictions to increase the number of housing units they put in every year. If you look at the permit numbers, they’ve gone down drastically over the last several years. Maryland REALTORS®: How do you envision the state getting involved? What role do you see the state playing? Graf: The state realizes that we have a housing shortage. It’s going to be a monumental task, but the state needs to step in and talk to these local jurisdictions and encourage them to figure out a way—not taking away necessarily local control—but figure out a way to help get more permits online and get more housing. The local jurisdictions know there’s a problem, but nobody knows how to fix it. And every jurisdiction’s different, which also creates challenges for us because Montgomery County is very different than Anne Arundel County or Baltimore County, and the needs of the citizens are very different. It’s a balancing act, but we certainly need to figure out a way to increase our permit numbers every year, and that’s just going to have to be something that everybody’s going to have to work together on. Maryland REALTORS®: Let’s go back to missing middle housing. Earlier you had mentioned the scale of these projects, particularly with larger developers. Are there other difficulties your members face when it comes to housing projects such as this? Graf: Obviously, the biggest obstacle is what we’ve already talked about: zoning. Also, the public needs to have a better understanding of it because there are certain misnomers about what missing middle housing is. So, we need more education. I’ve been involved, with REALTORS®, in trying to educate elected officials and others on what missing middle housing is, but right now the zoning doesn’t allow for it in most jurisdictions. And, as we know, NIMBYs are out there who don’t necessarily want that type of housing for various reasons. We just went through a fight in Prince George’s County where the county tried to impose a moratorium on townhouse development, which obviously is usually going in the opposite direction of all the stuff we’re talking about here. And there’s a lot of other factors. Baltimore County is talking about redeveloping a mall. A lot of our old shopping malls are kind of going by the wayside, and yet there are challenges in converting them to housing. Again, it’s a zoning issue, it’s a community issue, but I think we’re going to have to figure out ways to get it done. I’ve been in a lot of seminars about the missing middle. We’ve been trying to get the word out to the elected officials, and I think there’s some understanding of it, but there’s still a lot of hesitancy because of the density required for it and the zoning changes that would be required to do that type of housing. Maryland REALTORS®: You mentioned converting malls, adaptive reuse. Zoning would be a challenge, obviously. Are there other challenges facing these kinds of projects? Graf: We’ve already talked about NIMBYism, which is just going to be a factor in any project. Another factor is cost. It’s much more expensive to do a redevelopment project than a traditional greenfield project, and a lot of it has to do with the environmental regulations and other regulations that are placed on these projects. So, one of the things we have to talk about at some point, whether it’s with the state officials or each local jurisdiction, is how do we make that process easier? Again, nobody is trying to kill the environment or do anything harmful, but how can these projects be made easier point A to point Z? So that’s another big challenge that we have to really figure out, and it’s going to have to be through the local jurisdictions for the most part. We did have a bill this year that dealt with adaptive reuse that the legislature passed. So, there’s some different things we can certainly do on a state level, but each local jurisdiction’s going to have to really look at this and try to make it easier to redevelop any project, because that’s the future of development in the state of Maryland. Maryland REALTORS®: What opportunities do you see for home builders in this current market? Graf: I do see opportunity. There’s been more and more talk about how we need more housing. Your association talks about it. Everybody talks about supply; I can tune into any radio station or look at any newspaper, and there’s an article about supply, and obviously the only way to increase supply is to build more housing. We’ve had a lot of conversations with the local jurisdictions and the state about some solutions. We don’t have anything concrete yet because it is going to be very challenging, but this new administration really wants to fix the problem. But I think everybody is on the same page, which is exciting. We’ve met with Department of Housing and Community Development Secretary Jacob Day, we’ve met with a lot of other people at the state level and local level, and everybody understands that we need more housing. That’s exciting. It’s an exciting time for the industry. It’s just a matter of how we get there, and what are the solutions that everybody can live with because that’s going to be a real challenge Maryland REALTORS®: What about skilled workforce? Is it harder finding a talented work base to build these homes? Graf: It is. That’s always been a challenge. I’ve been doing this since 2007 and every year that’s one of the top priorities and challenges for our members. However, we have seen some movement on that. The Kirwan Commission on the Blueprint for Maryland’s Future talks more about career-ready than college-ready and trying to make sure that people understand that this is a good career I know under the Hogan administration, they made a lot of headway with apprenticeships. I believe the Moore administration is going to carry that forward. So, I think there’s a lot of movement on that. We haven’t seen it necessarily on the job site yet, but we’ve had a lot of conversations and people are really starting to understand that this is a really good career path. Maryland REALTORS®: Any final thoughts for the REALTOR® community? Graf: The biggest thing is we need to educate. We need to educate the elected officials on these issues because they hear a lot from the other side, they hear a lot from the NIMBYs, but they really need to hear from the industry professionals who are selling the houses. REALTORS® were very instrumental in helping us with the Prince George’s County townhouse moratorium. So, it’s really about educating elected officials on the challenges, what consumers want, and what’s going to bring people to Maryland and keep people in Maryland. Homebuilder, Homebuilders, Oct-Nov 2023, ON23 Share Comments are closed.