Columbus home construction drops to five-year low despite housing shortage

Despite a housing shortage plaguing central Ohio, new home construction fell last year to the lowest level in five years.

The decline adds to the woes of Columbus-area home buyers and renters, who face higher costs as housing demand continues to outpace supply.

"We're already in a deficit and continue to dig ourselves a bigger hole," said Jon Melchi, executive director of the Building Industry Association of Central Ohio, which released the housing figures Tuesday morning.

More:Central Ohio needs more homes, so why aren't we seeing them?

Builders pulled permits for 10,196 single-family homes, condos and apartments last year, down 17% from the previous year and the lowest number since 2019, according to the BIA, relying on figures from the housing research company Zonda.

The number of single-family home construction permits declined 13% from the previous year, but the big drop came in apartment and condominium construction. Builders pulled permits for 6,486 apartments and condominiums, down 19% from 2022.

Rents, home prices continue to rise

Home construction is declining as the area wrestles with a shortage of homes that is pushing rents and home prices to record highs.

Last year, the median rent of a central Ohio apartment climbed to $1,298, up 3.8% from a year earlier, the third highest jump in the nation behind New York City and northern New Jersey. Meanwhile, Columbus-area home prices reached a record high last year, topping a median of $300,000 for the first time.

As Columbus apartment and home hunters know all too well, demand for homes in the region continues to outrun supply. A 2022 report concluded that central Ohio should be building 14,000 to 19,000 apartments and homes each year to keep up with demand, well above the 10,000 to 12,000 built in recent years.

How serious is housing shortage?

"If you're growing and not adding housing units in proportion to the growth, then you’ll constrict supply and make it harder to find homes, and make them more expensive," said Dave Dixon, director of data analytics & strategy for the Mid-Ohio Regional Planning Commission.

Dixon cited several figures to illustrate how the region's homebuilding is failing to keep pace with demand, including:

• In 2002, about 16,500 homes were built in central Ohio, compared with about 12,000 two decades later, even though the population grew about 400,000 over the same period.
• In 2012, about 9% of central Ohio rental units and 2.6% of owner-occupied homes were vacant. In 2022, only 4.3% of rentals were vacant while 0.7% of owner-occupied homes were empty, reflecting the decreased availability of homes.
• From 2010 to 2020, Columbus added 0.57 homes for every job created, well below the one-to-one ratio considered balanced.  

"If we want to continue to attract workers to the region and maintain our relative affordability for housing in the region, we’ve got to keep up housing construction," Dixon added.

To better understand central Ohio housing needs, MORPC is surveying residents about housing. Residents can take the survey on MORPC's site.

Why can't builders build more?

Builders cite several reasons why they can't keep up with demand, including rising interest rates, which have made apartments difficult to finance.

"A lot of the challenges last year can be attributed to the dramatic rise in interest rates," said Tré Giller, president and chief executive officer of Metro Development, one of the largest apartment builders in Columbus. "When they rose and kept accelerating, you couldn’t sit down with any confidence and underwrite any multifamily project."

Joel Lilly, a principal and chief financial officer with the Columbus development firm Thrive Companies, agreed that interest rates have made it very difficult to finance new housing.

"(Housing) starts slowed down dramatically after (the second quarter of) 2023 and may not pick up again until (the second or third quarter of) 2024 assuming inflation gets in check and rates continue a downward trend," he said. "I think the Columbus market will feel the impact of the reduced starts in about 12-18 months with a lot less inventory available for the anticipated leasing demand."

Builders are also fighting rising costs of land, material, labor and permits.

"Construction costs are going through the roof," Giller said. "We are pricing a new development now that's 10% higher than a project we built in November, across the board — a 10% bump from November to March. I just don’t see that getting solved any time soon."  

Finally, builders say it remains very hard in some areas to get approval to build new homes, especially apartments. Some areas such as Licking County don't have the infrastructure capacity for more homes, they say.

"It really comes down to the availability of sewer — is there plant capacity?" said Josh Barkan, vice president of land at M/I Homes and this year's president of the BIA.

Barkan noted that M/I's latest announced community, the 254-home Forest Ridge in Pataskala, got the last of the sewer capacity in that area. 

"Pataskala and Southwest Licking Community Water and Sewer need sewer upgrades," Barkan said. "They are really hamstrung by utility capacity."

Some steps to encourage construction

The city of Columbus is taking steps to encourage housing construction by revamping its zoning code to streamline the permitting process and allow more density. The city has also expanded a tax break for housing construction throughout the city, instead of in pockets.

Melchi supports such moves, but fears they won't be enough. In January, Melchi and others in the industry called on state legislators to eliminate local zoning referendums, create a tax abatement program that doesn't require school board approval, and adopt other policies that would make it easier for companies to build more homes.

The new figures from Zonda show Columbus significantly lags similarly sized boom towns in home construction. The Columbus area pulled permits for 10,196 homes last year, compared with 38,415 in Austin, 24,682 in Nashville, 27,268 in Charlotte and 21,243 in Raleigh, North Carolina.

Compared with regional peers, however, Columbus is holding its own or building more. Indianapolis builders pulled slightly more permits than Columbus last year, but Cincinnati builders pulled about half as many.

Despite changes the city of Columbus is taking, builders don't expect things to change any time soon.

"The same problems from 2023 are facing developers in 2024," Giller said. "At the end of the day, what you’re going to continue to see is a supply-demand imbalance."

jweiker@dispatch.com

@JimWeiker