Why South Florida builders are bucking the national downward spiral in new home construction

Photos inside Arden community and farm in Loxahatchee, Florida

Embracing the areas rich agricultural history, Arden is one of the first in Florida to feature a working farm as an essential component of community life.

Buyers still eager to stake a claim on the Gold Coast have protected South Florida’s big developers from the steep economic contractions squeezing new home builders nationwide.

A continued influx of people from more expensive states, dwindling land and a tight market of used homes for sale has continued to buoy demand in fledgling Palm Beach County communities such as Arden, Avenir and Alton, real estate analysts and builders said.

At the same time, sales of newly constructed homes nationwide dropped last month to their lowest level since January 2016, according to a Commerce Department report released Tuesday.

“As a whole Florida is outperforming the country, and that includes South Florida,” said Oliver Radvin, senior vice president with Boca Raton-based John Burns Real Estate Consulting. “Sixty-six percent of markets across the country are slow or very slow right now, but we still have Palm Beach County and Miami ranked as strong.”

Land being developed on Coconut Boulevard in Avenir, in Palm Beach Gardens, Wednesday, January 26, 2022.

LANNIS WATERS/THE PALM BEACH POST

Nearly 3,700 permits for new single-family homes were issued in Palm Beach County between May 2021 and May 2022, according to John Burns. The predicted number of permits for all of 2022 beginning Jan. 1 is 3,600.

That would be down about 15% from each year’s permit totals for 2021 and 2020, but higher than each of the 10 years prior to the beginning of the pandemic. In 2009, just 1,102 single-family home permits were issued in Palm Beach County.

Sarasota’s new home market was also ranked strong in John Burns’ latest report, but Tampa was listed as normal.

“The markets in Florida are still seeing a net inflow of people, more so than other markets,” Radvin said.

While the frenzied days of fierce bidding wars and massive lotteries may be ebbing, GL Homes’ Lotus Palm west of Boca Raton sold out its first 100 lots in a single day this month, said Jeremy Olshen, principal of the Mizner Residential Group at Compass Real Estate.

The uber-upscale golf club community Panther National in Palm Beach Gardens had $125 million worth of contracts signed in its first phase since releasing lots in June.

And the 55-plus community Cresswind in Westlake got a sales boost with the July opening of its new clubhouse, said John Manrique, senior vice president of marketing for Kolter Group.

Manrique said Kolter still has waiting lists for some of its Florida properties but acknowledged home construction is catching up to demand in other states and that there is “some lingering buyer fatigue.”

“Some of the challenges buyers find is they can’t move in as fast as they would like,” Manrique said. “It’s just that they want to be moving in six months but have to wait nine months.”

An estimated 808 new residents per day are expected to move to Florida through April 2027, according to a July forecast from Florida’s Demographic Estimating Conference. That’s 294,756 new residents annually — the equivalent of adding a city the size of Orlando each year, the conference report notes.

Eli Beracha, a real estate professor and director of Florida International University’s Hollo School of Real Estate, said small builders in Florida are staying on the sidelines because of trouble getting materials and an uncertain future with a bouncy stock market and recession fears.

A home already sold under construction in the Windgate subdivision in Avenir, in Palm Beach Gardens, Wednesday, January 26, 2022.

LANNIS WATERS, LANNIS WATERS/THE PALM BEACH POS

Without them, it will be a stretch to meet the current demand for homes, Beracha said.

“I expect the shortage in housing to stay here for years to come,” said Beracha, who estimates Florida needs 500,000 to 600,000 housing units, including apartments and townhomes.

In the next decade, Palm Beach County will need more than 72,000 units, said Ken H. Johnson, a real estate economist at Florida Atlantic University. That would be 7,200 per year, but he said in the past 11 years only about 3,135 new units were being added per year.

Homes under construction, next to a completed home, in the Windgate subdivision in Avenir, in Palm Beach Gardens, Wednesday, January 26, 2022.

LANNIS WATERS/THE PALM BEACH POST

Previous to the last housing bust in the early 2000s, there were 11,000 to 12,000 single-family homes built per year in Palm Beach County, said Brad Hunter, president of Hunter Housing Economics. The glut of homes, and bad loans, contributed to the 2008-2009 crash.

According to John Burns, 10,920 permits were issued for new single-family homes in Palm Beach County in 2003. Another 4,900 permits were issued that year for multifamily housing. Those are the highest permit counts dating back to 1998.

In comparison, just 1,102 new single-family permits and 329 multifamily permits were issued in Palm Beach County in 2009 as the market crashed and burned.

For this year, Palm Beach County is projected to issue a total of 7,000 permits for single-family and multifamily homes. That grows to 19,600 when including Broward and Miami-Dade counties.

“Where we are today is nothing similar to where we were at the peak of the bubble,” Hunter said.

A row of new houses built by Ryan Homes inside the new Arden community in Loxahatchee on April 2, 2018.

FILE/THE PALM BEACH POST

Part of Palm Beach County’s popularity with developers is the availability of land. Broward County is built out and Miami-Dade County builders are being pushed south to Hialeah and Florida City, said Kristine Smale, a senior vice president with Zonda, formerly Metrostudy.

But even land in Palm Beach and Miami-Dade counties is finite. The Miami market, which includes Broward and Palm Beach counties, joins Jacksonville and San Diego as having the tightest supply nationwide of buildable lots, according to Zonda.

“Builders have not been able to deliver the amount of new homes demanded over the last two years,” Smale said. “Delays have been across the board, from labor to construction materials to permitting and approvals.”

Despite rosy reports from South Florida developers, Smale said the reduction in demand for new homes was “quite pronounced” in Florida in late June through July.

Hunter said he’s seen more new homes advertised on online markets like Zillow and the Multiple Listing Service — a sign he believes points to fewer buyers perusing new developments or canceled contracts.

It could also mean that developers, responding to pandemic-related demand, built houses on speculation and now have them ready for sale.

“We are getting solicited hard by all the developers as waiting lists and lotteries are a thing of ancient lore and in the rearview mirror,” said Echo Fine Properties President Jeff Lichtenstein. “Some incentives for buyers and a rise in real estate commissions are making a comeback.”

Realtor Jeff Lichtenstein is the founder of ECHO Fine Properties in Palm Beach Gardens, Florida on January 28, 2022.

GREG LOVETT/THE PALM BEACH POST

The National Association of Home Builders said higher interest rates and supply chain restrictions that lead to higher building costs are pushing buyers out of the new home market.

About 20% of builders responding to an NAHB survey said they reduced prices in July to increase sales or limit the number of canceled contracts. About 69% of builders blamed the falling demand on higher interest rates.

Sales of newly constructed homes nationwide dropped last month to their lowest level since January 2016, according to a Commerce Department report released Tuesday. It was nearly a 13% decline from June and a 30% reduction from July 2021.

The department does not keep data on individual states, but in the Southern region, which includes Florida, sales of newly constructed homes fell 12% last month from June, and were 21% lower than July 2021.

Zonda expects fewer homes will be built nationwide over the next year, but Hunter said he believes demand for new homes will remain high in Florida.

“There are still a lot of people who want to move here from other states,” he said. “It’s driven a lot by no income tax, property is cheaper than New York and California, and the climate is nice, obviously.”

Kimberly Miller is a veteran journalist for The Palm Beach Post, part of the USA Today Network of Florida. She covers real estate and how growth affects South Florida’s environment. If you have news tips, please send them to kmiller@pbpost.com. Help support our local journalism: Subscribe today.