Costs push starter homes out of reach of many Memphis-area residents
But the prices of new houses keep rising. Climbing land values, municipal fees, and material costs have pushed the price of starter homes out of reach of many Memphis-area residents.
Ten years after the recession eased its grip on Memphis, builders are putting up houses in nearly 350 subdivisions in the city and suburbs, a sign steady job growth and rock-bottom interest rates have put new life in the housing market.
More than 5,000 individual home lots are available, most ready to take a new house. Despite the construction surge, builders insist they could nail together 8,000 to 10,000 homes and sell them all, except for one problem: housing costs.
Rising land values, municipal fees and material costs have pushed the price of the typical newly built house in metropolitan Memphis over $300,000. It is a price many men and women looking for their first new single-family home consider unaffordable.
While the construction industry has recovered since it reached bottom in 2010, the number of homes going up remains behind the pre-recession pace, when nearly 1,000 subdivisions were being built. Why less activity now? Builders cite cost as the prime culprit. Many first-time buyers have been priced out.
“You could sell them by the thousands, there’s such a pent-up demand out there for new homes,” Collierville builder Dave Moore said. “Demand is ridiculous. But there’s no product.”
House prices trigger apartment surge
Rather than shop for expensive houses in new subdivisions, many younger residents have flooded into apartment complexes. Rents in turn have climbed, rising 3.9% last year to $1,100 on average in the Memphis area, ranking the region No. 12 in the nation for fastest-rising rents, according to the trade publication Rental Housing Journal.
News reports for years dwelled on Downtown Memphis’ robust apartment and loft life, a trend now spreading far beyond the old central business district. Head 40 miles east on Interstate 40 to suburban Arlington, and Bank of Bartlett is orchestrating a 45-acre apartment and commercial development named Providence Place.
“I think there’s a lot of untapped demand because of the lack of starter homes,” said Harold Byrd, vice chairman of Bank of Bartlett, which repossessed the Arlington acreage during the recession. “If you can afford $1,000 to $1,500 a month in rent for an apartment, you can usually qualify for a $200,000 loan to buy a house. But we’re not seeing land and development costs come in that allow the building of $200,000 houses.”
Shut out from new homes, many apartment renters have searched for affordable older houses, turning Memphis-area real estate into what housing researcher Zillow calls a “very hot” seller’s market.
Last year, transaction prices on existing Memphis-area houses rose 6.9% to $150,648 on average, compared with $118,000 a decade ago, reports Zillow, which predicts a 4.7% rise in sale prices this year and notes the typical home for sale in the Memphis area lists for $205,000.
“There just aren’t any starter homes being built. When I began in 1986, we were building 1,200-square-foot houses,” said Moore, area vice president of the Home Builders Association of Tennessee. “You can’t buy a lot and build a 1,200-square-foot house today and expect to make any money.”
Suburbs look for growth
Builders and bankers point out municipal fees, which can reach $40,000 per lot in some suburbs, along with stricter lending standards and zoning codes can rule against lower-priced construction. Looking ahead, Memphis’ looming wastewater treatment issues also could forestall future building in the city and suburbs. For now, though, communities are just trying to make sure land is available for present demand.
“For a lot of years, we just didn’t have the inventory,” said Terry Roland, executive director of the Millington Chamber of Commerce, which represents more than 350 members in a community north of Memphis where the U.S. Navy closed a major training base in the 1990s.
Since then, white-collar military offices have moved into Millington, including what was known for decades as the Navy’s Bureau of Personnel, or Bupers. Millington in turn has recruited restaurants and merchants, developed middle-class subdivisions and launched a tax-increment financing district to develop infrastructure.
Six subdivisions with 570 home lots are being developed or about to be, with some homes designed for retiring naval officers, Roland said. The typical new house is expected to cost about $250,000.
Although the recession wiped out about 75% of metro Memphis homebuilders, Byrd said, the survivor firms and those that opened after the crash have adapted. Many focus on semi-custom or custom houses ordered by buyers expecting considerable money on the sale of their current home.
Collierville drives housing market
East of Memphis in Collierville, where the population has surged by about 22% in a decade to nearly 50,500, some middle-aged couples whose children have grown are selling and in turn ordering large houses on rural tracts in nearby Fayette County.
“A lot of empty nesters don’t want to pay Collierville property taxes,” said McCall Wilson Jr., chief executive of the Bank of Fayette County, whose home lending rose a hefty 10% last year to total $234 million, double the home loan total a decade ago. “They know the taxes are only going to go up.”
Even as empty nesters move, interest in living in Collierville remains strong. Collierville officials boast the new $95 million high school, which can hold 3,500 students, ranks as Tennessee’s largest high school. National companies based in the town include Helena Agri-Enterprises, Mueller Industries and Orgill Inc. FedEx’s 2,400-employee global tech center is the largest employer. And next door are the burgeoning jobs in North Mississippi’s new industrial parks.
Last year, Collierville issued 199 building permits for houses valued at $380,000 on average, said Jennifer Casey, the town’s public information officer. A decade ago, the average Collierville home was valued at less than $280,000, U.S. census reports show.
Looking for value
In search of more affordable houses, younger Collierville and Memphis renters have sought homes in Fayette County, as well as places such as Arlington, Hernando, Millington, Olive Branch and Southaven — all points along the new Interstate 269 outer loop or its connecting Tennessee 385. I-269 cuts the Arlington-Collierville commute time by more than 20 minutes.
“Arlington is not looking to get big fast,” Town Administrator Cathy Durant said. “We’re looking to control growth and do it right.”
Presently, developers propose building new residences on 1,084 lots in seven Arlington subdivisions. Constructing that many homes would swell Arlington’s population, currently about 11,700. But not all those lots will be built on immediately.
To construct a dwelling on a lot requires a building permit. So far, 127 building permits have been approved, Durant said, noting developers are phasing growth over time. In comparison, 122 building permits were issued in 2019 in Arlington.
“It all depends on the economy,” Durant said. “If the housing demand stays where it is, the backlog (of lots) could take years to work off.”
It also depends on where new jobs emerge. In recent years, robust job growth in the Mississippi suburbs has fueled population growth.
Mississippi keys in on growth
Keying in on the Memphis logistics boom, Mississippi economic developers pledge tax incentives to incoming firms. In many new plants, every $1 in state income tax paid by a worker is funneled by the state to the employer as an incentive to open in Mississippi.
With that incentive and the limited volume of raw land left in Memphis proper, Mississippi suburbs sprouted factories and distribution centers that now cover 70 million square feet of ground. In terms of industrial space, the volume is surpassed in the metro area only by southeast Memphis near Memphis International Airport.
New jobs and lower land costs have pulled families out of Memphis and into Southaven, where the number of working-age residents 16 and older now nears 26,000, compared with 21,000 three years ago, U.S. census data shows.
“For home construction, I think we’re seeing growth in North Mississippi because it’s being driven by where the jobs are going in,” said Will Chase, chief executive of Memphis-based Triumph Bank, whose home loan volume has more than tripled over the last six years to $204 million, a gain that in part reflects Triumph opening a loan office near Nashville.
Not all the people moving into North Mississippi can afford new houses. In Southaven, for example, the developers of Silo Square, a heralded 288-acre project intended to resemble a traditional downtown, propose houses and apartments.
In addition to stores and offices, the $200 million development would cluster 128 loft apartments on 10 acres near gated enclaves for 304 houses priced from $225,000 to $400,000.
Putting up apartments, rather than starter homes, is a sign of the times.
“It’s one of the biggest problems we face,” Moore, the Collierville builder, said about the relative scarcity of less expensive houses. “Because a lot of people can’t afford the American dream anymore.”