While the entire state of New Hampshire has seen a rise in rental rates over the past five years, Rockingham, Strafford, and Hillsborough Counties have all seen a 25%+ increase in rental rates of 2-bedroom apartments. Statewide, the vacancy rate is currently 75%. New Hampshire experienced a 43% increase in permit issuance annually in 2019 when compared to the annual low in 2009, yet a 7% decrease when compared to 2018. The number of single-family housing permits issued in the state remains behind the national average. Single-family permits dropped 10% in 2019 when compared to 2018. In contrast, multi-family permits have increased by 16%. What will this mean to a post COVID market?
Interest rates remain low and the number of buyers still exceed the number of affordable houses on the market by a significant margin. With under 40 days of inventory across the state and the number of home permits still remaining low, this issue has no end in sight.
Communities such as Rochester and Dover continue to build apartment buildings to try and fill in the demand for rentals, but tenants still have difficulty finding a place to rent. Even during the COVID pandemic, with government shut downs mandated, landlords had collection rates above 90%. While unemployment has significantly increased from its low in 2019 at 2.7% in the State of New Hampshire, and 3% in New England, this may not be causing rents to become more affordable as options for tenants are still very scarce.
The question must be asked as to why there is such a substantial housing shortage in the state. According to a presentation by Russ Thibeault of Applied Economic Research, in Feb of 2019, this shortage is acute and growing. A simple look at two of the following graphs from his presentation tells the story!
Graphical data courtesy of Russ Thibeault – Applied Economic Research
During the last four months, the housing shortage has become even more highlighted with MLS showing only a 34 day supply, whereas a “normal” market might have 120 day supply, which again is driving costs up, and availability down. This affects our ability to provide housing for the new jobs that are being created in the state. According to Russ’s calculations, the state has at least a 10,000 unit deficit as of 2019. The housing construction numbers do not help to alleviate the crunch!
While some of the cities appear to be working to find ways to get new housing built in their communities, many of the smaller communities are still resistant to any kind of multi-family for several reasons; some valid and some ancient history. For instance, there is a pervasive belief that the addition of housing units will equate to growth in students in the schools, when in reality the studies show that is not the case. See the study here. Student enrollments are down across most of the state. According to a study by UNH Professor Richard W. England, Ph.D.; Professor Emeritus of Economics Paul College of Business & Economics University of New Hampshire, emphatically rejects the notion that more housing equals more school students.
Much of the problem may lie in the difficulty in receiving approvals from the towns, and in some instances from the cities, for new development. The process is difficult at best, and in some cases, a nightmare at worst. Development and developers do not like to battle for what is supposed to be by-right ability to develop the land. They will in many instances gravitate toward the places that welcome responsible development and leave those that are purposefully difficult alone. This creates a domino effect for housing. If the land is expensive, the approval process difficult and the cost driven up by the regulations, then the cost of the land and then the cost of the home will be increased.
For example: If the cost of raw land is $400,000 for 20 lots, that equates to $20,000 per lot. Now it has to be engineered for the development of the roads, drainage system, and the septic systems (not many towns have sewer). That would be about $100,000. In addition, there would be about $15,000 for soils’ identification, about $10,000 for wetlands study, another $10,000 for test pits and percolation tests, and potentially another $15,000 for traffic study. Add them all up and we have about $150,000 in costs. That does not include the potential cost of the town requiring other studies, and in many communities, the cost of having their engineer review everything. So that would be at least another $7,500 per lot on top of that. Once all of that is finished, we have to build a road. Because most towns require 200 feet of frontage at a minimum, we have at least 2,000 feet of road to build. In most instances, the cost of the road will be at least $380 per lineal foot (no hard drainage, curbs, or sidewalks). That pricing is if there is not any hard drainage or complicated drainage basins and rain gardens, sewer or water or gas. Almost all communities require underground electric, phone and cable. That equates to a minimum of $760,000 of road cost, or $38,000 per lot. So, the total might be about $65,000 per lot, which is just about the market in this example, and there is no room for error or profit. If the land costs that much to a user or builder, then the house has to cost around $400,000 or more to have the ratio of land to house approximately correct. Plus, we have not paid the current use penalty yet (LUCT) of 10% of lot value. So this is part of why housing is so expensive!
Another factor to consider is the number of jobs that are being added here in the seacoast. Aside from some of the losses of jobs, particularly in the aerospace industry due to COVID-19, there are still a large number of companies that planned for greater expansion (i.e. Lonza, SIG SAUER, Lindt, Wilcox Industries, Portsmouth Naval Shipyard, 157th Air Refueling Wing, Saffron Albany, Liberty Mutual). Infrastructure improvements at the shipyard and at the new home of the KC 146 refuelers has been substantial and jobs additions could total 5,000. According to the shipyard, $21 billion in infrastructure improvements will be completed over the next decade. The air wing spent an enormous amount to upgrade its facilities as well.
This does not even take into account the large number of smaller companies that appear to be headed north from Massachusetts, New York, and Connecticut. We have had a number of calls from small to medium sized companies looking for purchase and lease property to move here.
With a severe housing shortage, apartments appear to be the first step for job entrants into the seacoast market. One apartment complex we are familiar with, has a policy of letting anyone who buys a home out of their lease early. With vacancy rates not moving from the less than 2% mark, and the percentage increases in rents continuing to rise, it appears that there will be strong demand for some time to come. Based on discussions with many residential realtors, there is already a substantial number of city dwellers from all over the country buying homes in the seacoast and mountains of New Hampshire and coastal Maine. New construction is the answer, as most of NH housing stock is older and outdated. Kudos to the towns that welcome this product and help to bring the younger generation back to NH, or first time residents here to NH.
Do we have all of the answers, probably not ! But we certainly are thinking about the questions and speaking with many people who are knowledgeable and trying to find the answers.
NH Student Enrollment Final Report
Housing Market Report March 2020
– Written by Dave Garvey & Ethan Ash