🔒Market squeeze fuels rise in building permits, as buyers turn to new home construction

Maine has already seen blistering home sales and an all-time high median home price of $305,000, but now the shortage of housing is also driving the number of building permits issued to heights not seen in more than a decade.

Through May, there were 2,697 building permits issued, according to data collected by the U.S. Census Bureau. At the current pace, there would be 6,468 permits issued this year — surpassing the 5,690 issued in 2007, the last year of a buildup that collapsed with the recession of 2008-09. In 2006, 7,304 permits were issued.

“Tight inventory is driving current interest, but so much more. The tight inventory itself reflects the effects of the housing bust of the 2007-09 recession,” economist Chuck Lawton told Mainebiz.

Consider that in 2008, Maine’s median home price was $180,000, with 9,502 homes sold, according to Maine Realtors data. Compare that to last year’s feeding frenzy, when Maine saw a surge of transplants from around the country, with a median home price of $256,000 and 19,921 homes sold.

The building boom of the early 2000s was driven by demand for small units, condos and multi-family homes, combined with demand from younger workers and 50-plus people looking to downsize, said economist Jim Damicis, a public policy researcher who is senior vice president of Camoin310.

Nationwide, the surge in building permits reached a 13-year high, according to the real estate website NeighborWho. Housing starts for single-family homes rose by 14% last year, adding nearly 1 million homes.

“The 2020 home-building increase was due to two big factors that were, we believe, both pandemic-related: historically low mortgage interest rates and greater demand to move to new locales in the wake of COVID-19,” says Michael Pugh, an analyst for NeighborWho.

How Maine stacks up

Maine makes up a significant portion of the New England housing market, with 2,697 building permits through May, compared to 16,040 for the six-state region as a whole, or 16.8%.

Massachusetts has far and away the largest share of new housing, with 7,800 permits issued. At least in New England, Maine leads Connecticut (2,139), New Hampshire (1,933), Vermont (864) and Rhode Island (607).

Nationally, with 2,697 permits issued through May, Maine falls short of Mississippi (3,810), Kansas (3,730), New Mexico (3,647) and South Dakota (3,127), but ahead of Montana (2,301), the District of Columbia (2,231), West Virginia (1,858), North Dakota (1,459), Hawaii (1,398), Wyoming (947) and Alaska (663).

Maine has seen a surge of new residents in the past 18 months, as people look for safer, more wide open areas to raise families and/or ride out the pandemic.

While Mainers are still the leading buyers of existing Maine homes, according to Maine Listings, out-of-state buyers surged in from Massachusetts, New Hampshire, New York, Florida and California.

Maine’s hot market for existing homes is creating more pressure for new construction. Home sales were up 28% through May, matched by a 28% increase in the median home price, according to Maine Realtors. The median price is now $305,000.

No slowdown this year

At least for this year, the housing boom shows no sign of slowing down, though both In Maine and nationally, new construction has been hampered by high lumber costs and shortages of certain materials.

The price of certain plywood, including oriented strand board — the particle board used for the basis of roofs, sheathing and subfloors — has gone up fivefold, the National Association of Home Builders reported in mid-July.

Amid the building boom in southern Maine, Falmouth was already reaching its cap of 65 housing permits in April, as Mainebiz reported.

Longer term, Damicis, who studies demographics and the economy, says the fate of the housing boom will likely rest on several factors, including interest rates and the availability of construction workers.

“How high it goes is difficult to predict but it will be tempered by projected moderate growth [nationally] in the economy over the next five years, rising interest rates,” he said. “Also some of the rapid increase is a surge following lack of supplies to build and lack of people putting their homes on the market. Some of this will recede as areas now open up. Jobs and employment are more stable and more people may be willing to make a change and put their house on the market.”

A shortage of construction workers

Both Damicis and Lawton said the building boom will have trouble matching the numbers from the early 2000s because the number of construction workers has struggled to get back to levels seen at that time. Maine consistently had more than 30,000 construction workers during the earlier building boom, but that number fell to 24,100 in 2009, according to the Bureau of Labor Statistics. Most recent BLS numbers show Maine has 27,700 construction workers.

“The housing bust after 2005 devastated the construction industry in Maine,” said Lawton. “Many went out of business, some moved away. The ‘go to college’ mantra cut enrollment in trade programs, thus exacerbating the demographic imbalance.”

But by 2020, “the stay-at-home impact of the pandemic added to the demand in Maine — particularly southern Maine,” Lawton said. “I think the pressure to build will continue to grow and that the shortage of workers will continue to push prices up and that the pressure to fill labor shortages will continue to struggle with the NIMBY attitude of many neighborhoods and towns will continue to force prices up.”