There is a solution to rising home prices: higher density

Higher density is a quantitative approach to provide more reasonably priced housing options to Virginia’s residents. Two macro factors determine the ultimate cost of a home, and two solutions will blunt the deterioration of affordability.

Quick-Move-In new inventory homes listed on the Home Building Association of Richmond’s website, hbar.org, offer options predominantly above $500,000 throughout the metro region. That price point, with today’s mortgage interest rates, will be inaccessible to many in the largest prospective buyer segment: millennials. This significant cohort of first-time homebuyers is highly desired among local builders; however, the ability to offer a new home at an affordable price point is not only baseless, but also impossible.

Sixty percent of the total cost of a new for-sale home is construction-related, according to research by the National Association of Home Builders. Today, a humble single-family home with three bedrooms and two bathrooms will cost a minimum of $300,000 to build, assuming basic packages for materials, fixtures and appliances.

Consider the other 40% baked into the cost of the home: the land and its development. Data from Integra Realty Resources shows the average price of land in Chesterfield County during the 12-month period that ended in June 2023 was $105,248. The lot cost of a town house is more affordable than the lot cost of a single-family home, and the increasing market share of town houses and condos drives down the average price. Single-family lot prices in Chesterfield have reached $300,000 for a new community section averaging more than an acre in size. That price includes the raw purchase of land and the engineering, utility and road infrastructure, environmental mitigation and mandated government requirements — before construction of the home even begins.

The math of new construction and land development does not equal a sub-$300,000 product.

The same cost factors go into the construction and development of for-rent communities. In Chesterfield, a new apartment community, factoring in land, design, lending, site development and regulations, costs an average of $230,000 per apartment. Add parking garages (enough for 1.5 parking spaces per unit), and the average cost per apartment increases to $270,000.

For-rent communities offer financial advantages to millennials with a lower barrier to entry: no down payment required and zero home maintenance. The younger generation does not necessarily want traditional home ownership with a big house and yard. Many seek less to maintain and prefer smaller living spaces, which are often more affordable.

The Home Building Association of Richmond’s mission is to protect the American dream of home ownership. Our advocacy ultimately benefits the homebuyer and renter. HBAR supports high-density development for two reasons:

High-density development reduces sprawl. Designating areas for high-density development helps keep rural areas rural. Reducing density will trigger new developments to move horizontally through the counties as housing must support a growing and expanding population.

Higher-density development can spread out the cost of new home construction, including single family, condos, apartments and town houses, among a greater number of buyers and/or renters on the same area of land. Does higher density guarantee lower housing prices? It does not. Material and development proffers, a function of local government, will determine unique price points of individual communities.

This November, candidates for local boards of supervisors and Virginia’s House of Delegates and Senate will be on the ballot. Many of them point to the rising cost of housing as a top priority. The solution to decades of rising housing costs is both simple and complex.

The simple solution is building more new homes in all fashions – single family, town houses, condos and apartments – so that inventory may begin to close the gap and keep pace with demand, ultimately releasing scarcity pressures.

The complex solution is working together as elected officials, local government agencies and experts in the development and construction fields — those who come together at HBAR — to study and design a portfolio of tactics to deploy in zoning and land development that will mitigate future deterioration of housing affordability. And yes, one of those recommendations will include higher density to open more doors for moderate- to lower-priced new homes targeting the largest buyer and renter segments: millennials.