Home Construction Slows Despite Site Boom; Why Rentals Near Military Bases Make Good Investments
National figures out this week from the U.S. Census Bureau and the Department of Housing and Urban Development showed sales of new single-family homes rose more than 12 percent between June and July.
The seasonally adjusted annual rate of 654,000 units is the highest since October 2007 - right around the time the housing bubble burst. But home construction is showing in the U.S., according to the National Association of Home Builders.
NAHB economist Robert Dietz said home construction is slowing nationwide due to a lack of developed lots. But in Oklahoma’s metro areas, slowing construction has led to a glut of developed lots where builders are hesitant to start construction.
“When oil was $100 a barrel, developers were platting subdivisions and getting lots ready very quickly,” said The Journal Record’s editor Ted Streuli. “But then as oil took a downturn, interest in buying new homes slowed and they didn't want to make the investment in building spec homes. So a lot of those lots are just sitting there waiting to be built on at the moment.”
In rural areas, there's plenty of land, but in a lot of places there's no infrastructure to support development, so that can slow down homebuilding, Enid Regional Development Authority executive director Brent Kisling told The Journal Record’s Molly Fleming:
He said some cities in Garfield County are considering incentivizing developers, with utility extensions being part of the incentive packages. Dietz said the national organization has heard from builders that a lack of action by city government is delaying land development and construction cycles. He said regulatory burdens are continuously rising. Today, regulatory burdens make up 25 percent of a home’s final purchase price, a cost that has risen 29 percent in the last 25 years. Kisling said he’s seen firsthand the benefits of infrastructure development. The city needed apartment units, and a developer was interested in building a 200-unit complex, but needed a road, which the city agreed to build. With that work, a Wal-Mart Neighborhood Market has been constructed nearby, as well as another unannounced retail development. “We may end up generating more sales tax than what it cost to put in that road,” Kisling said.
A study by a California-based real estate investment firm shows Fort Sill in southwest Oklahoma was one of the top three cities in the nation for single family investors. It’s based on a cap rate – or the ratio of operating income to a property’s value, Fleming writes:
The cap rate for off-base military housing near Fort Sill is 6.3 percent, making it one of the highest for bases with more than 15,000 active-duty personnel and family members. The military installations with higher cap rates are Robins Air Force Base in Warner Robins, Georgia, with a 7-percent rate, and Fort Drum in Watertown, New York, with a 6.9-percent cap rate. The study by HomeUnion, a California-based real estate investment management firm, looked at areas near installations where military personnel can use their base allowance for housing, said Steve Hovland, director of research for HomeUnion.
The study actually found that Tinker Air Force Base in Midwest City had an even better cap rate than Fort Sill. But they weren’t included on the list because the data available from Midwest City for rental rates and other required information wasn't consistent with the other kinds of data the study required. Vance Air Force Base in Enid also has a top-tier cap rate, but the sample size was too small.
Streuli said properties near military bases make attractive investments because the tenants tend to be reliable.
“Those families stay put even when their soldier, their military member in the family is deployed somewhere,” Streuli said.
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