Nationally, construction spending shot up 1.1 percent in December, a positive ending to a year that saw the best performance since 1996; but in Rhode Island, residential construction is at its lowest point since 1982.
“Rhode Island has not fared like the rest of the country,” said Roger Warren, executive director of the Rhode Island Builders Association. “(Last year) was 4 percent lower than 2003, and it’s lower than it has been since the early 1980s.”
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According to the Commerce Department, building activity in the United States for 2004 grew 9 percent, the strongest increase since a 10.4 percent jump in 1996. The strength in the construction market, according to reports, came in housing activity as builders continued their rush to build, taking advantage of low mortgage rates. In Rhode Island, however, the scene was quiet.
“It’s come virtually to a halt, and there’s a direct linkage from that to value and pricing of housing,” said Colin Kane, partner with Rumford-based developer The Peregrine Group LLC. “We have a very slow but steady influx of growth, and pressure from Massachusetts, immigrants, retirees from Connecticut and New York and expanding universities. We have effectively no growth mentalities in every suburb in Rhode Island, so prices go up while production decreases.”
Building permits in Rhode Island for the year totaled 1,908, compared to 1,984 for 2003, according to a yearly report the state builders association recently released. The rate of home building is at its lowest since 1982, when 1,292 permits were issued. Historically, the 2004 single-family home production level is almost 40 percent below the 10-year average from 1985 to 1994 and is almost 30 percent lower than the 20-year average from 1985 to now, the association said.
“There is still buildable land in Rhode Island,” Warren said. “The problem is that there is very little permitable land in Rhode Island.”
It’s all a matter of perspective, though, according to Dana Phillips, broker and owner of RE/MAX Post Road Realty in North Kingstown.
“Builders are building fewer houses, but they’re more expensive,” he said. Some larger developers who build starter homes have starting prices at $500,000, he said. “I think that $689,000 is the lowest home price I have right now.”
Many municipalities have adopted more stringent zoning and building regulations, smaller permit quotas and even permit moratoriums, on which Warren blames the trend. According to the report, 12 Rhode Island communities had drops in permits issued in 2004 at 20 percent or more, while only five communities reported large increases in permits. The town of Warren posted the highest drop for the year, 53 percent, from 19 permits in 2003 to nine in 2004; Jamestown reported a 44 percent decline in permits; Bristol reported a 31 percent drop; and Tiverton a 30 percent drop. Burrillville, Central Falls, Johnston, New Shoreham, Newport, Smithfield, South Kingstown and Westerly also reported decreases in permits.
“It becomes apparent why more and more working Rhode Islanders are unable to afford decent housing when purchase prices and rents are increasing four to six times personal income gains,” Warren said in the report. “The favorable interest environment of the last several years has fueled historically high demand levels, yet our home production continues to decline. This alarming disconnect in supply and demand does not bode well for the state’s long-term economic outlook.”
Phillips admitted that the builders he deals with, those who typically build four to 10 homes a year, have said that obtaining permits is next to impossible.
“One of the biggest reasons (for the decline) is a lack of availability of buildable lots,” Phillips said. One upscale builder for whom he has sold homes for 30 years is taking some time off in Florida because he has no lots to build on at least until spring.
“Builders with access to lots couldn’t be busier, but the ones without lots … there’s been some diversification” into other projects, he said. “The market is still good, but I wish there were more lots out there.”
Median single-family home prices in Rhode Island rose to $264,700 in 2004, an increase of $34,700 or 15 percent from 2003. The state’s median home price is 44 percent higher than the national average of $184,100 and is also among the highest in the country, having more than doubled in the last five years, according to RIBA.
“Builders are still busy. There’s a lot of work out there, but a lot of them are remodelers (too),” Warren said. “They’re busy but they can’t get single-family permits. What I’m hearing is that the time, costs and difficulty in getting permits” is counterproductive. “The industry is not growing.”
For The Peregrine Group, which has a variety of residential developments under way in Rhode Island and has built in other states, difficulty in getting permits for single-family home construction in some municipalities has forced builders to look elsewhere.
“We have very robust commercial activity, but this forces a harder look on the part of developers and builders to more hospitable communities,” Kane said. “It forces a heavier and a good focus on cities. But not every family wants to live in an old mill.”
