An ‘unprecedented’ and ‘perfect storm’: Why prices of new homes are spiking in Austin


AUSTIN (KXAN) — Realtors and home builders in Austin say a supply chain disruption is happening during peak housing demand, driving up total costs for buyers of newly-constructed homes.

“This home is about six months behind where it should be,” said Paul Smith, owner and realtor at Twelve Rivers Realty.

The home is supposed to be demolished and turned into a condo, but Smith said he’s still probably seven to nine months from selling due to a shortage of supplies.

The Home Builders Association of Greater Austin [HBA] said lumber providers can’t keep up with an increase in residential housing demand.

Smith says windows typically take two days to come in and are now taking three weeks.

“If you think about that, two days versus three weeks times every house that’s being built in Austin right now, no wonder that we’re having an affordability problem– we can’t even add enough inventory,” he said.

“It really is a perfect storm of disruption in our industry, I’ve never seen anything like it,” said Scott Turner, owner of Riverside Homes. “The global supply chain disruption as a result of COVID is hitting the homebuilding industry at a particularly bad time when demand is at its highest.”

The builder currently has five open projects and said the shortage means not only longer timelines but higher costs.

“It is almost like a game of whack-a-mole out there trying to figure out which costs and which timelines are going to change,” Turner said.

He said supply-side issues are exacerbating Austin’s challenge of affordable housing — all while appreciation keeps going up due to demand.

“Creating a drag on our housing supply at the absolute worst time,” Turner said.

“We pro forma-ed that this home would sell for about $675,000. Current comps are showing it to be $750,00 — and that’s just in the last four or five months,” said Smith as he stands inside a new build in its framing stage.

One of Smith's homes in the framing stage. The HBA said lumber prices won't be going down anytime soon, partly because it will take more than 20 years to re-grow forests lost to wildfires last year. (KXAN Photo/Tahera Rahman)
One of Smith’s homes in the framing stage. The HBA said lumber prices won’t be going down anytime soon, partly because it will take more than 20 years to re-grow forests lost to wildfires last year. (KXAN Photo/Tahera Rahman)

He said lumber has gone up 66% over the last year.

The HBA said the lumber shortage is adding about $16,000 to the average price of a new home.

“Unfortunately what that means is builders are waiting to put their houses on the market instead of pre-selling them,” said Turner.

If they do pre-sell, he said many of them are putting an ‘escalation clause’ into their contracts, so that buyers have to pay the extra costs.

“Because the cost of lumber could go up by 50% between the time you start a house and finish a house here in Austin,” Turner explained.

Either way, Turner and Smith said eventually, it all gets passed onto the consumer, and that’s not good for the affordable housing market.

The National Association of Home Builders reports for every $1,000 increase in the price of a home, more than 1,200 families are priced out of their area. That goes for people in Austin, Round Rock and Georgetown.

One step both are trying to take to reduce costs to homebuyers is increasing density on a single lot, but that’s difficult to do under the city’s current land development code. Turner and Smith said the current permitting process is inefficient and urges city leaders to make changes.

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