Collegiate Challenge volunteers raise a wall on a Habitat house in Columbus, Ga.

Home Groan
Runaway building costs challenge Habitat's ingenuity

by Bill Walsh

Taxing Situation

A Global Problem

It is not a bubble that can or will burst. It is real estate, and until they start making more land or easing restrictions on large swaths of the terra firma that already exist, the housing market will continue to escalate.

So says one side of the argument.

The other is that the real estate boom--continued strong demand drove home prices up more than 11 percent in the United States in the past year, on average, while total housing starts swelled to nearly 2 million units--has all the same vital signs as the tech bust of the late 1990s.The crash, skeptics warn, will be just as widespread and every bit as painful.

Whatever scenario becomes reality, this much is clear: Home construction costs are currently headed to the stratosphere. The median home price in the United States now tops $219,000, up 15.5 percent in the last year. The average sales price has reached $268,000. Since 1999, the average price of existing homes has risen 48 percent. Nationally, just more than half of the new and existing homes sold from January to March were affordable to families earning the median family income of $58,000. That's a two-percent drop from the previous year.

The meteoric rise in home construction costs has far-ranging implications for Habitat for Humanity.

In Benton Harbor, Mich., for instance, the cost of each of the 20 new homes that were built during this summer's Jimmy Carter Work Project reached about $65,000. Those homes, according to Ken Bensen, Habitat program coordinator for the state of Michigan, could have been built for about $50,000 just five years ago.

While home prices skyrocket, wages--especially those paid to workers on the lower rungs of the economic ladder--have been stagnant. Nationwide, workers' earnings rose 15.8 percent during the past five years, and while that is three percentage points faster than the rate of inflation, wage hikes have been distanced by the accelerating pace of the housing market.

Taken together, rising home-construction costs and relatively stagnant wages have the potential to change the pool of families Habitat has set out to help.

In approximate figures, the annual salary that a prospective Benton Harbor Habitat homeowner would have needed to meet Habitat guidelines in 2000 to afford a $50,000 Habitat house put him or her comfortably (39 percent) in Habitat for Humanity's "window of service"--those earning not less than 25 percent or more than 50 percent of the area's median family income. Today, escalating costs mean the window is closing. The salary needed in 2005 to afford that same Habitat home--same except for its cost--is now 44 percent of the area's median family income.

The same unfortunate scenario is vexing affiliates across the globe. And it's not just home construction; land prices are booming, as are additional fees associated with its development.

Site development for the most recent Habitat home in Forest Lakes, Colo., took a cheap piece of land "and made it an expensive piece of property by Habitat standards," says Kathleen A. May, then executive director of Habitat for Humanity of La Plata County.

Setback rules, minimum square-footage and garage requirements all pushed expenses higher. The land cost only $6,000; preconstruction fees, building permits, and site development cost $51,000.The final cost of the house was around $100,000. Just two years ago, the same house would have cost between $65,000 and $75,000, May says.

And soaring land prices have cut into the number of donated lots. With prices so high, many owners are starting to look more favorably on outright sales over tax-deductible donations.

Fighting Back

Habitat affiliates--with their innate understanding that homeownership, as Tennessee Housing and Urban Development coordinator Agnes Henderson put it recently, "is the key to a stronger and healthier community"-aren't taking all this lying down.

"Owning a home is a quick path to self-sufficiency," Henderson adds. "Children of homeowners have performed nine percent higher in math, seven percent higher in reading, are 25 percent more likely to graduate from high school and two times more likely to go to college than children of non-homeowners."

In other words, Habitat's mission is as important as ever.

Affiliates aren't taking this lying down, but increasingly they are not "building hope one house at a time" quite as much any longer, either. "We can hardly find suitable property in the price range we can afford," says Lori Oberlander, executive director of the Kitsap County, Wash., affiliate. "We make offers, but we are constantly being outbid."

In Kitsap, Habitat is currently building a combination of 18 attached townhouses, duplexes and triplexes on a 2.7-acre site called New Hope. New Hope is a planned unit development with all the homes facing inward to a playground and a community garden. There will be a safe place for children to play, Oberlander says, and the homeowners will feel the same sense of ownership pride they have shown for single-family homes.

Increasingly, too, Habitat affiliates are turning to the construction of entire communities, often including both single- and multi-family arrangements. The whole-community concept, advocates say, is a better use of resources when both real estate and construction-supply costs are out of control.

The San Fernando/Santa Clarita Valley (Calif.) affiliate, for example, is working on a subdivision located in Pacoima. It is the affiliate's largest undertaking to date. Seventeen families already have been selected for the first phase of 20 homes. A total of 64 Habitat homes eventually will be built on the parcel.

Arizona's Valley of the Sun Habitat for Humanity believes it is the first affiliate to have broken out of the traditional in-fill mold, and offers, president and CEO Christine Odom says, a model for others struggling with price pressure. The 195-home South Ranch Habitat community in Phoenix is a real success story, Odom says, and a second 93-home Habitat community in South Phoenix is slated for completion in 2006. Cost drives everything. Where just a few years ago Valley of the Sun could build 26 homes with 37 sponsors, Odom says, it now requires 57 sponsors to fund the same amount of construction.


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