Illustration by Nathan Arizona
Oh, the good old days! You know, back in 2019; when houses were plentiful and the median sales price for a home was $270,000, according to the Richmond Association of Realtors. Life was rosy back then. A house sat on the market for 33 days and required an income of $66,000 to buy. With a median household income for Richmond families of $69,509, homeownership was in reach, even if it meant getting a second job or a loan from your parents.
Now, a yearly income of $116,400 may get you in the market for a starter home, but you must act fast. Houses now sell in about 22 days, which means many buyers make purchases sight unseen or without inspections. The 2022 median income for Richmond households was $82,249.
“Homeownership on decline needs to be a big, red, blinking light to politicians,” says Mike Chenault, principal broker for the Mike Chenault Group of Hometown Realty. “Housing is one of the country’s principal economic drivers.”
“Affordable housing is a crisis in our region,” says Alana Gonzalez, vice president and COO of the Better Housing Coalition. “The landscape has changed. How do we pivot? There isn’t one silver bullet that’s the solution.” Chenault and Gonzalez were among the six housing professionals who recently participated in an “Industry Talks” webinar from VCU’s Kornblau Real Estate Program.
While the cost of housing is up more than 78% from a decade ago, according to Point2, a national real estate data firm, the amount of available housing has dwindled. In 2018, there were 9,999 homes for sale in the Richmond area under $350,000. In 2023, only 1,322 were available. In fact, Richmond was in the top 10 on a list of the hardest places for Gen Z (adults 27 and younger) to buy a house, behind San Diego and San Jose in California, according to Point2.
How did we get here?
While the housing shortage has its roots in decisions made during the 2008 Great Recession, the current crisis was triggered by the COVID-19 pandemic. In addition to closing off our world for two years to stave off a new infectious disease, it changed American attitudes about our work, family and homes. Many buyers wanted bigger houses to accommodate offices and rec rooms. So excited were we to get our family compounds that a buying frenzy erupted, creating an initial 28% jump in housing prices. 2021 saw the largest number of closed real estate deals in Richmond metro history, according to the Richmond Association of Realtors.
Since 2020, home values nationally increased more than 80%, yet the median family income has risen only 23%. That gap between income and home value priced many Richmonders out of the market. But not workers from Northern Virginia, who now had the option of working remotely. “There was an influx of [Washington, D.C.] and Northern Virginia buyers,” says Laura Lafayette, president of the Richmond Association of Realtors and the Central Virginia Regional Multiple Listing Service. “They had D.C. wages in Richmond, and Richmond wage earners couldn’t compete.”
Over the last three years, 40,000 people have moved to the Richmond area, according to the Greater Richmond Partnership, making it 15th-highest population growth in the nation for cities with a population of over 1 million people.
“Northern Virginia has easily been Richmond’s top source of homebuyers coming from outside the region in recent decades,” says Hamilton Lombard, demographer for the University of Virginia’s Weldon Cooper Center for Public Service. “Since 2020, the Richmond region has had close to 5,000 households [from Northern Virginia] move into the region and purchase a home, more than double the rates seen during the 2010s.”
They had D.C. wages in Richmond, and Richmond wage earners couldn’t compete.
—Laura Lafayette, Richmond Association of Realtors
Lombard points out the popularity of the region, citing Zillow’s research from 2022 where Richmond was ranked the second most popular city in the country and Bon Air as the third most popular ZIP code.
“The most recent data we have is from 2022, when 27% of homebuyers came from outside the region,” he says. “About 10% were from other parts of Virginia, 3% from overseas and the remaining 14% from other states.”
“The number of homebuyers moving into the Richmond area from western states, including California and Colorado, has risen more than fivefold during the same period. Historically, Maryland or New York has been the top source of homebuyers moving to the region from out of state but, since 2020, California has been the top source of homebuyers in the Richmond region who moved from out of state.”
Furthering the surge in home buying were the rock-bottom interest rates on mortgages that lured many homeowners into buying bigger or refinancing. But all that changed in March 2022 when the Federal Reserve started hiking interest rates and did so 11 times until January of this year.
This “long hangover from the Fed money policy to get out of a recession,” Lafayette says, has “created golden handcuffs.” Those golden handcuffs — mortgages with low interest rates — meant a critical market that served as starter or move-up housing evaporated. That meant staying put for baby boomers, who own 28% of all U.S. homes with three or more bedrooms, according to Redfin.
“Currently we have got the great lock-in effect going,” says Craig Toalson, chief executive officer of the Homebuilders Association of Virginia. “There are a lot of people in their 50s or 60s who say, ‘I don’t need this 2,500- or 3,000-square-foot house. I would love to move, but the new one down the street, with half the square footage, costs more, and I have a low interest rate.’”
How do we fix it?
That’s a question we asked local real estate agents, builders, housing agencies and other stakeholders. While answers varied, most agreed that this is a multifaceted problem requiring public/private vision and cooperation.
One way of getting boomers to move, Toalson says, is to focus on constructing homes for what he calls “the active adult market,” or those 55 years and older. “It would be great if some folks got creative to reduce the barriers in cost of this product. If we could get the cost of that product down — maybe by getting some fees waived [by local and state agencies], maybe some grants from local government, maybe the local government puts in some infrastructure, maybe allow the developer more density ... that should free up inventory.”
Another solution is to build more housing in general. “We still have the same problem — lack of inventory. And each passing year it gets more acute,” Lafayette says. While many of those interviewed agreed with Lafayette, they also agreed that “we can’t build our way out of this,” as she says.
It’s not just a local problem. According to a recent article in The Wall Street Journal, “A decade after an epic construction binge, fewer homes are being built per household than at almost any time in U.S. history.”
Locally, “we’ve been underbuilt for over a decade now,” Toalson says.
But building more homes faces several hurdles: Finding suitable tracts of land, getting all the necessary jurisdictional approvals, getting through the gauntlet of public hearings and finally finding the labor and supplies to build.
“A developer can’t bring anything out of the ground for under $350,000,” Lafayette says.
The scarcity of building lots, says Vernon McClure, founder of Main Street Homes, is primarily driven by the lack of zoned lots available. Finding more tracts of land for building will require local jurisdictions to rethink zoning.
“There will be no substantive change without a seismic shift in some factors,” says Monique Johnson, chief of programs for Virginia Housing. “Less than 5% of the land in this area is zoned for multifamily housing. Affordable development is having a tough time in this environment because the operating costs are continuing to escalate.”
According to Market Graphics Research Group, a national new homes research company, the market demand for lots between 2024 and 2029 is 42,101. In Chesterfield County alone, 12,036 will be needed; in Henrico County, 6,070.
The current Richmond-area inventory is 7,982 lots.
Even when the land is found, “If I start a zoning process now, it will take at least one year to approve, one year for a preliminary plan and one year for construction plans,” McClure says. “Add six to 12 months of construction and it will take at least four years to get a new lot on the ground. This assumes everything goes somewhat smoothly and the zoning is approved.”
But that doesn’t allow for often-intense public hearings that can add months or years to the process.
“Every time there’s a new proposed development, large or small, we see a very small percentage of residents showing up to public hearings with outrage to oppose any new housing plan,” Toalson says. “This is dramatically hurting our community. We need courage and more citizens to support new housing construction. If we don’t, we’re essentially telling our friends, family, neighbors and service workers that they can’t afford to stay here and to move someplace else.”
Even with a suitable tract of land and no headwinds from the public, the cost of building must factor in regulatory costs. Since 2016, there has been an 11% increase in costs attributed to regulations, which include fees to government agencies, architectural design standards, land dedicated for green space or left unbuilt and costs like required studies. Those costs tack on an average of $93,870 to the price of a new home.
Reducing those fees or waiving them on more affordable housing is one way of reducing costs. Another is to change lot sizes requirements.
Greg Allen, who worked as a planner for Chesterfield County for 30 years and now serves as an advocate for high-quality neighborhoods, suggests several ways of easing the costs of building new homes. One is to reverse the current building trends of 1,600-square-foot houses or condos with an attached garage. “Most of our young adults today are living in 600- to 1,200-square-foot apartments without garages,” he says.
Another way is to reduce lot sizes for new single-family homes. Most lots in Chesterfield County, for example, are built on a 12,000-square-foot lot. According to Allen, “If you could increase your density, say two times what you could have gotten with a 12,000-square-foot lot, your development footprint is going to be smaller. Allow the smallest lot possible. Let (developers) get their density. Let them put their half-a-million-dollar house on a 6,000-square-foot lot. Ultimately, the county is getting more tax revenue, more utility fees out of each 6,000-square-foot lot. That’s a win-win, and that’s the direction counties should be going.”
“If we want to create housing that is sustainable, it’s going to take cooperation from public, private, nonprofit and public support,” Lafayette says.
“We have got to get creative,” Gonzales adds, “so everything is on the table.”
