National company takes chance on local builder amid industry challenges
Topics: Development, Residential Real Estate
Markets: Birmingham Metro, Lee County, Tuscaloosa Area
Brooks Harris and Russ Doyle announce partnership with Clayton Properties this week.
Alabama’s new construction market has been on the rise in 2017, but year-over-year inventory levels have decreased by more than 100 units statewide.
A new partnership between Clayton Properties Group, a Berkshire Hathaway company, and Birmingham-based builder Harris Doyle Homes, could lead to larger developments of new homes in central Alabama.
Clayton announced this week it has acquired the builder, which was founded by Brooks Harris and Russ Doyle in 2008.
Harris said the new deal gives Harris Doyle access to much more capital, which could lead to much larger deals.
“It frees us up to do a little bit bigger deal,” Harris said. “It’s a matter of securing those deals and bringing them online. If we can do that, then I think we’ll have a lot of supply for years to come.”
According to the Alabama Center for Real Estate’s most recent New Home Construction report, 434 new homes sold in Alabama’s five major markets during May, compared to 379 a year ago. Year-to-date home sales rose 12 percent.
At the same time, inventory tightened by about 6 percent compared to last May at 1,847 available units on the market.
It is no secret that builders have experienced their share of challenges when the recession hit, and issues like regulations, labor shortages and construction costs continue to affect builders.
“(Labor shortage) has been a problem for a long time,” Harris said. “It’s not getting any better.”
Harris said that there are shortages across the board but particularly in trades like electrical, plumbing and mechanical.
“We’re not doing a good enough job training up young people in those professions,” Harris said.
Many tradespeople exited the industry during the recession in search for other work and have not returned to construction since housing demand began to strengthen again. Also, Alabama’s immigration policies could be further exacerbating the situation, depleting even more of the labor pool.
Harris said rising construction costs and home prices in some areas are putting more of a squeeze on the new home market.
“Most of your competition for new homes is existing homes,” Harris said. “When you get to be about 20 percent higher than a comparable existing home, that’s where you hit an inflection point, where people just aren’t willing to pay more for a new home. They’ll pay up to 20 percent more, but after that, they’ll say ‘I’ll just go buy the existing home.’A lot of places, we are riding that line very closely right now, and that gap appears to be widening. That’s a concern for sure.”
Low inventory has been a nationwide issue, as demand for homes has risen.
“The existing home market hast to continue to rise or margins are going to get squeezed on the new home side,” Harris said.