When the real estate market was roaring, developers complained bitterly about building permit limits in Mount Pleasant. But following the crash, the restricted supply of new homes may be a factor in the town’s housing recovery.
“When you have less supply to eat through, there’s less recovery time,” said Will Jenkinson, broker-in-charge for Carolina One New Homes. “Especially in the sub-$500,000 market, we have a nice rebound in Mount Pleasant.”
The town began restricting permits for new home construction in 2000 after years of dramatic growth raised concerns that infrastructure — roads, schools and public services — was not able to keep up with the soaring population.
The “permit allocation” program sharply reduced the number of new homes allowed annually in Mount Pleasant through 2007.
The year before the limits were approved, 1,766 permits were issued, and had development continued at that pace, nearly 4,000 additional homes could have been built.
“I think one of the products of it was that it limited supply, and while we were hit like everyone else (in the real estate downturn), we weren’t hit as severely,” said Town Administrator Eric DeMoura. “It’s a neat thing to speculate that what many people thought was a bad thing could be a good thing for us after all.”
Philip Ford, executive vice president of the Charleston Trident Homebuilders Association, is loath to give any credit to the curb on buildings permits.He said Mount Pleasant real estate is perking up because prices have come down.
“I don’t think there’s anything good about permit allocation,” Ford said. “I just don’t see it. It was horrible.”
Fewer than 1,500 homes were sold in the Mount Pleasant area last year, so it’s fair to assume the market would be quite different if 4,000 additional homes had been built just before the real estate bubble burst in 2007.
More supply and lower prices would be good for today’s buyers, bad for developers and worse for people trying to sell existing homes in a depressed market.
Supply and demand Real estate professionals consider demand balanced between buyers and sellers when there’s a roughly six-month supply of homes in a particular location and price range. For example, if 50 homes are being sold monthly, 300 homes for sale would be a six-month supply.
Jenkinson said the supply of single-family homes in Mount Pleasant now stands below six months in all price ranges under $400,000. Market statistics provided by the Charleston Trident Association of Realtors back up that premise.
During the first quarter of this year, 214 single-family homes were sold for less than $400,000 in the Mount Pleasant area. At the end of April, there were 202 homes on the market in that price range, not enough to satisfy just four months of demand.
And throughout the Mount Pleasant area, new construction has been accounting for a much smaller slice of home sales than in other areas because of the limited supply. Last year, new construction accounted for 16 percent of residential sales in the Mount Pleasant area, with most of the new homes concentrated in the area above S.C. Highway 41.
In contrast, new construction accounted for nearly a quarter of all sales in the three-county Greater Charleston area, and more than 40 percent of sales in areas including Goose Creek, the Cainhoy peninsula and Johns Island.
“I don’t think there have been a lot of new homes built in Mount Pleasant, other than custom homes at high price points,” said Brian Cartwright, vice president of sales and marketing for Ryland Homes-Charleston, which has developed communities throughout the region. “Mount Pleasant is a little more expensive, and now that there’s some upward pressure on pricing, it just makes sense to get back out there.”
Developers return Basic economics says that when demand increases, supplies, or prices, or both, will increase in response. While prices remain depressed, the supply of homes east of the Cooper River is now rising.
In April, Mount Pleasant issued 66 construction permits for new single-family homes. Here’s why that’s a big deal:
“The last time Mount Pleasant issued more than 50 single-family permits in a single month was in 2007,” said DeMoura, the town administrator. “I am not aware of any place that is seeing activity like we are.”
Among the activity: Ryland is doing site preparation for the 155-home Tupelo development, FrontDoor Communities is building 62 homes at its Tributary at Rivertowne, Pulte Homes is selling 62 lots and building new homes at Scott Creek off Rifle Range Road in lower Mount Pleasant and Beazer Homes is building 103 houses in the current phase of its Lieben Park development.
While supply and demand are key factors in the health of a real estate market, they are not the only ones. The other often-cited factor is location, and Mount Pleasant has been a hot destination for years because of its reputation for good public schools and the town’s proximity to downtown Charleston and beaches.
“As far as the supply being down, probably more of the reason is that people can now live in Mount Pleasant and buy a house for $250,000,” said Ford of the home builders trade group. “For years, you couldn’t buy a decent house there for less than $300,000.”
Ford said those high prices were partially due to the restricted supply of homes in the town.
Real estate prices have fallen sharply in Mount Pleasant from their peak in 2007, after running up fast in the years prior. By many measures, prices are back to 2002-03 levels.
In the first four months of this year, 84 single-family homes were sold in greater Mount Pleasant for less than $250,000, and some of the large developers returning to Mount Pleasant are building new homes in the $200,000 range, in communities on the north end of the town above Highway 41.
Looking ahead The town’s permit allocation program was suspended when the housing market turned sour because developers stopped requesting more permits than the town allowed. Officials saw no need to have developers and town employees do the paperwork when there were plenty of permits to go around.
“I think it’s unlikely that it will come back, but I wouldn’t say it’s out of the question,” said DeMoura.
Mount Pleasant first moved to put the brakes on development in 1998, a year when about 1,400 building permits were issued.
The goal was to hold population growth to 3 percent yearly. Census figures showed Mount Pleasant’s population had grown more than 58 percent from 1990 to 2000, to 47,609 residents. And the town disputed that number as being too low.
With increasingly crowded roads and schools, there was growing public demand for town leaders to do something. Developers warned that any restrictions on building permits would make homes less affordable, and some suggested the town should instead raise taxes and build more roads.
The permit allocation program didn’t stop growth. A special census in 2005 put the town’s population at 59,104, and the most recent census in 2010 pegged the population at 67,843.
There were some loopholes in the permit caps. Some developers simply targeted land outside the town limits, small contractors deeded land to home-buyer clients who were exempt from the permit caps, and the massive Carolina Park development with 1,700 planned homes struck a deal to annex into the town and build outside the allocation program.
But the permit limits did restrict the pace of development. In the summer of 2004, for example, the town’s allocation program made 629 building permits available for the year, and they were spoken for within two months.
The town wanted some breathing room to allow infrastructure to catch up with the population, and between the permit caps and the housing downturn, it’s now had 12 years. New schools, fire stations, hospitals and recreational facilities have been built, and the town and county are now wrapping up at least $140 million in road-widening and improvements projects.
Just in time to accommodate all the new development that’s returning to the town.
Reach David Slade at 937-5552 or Twitter @DSlade News.