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How Houston Homebuilders are Handling the Post-Harvey Market

HAM_logoApril 9, 2018
By: Jason Porterfield

More than half a year after Hurricane Harvey swept through Houston, the costly storm’s impact is still felt throughout the region. Despite the destruction left behind by the hurricane, demand remained strong for homes in Houston through 2017. Residential sales for the year topped 94,700 in the market’s strongest year on record, beating the numbers for 2016 by 3.5 percent.

The strong demand is great news for the city’s homebuilders. However, they may soon have to cover_Houston Agent Magazine_04.09.18deal with a spate of new regulations designed to make Houston’s housing stock less vulnerable to the type of catastrophic flooding that caused more than $125 billion in damage, according to the National Hurricane Center.

The Houston City Council voted on April 4 to adopt amendments to the Chapter 19 Floodplain Ordinance intended to reduce the future risk of flood loss. The regulatory changes establish the 500-year floodplain as the threshold for new construction. Floods in such areas have a 0.2 percent probability of occurring in a given year. New or redeveloped homes in those areas will have to be built up to two feet above ground level.

The regulations in place at the time of the hurricane only protected homes built on a 100-year floodplain and built one foot above ground. The regulatory changes largely will not apply to existing homes, though they could have an impact in aesthetic terms.

The Price of Change

Joe Mandola, president at Trendmaker Homes, believes the changes will affect the look and value of existing homes as well as new construction.

“You may be living in a house that you’ve lived in for years and never gotten flooded in the city of Houston, but the guy next to you tore down and now he has to rebuild and he’s going to be significantly higher than you,” Mandola said. “It’s going to impact you and your existing home, as well as the cost of his and his new home.”

Surge Homes president Louis Conrad and chairman Ben Lemieux expect to see costs increase for builders and consumers, especially developers who bought land in the far suburbs only to see elevation requirements change before they could start building.

“Everything now has to be above the 500-year floodplain,” Lemieux says. “We see land and projects where we would have to go up thirty inches from the ground, so it changes a lot of things. The buyer also doesn’t like that because your house looks strange.”

“It means it raises the price of the house,” Conrad says. “I’ve heard by something like $5,000 in costs and a house could suddenly be $10,000 to $12,000 more overnight. It’s a massive difference in the cost for those who are price-sensitive.”

Surge Homes builds outside the floodplains and did not have any properties affected by flooding, according to Conrad and Lemieux. Similarly, Trendmaker Homes focuses outside the 100-year and 500-year areas and had damage to just one out of 351 homes in inventory when Harvey struck.

“We have to be able to temporize it and make sure we find the most economical way to apply and at the same time create a compelling value proposition for our prospect so that they’ll buy the home,” Mandola says. “We feel that this is just one more adaptation that we have to make to go with many over the years.”

Amy Rino, Houston Division president at Taylor Morrison Houston, agrees. “We deal with that anyway across the city,” she says. “The floodplain and elevation within a community, I would say that’s something we’re accustomed to in Houston. If it changes a bit, it’s already part of the changes that we deal with today.”

Realtor Jared Anthony of NEXTHOME Realty Center encourages his clients to expect and plan for the worst, even if they don’t live on a floodplain.

“I recently worked with a client who raised his own home three feet off of Lake Houston,” Anthony says. “It was a Noah’s Ark scenario. His neighbors and friends gave him a hard time and poked fun that he was wasting his money by taking on the additional cost to elevate his new construction home. Guess what? His one was the only home that didn’t flood.”

What Buyers Want

While Houston and the city’s surrounding suburbs take steps to reduce the danger of future flooding, builders are keeping up with what prospective buyers want from their new homes.

Anthony has seen increased demand among his clients for homes that emphasize universal design features that enable individuals to age in place more easily without having to make future modifications. Features of these homes include flush thresholds, non-slip floors, open floor plans, wider doorways and hallways and reinforced bathrooms walls for grab bars.

Other clients look for homes within homes that offer multiple living spaces under one roof, Anthony says. “These homes offer privacy and togetherness,” he says. “Think of it as having an elderly parent living next door. The space is essentially an apartment in the home providing amenities like a private kitchenette, private living, private bath, separate entry and garage with access to the main home.”

Rino has observed that her clients are looking for more simplified interiors with clean lines. “Maybe they don’t need a dining room or they don’t need a study, so they’re more likely to buy a home that doesn’t have that space,” she says. “I think that’s why they’re interested in spending their money on amenities within the home rather than the space.”

Rino has also noted an increased emphasis on outdoor living spaces such as patio areas. “People are really seeing that outdoor living as an additional room in their home. It’s something that consumers are spending money on,” she says.

Conrad says open floor plans and European finishes are among the touches homebuyers are looking for in terms of design. “It’s incredible how the city has changed over ten years in terms of cabinets, flooring and tiles,” he says. “The biggest change we’ve seen is in countertops and cabinets. That’s why we’ve spent so much time researching the hottest trends in European cabinets and it’s working very well.”

Homes in the $350,000 range are in demand for the millennial homebuyers who are entering the market, Mandola says.

“It’s not a discretionary thing. It’s a matter of this is as much as they can buy,” Mandola says. “It’s not that they’re comfortable with the price point and can go higher. That’s not where we are today for the majority of home shoppers. They’re looking at affordability. They still want design and they definitely want energy efficiency. Energy efficiency is getting to the point where it’s a requirement to even be in the game.”

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