Housing costs and low inventory have sparked a significant need for new home construction this year, and demand is so high in Florida that some builders can’t keep up.
As low housing inventory plagued the market for much of 2023, experts don’t believe these challenges will abate next year. While mortgage rates are expected to come down, they’re likely to remain significantly higher than their 2021 lows leaving many sellers hesitant to swap out their great interest rates for a higher one.
And since nobody is moving, building new homes quickly is the best path to providing some inventory relief. Over the last few years, no market has seen more new development than Florida where the rate of new construction authorizations is 21.1 per 1,000 existing homes, nearly double the national rate (11.7).
Demand for housing in Florida isn’t a surprise. Sunshine, beaches, and no state income tax have made it a dream destination for decades; however, work location flexibility and an increase in snowbirds moving south have pushed demand even higher since the pandemic. To put it into perspective, new construction in Florida was up 30% last year compared to 2020, while it’s only up 13% nationwide.
Currently, six of the top 20 cities for new home construction are in Florida, with North Port, a small town located between Sarasota and Fort Meyers, coming in at #2 on the list with 5,715 new homes per 100,000 people. Lakeland (#3), Orlando (#4), Tampa (#7), Cape Coral (#8), and Miami (#9), also ranked in the top 10.
Recent reports are also showing Florida experienced a population increase of 359,000 people this year, a 1.61% year-over-year increase and the largest population increase of any state. It’s also unlikely this trend will taper down any time soon as experts believe the population will rise another 1.51% next year and will continue to see strong growth through 2028. Last year, the 60-to-69 age group represented the largest percentage of the population of people moving to Florida from other states.
So will builders be able to keep up with the demand for new home construction in the Sunshine State? Part of the problem is that ready-to-build land is at an all-time low. While there is plenty of land available throughout rural areas of Central Florida, much of it lacks the infrastructure necessary to support residential construction at scale.
As a result, most new development is occurring around existing suburban neighborhoods, which is leading to population density concerns across the state’s top markets.
Developing infrastructure (roads, utilities, etc.) can take two to four years. The process is time and labor-intensive and expensive. Owning undeveloped land for an extended time can also be detrimental to a builder’s balance sheet. For most developers, the process of developing rural land doesn’t make financial sense, especially when they can prioritize construction in already developed regions.
However, a few of the state’s top builders are finding innovative ways to navigate these challenges. Builders are acquiring land, selling it to infrastructure development firms, and buying it back a couple of years later once the entitlements have been secured and the land is ready for residential development. Such a strategy can help rapidly increase the amount of buildable land across the state while expediting homebuilders’ abilities to ramp up production to meet the increasing levels of demand.
Because infrastructure development firms can efficiently develop large sections of land, these partnerships are looking more and more like an effective way to keep up with demand and reduce population density issues across the state.
