Earlier this year, Jeremy Seaton was disappointed. The builder had nine homes in Nashville that he was trying to launch. However, its progress slowed and then stopped. The problem wasn’t money, supply chain disruptions, labor shortages, or even rising material prices. The problem was that the permissions to continue working were not approved. The housing market was still bubbling earlier this year, and the effects of inflation had yet to reach Seaton’s customers. But time was running out. After making some noise, their permissions were finally relaxed. Other builders are not so lucky. Our talk last month could be a roadmap for major negative impacts on the residential building industry that could depress supply for years to come. Simply put, the music stopped playing; If there is no rapid action, stable supply will mean higher prices in the future.
Seaton’s story was brought to life in several stories he presented to local television station Fox 17. Part of the early problem for Seaton was that the lack of movement meant that vacant properties were attracting people who were starting to spill stuff on the lot.
“They are turning into neighborhood dumpsters. When we have a project that doesn’t start… that’s when mattresses and sofas start piling up.”
Seaton cleared all obstructions, called and emailed but got nowhere.
I’ve never heard from Public Works. I’ve never heard a peep from anyone at Public Works that continues to be annoying.
A follow-up story about the same station highlighted an even more pressing issue. Jeff Livingston, another Nashville builder, had a project with 14 families lining up to move. But he was unable to continue building the project. Livingston said he was fed up with the process.
“Stress, holding money, carrying interest, loss of opportunity, or if our market drops? We could all be sitting on major bankruptcies, up to a very large number.”
Well, the market has dropped. Interest rates have risen, demand has dwindled, and there are many builders sitting on permit-holding properties across the country. But it may be too late. Money is too expensive for most buyers and sellers, especially those who have recently bought cheap money, cannot sell their properties without losing money.
When Seaton and I spoke, he confirmed that what was on the market was that money was frozen; no one – builders, buyers, sellers – can afford to borrow or indemnify for a low selling price. “All this is going to put a lot of men out of work,” he told me.
What is happening with housing is that smaller and medium builders are entering a hot market. Housing prices rose in 2021. In my research on licenses, price, and population, I’ve seen that detached housing transactions are increasing in every city I look at. You can see the jump in Nashville.
Everyone wants to get in, and when the money is cheap, building loans are cheap too. Seaton says he knows many builders who took on the debt hoping to turn the land into homes for sale. It’s simple: buy a low value plot with borrowed money, add value by building a house, sell it, pay off the debt and the rest is yours. But if the permits are delayed and demand disappears, you’re left with a house you can’t sell and an ongoing debt payment. Seaton says it knows builders in the hood for up to $32,000 per month for debt service for properties that are unfinished or won’t sell enough to pay off the debt.
“Oh well, boo hoo!” some people might say. “These people took risks, they lost, it’s too bad for them.”
The problem is, we’ve never fully recovered from the last time this happened on a large scale from 2008 to 2010. While the recovery has continued and housing demand has increased over the last decade, the market has never been high enough to meet demand. This led to rising housing prices and a housing “crisis”.
Capitalism is about taking risks and making profit or loss. But when local governments, like in Nashville, don’t take housing production seriously and allow slow walks, the risk is destroying people who build homes now and in the future. Earlier this year, I requested permission from Nashville and was surprised. The response was the same from jurisdictions nationwide; this response led me to say that “the world may never know” how long it takes for a project to go from permit to occupancy in the United States.
Seaton said he had a 72-hour burst of interest in his problem. Then everything froze again. He explained the rules he deals with, such as energy code changes that drive up costs and deplete the savings they create—insulation in the south means additional equipment to manage humidity. The energy law, ironically, makes buildings tighter, but additional equipment is added to prevent mold growth, which increases costs and chews electricity.
Seaton confirmed to me that the music has stopped for residential development and sale in the country. This is deeply troubling for the future, not just for people who see their asset values plummet and builders facing bankruptcy. The day will come when demand will return but supply will be limited when builders, construction workers and other housing and real estate agents leave the profession to make a living elsewhere. Add in all the silly rules, regulations, fees, fines and taxes imposed on housing by local governments when the time is good and construction will be supply-blocking. This will fuel further discontent and possibly lead to more pressure for the government to take over the housing. I hope we go in a different direction.