With historically low home permits so far, builders weigh in on slow start to the year

With nearly three months into the year, building permits for fewer than 30 new homes have been issued so far in Sioux Falls.

In part, blame the weather, said Doug Top, president of Doug Top Construction and current board chair for the Home Builders Association of the Sioux Empire Inc.

“Nobody is digging holes when there’s been this much snow,” he said. “I think that’s a big contributor to it.”

Past winters have brought considerably stronger numbers, with permits for 143 homes issued during the same time a year ago and the 162 that got started in 2021.

But combine weather-related challenges with mounting headwinds from interest rates, and many builders are finding it makes more sense to wait, Top said.

“It’s going to cost extra to thaw out the ground and break the frost,” he said. “Now that extra thousand might pay the extra cost of interest for three months while you’re building the house.”

Kelly Nielson, whose company Nielson Construction has been a prolific homebuilder in recent years, said he’s planning to build half of what he did in 2022.

“Buyers’ demand is less, we assume because of rates and weather,” he said, while noting that January and February still were better for sales than November and December 2022.

“Lumber costs are down; most all other products stayed the same,” Nielson said.

What didn’t: “Construction interest for financing the investment is up 95 percent from last year,” he said.

The interest rate environment is halting potential buyers too.

“If you take what your payment would be for a $345,000 house a year ago compared to what it is now, you’re looking a lot different equally and that correlates with all the twin homes you’re seeing,” Top said. “Everybody is looking for that price point to get out of an apartment. And we still have so many people moving to town, we’re just trying to find them places to live.”

Twin homes and town homes will comprise much of Empire Homes’ building plan this year, co-owner Brady Hyde said.

“We’ll continue doing what we’ve always done, it’s just going to be at a reduced pace,” he said. “If we sold in the high 100s last year, it might be down 25 or 30 percent and largely dependent on interest rates.”

“I think your town home is just that — your first-time homebuyer opportunity, especially if it’s a single-income home in new construction. That’s definitely the case. For our inventory, we have what we need. We’ve had reasonable sales in Q4 and into Q1, so no panic on our end. But we don’t have the desire or the need to be pushing on the gas with both feet.”

Where they’re building

Available land also drives new homebuilding — and in certain parts of Sioux Falls, that’s harder to find.

“I’ve built on the west side, and we’re landlocked with our infrastructure,” Top said. “It’s exhausted on the west side. The southwest is feeling the same way. Tea and Harrisburg are growing because they have land available … and people are having to travel farther to find what they want. It is difficult to find land. That’s one of the things that’s really hard right now.”

In south-central Sioux Falls, land for new homebuilding has been all but nonexistent for the past few years, driving buyers to Harrisburg and Tea. The far southeast side of the city has more availability, as does the northeast — where the bulk of single-family new construction has been occurring.

“We have a development of town homes off 69th and Southeastern, and we’re continuing to build and put in new foundations,” Hyde said. “We’ll have 57th and Highway 11, and that’s single-family, town homes and twin homes, and we have permits coming for twin homes in that development in the next 30 days. And our last is 41st and Six Mile Road, and we’ll have single-family and town home permits coming for those in the next 30 days.”

The housing crunch is captured with a look ahead to the semiannual Parade of Homes event, organized by the Home Builders Association. The spring event in May is coming up, “and I think we have 24 homes on it, and that’s a pretty big indicator of what kind of inventory is out there,” Top said.

“And some of those are pre-sold. The spring is always smaller than fall, but in the fall we’ve had as many as 84 or 85. The goal was 40 homes.”

Note: Since this story originally ran, the Spring Parade of Homes has grown to more than 60 houses.