Residential Development Plunges In South Florida As Rising Costs Hold Back Construction

Residential Development Plunges In South Florida As Rising Costs Hold Back Construction

Despite South Florida’s status as one of the fastest-growing regions in the United States, its pipeline of housing units is slowing sharply.

New residential housing permits in South Florida dropped 21% in 2022 compared to 2021, the Sun Sentinel reported, citing data from Point2Homes. The high cost of land, stubbornly high construction costs, rising interest rates and tightening loan requirements all weighed down the development pipeline.

While new residential construction permits in South Florida plummeted, statewide they fell just 1% from 2021, showing the particular challenges facing the region when it comes to addressing its affordable housing crisis.

“The cost of land is outrageous in South Florida compared to other places,” OneWorld Properties CEO Peggy Olin told the Sun Sentinel. “A lot of developers are analyzing the price of dirt, and it doesn’t make sense. Construction costs aren’t coming down and it’s becoming cost prohibitive to make the numbers work.”

There were 55,080 multifamily units under construction in the first quarter, according to a South Florida market report from Lee & Associates. That marked an increase of 769 units compared to what was under construction at the end of 2022, but the pipeline’s growth slowed considerably: Between the third and fourth quarters of 2022, more than 9,000 units broke ground.

“Though not impervious to broad economic difficulties, the substantial influx of people moving to Florida has reduced available single-family homes in most areas, making apartments a relatively more budget-friendly option,” Lee & Associates Senior Vice President Andy Hidalgo wrote in the report.

The construction permit slowdown comes as developers flood the market with newly constructed apartments — 4,613 units were added to the region’s inventory in the first quarter, pushing vacancy up by 0.3% to 4.8% while asking rents rose by 0.7% to $2,097, according to the report.

Those deliveries haven’t alleviated the affordability crisis in South Florida. Hidalgo highlighted the widening gap between the luxury and affordable housing market, noting in the report that “the scarcity of Class C apartments has intensified the demand for lower-tier rentals, particularly in the more reasonably priced neighborhoods in South Florida.”

The continued demand for housing is being driven in part by the influx of new residents to the region during the pandemic. Between July 2021 and July 2022, the state ranked as the top destination for relocations from other states and the second-most popular destination for international migration, according to Census Bureau data. More than 444,500 people moved to the state during that one-year period, more than double the 185,000 inbound Floridians the year before.

The Florida Legislature and Gov. Ron DeSantis are trying to address the affordability crisis with the Live Local Act. The bill, signed into law March 29, provides $711M for affordable housing projects, including $259M for low-interest loans to developers, $252M for local governments to preserve and produce housing, and $100M for a loan program designed to alleviate inflation-related cost increases. It also banned local governments from enacting rent control and allows developers to ignore local zoning rules if they build projects in commercial corridors where up to 40% of the housing units are kept affordable.