NEW CONSTRUCTION: Is it Enough to Ease Housing Supply Woes?

BY MICHELE LERNER

Like much of the nation, New Jersey continues to grapple with a housing shortage driving up prices and frustrating buyers. The number of active listings across the total market in the state was 60,984 in July 2016 and dipped to less than half of that at 21,366 in June 2024, according to New Jersey Realtors® housing market data.

Many Realtors® and buyers look to newly built homes to overcome the lack of supply of existing homes, but what’s under construction in various markets doesn’t always meet demand.

“New Jersey is an interesting market, with so much of it developed, new homes represent just a small percentage of the housing supply,” said Dan Fulton, a senior vice president based in Reston, Va. with Zonda Advisory, a residential construction data and consulting firm. Fulton oversees and directs research on projects in the Mid-Atlantic and Northeast regions for the nationwide firm. “Most of the new development is outside of the New York City area. There’s more development in Somerset and Monmouth counties.”

In the Morristown area, multiple builders, including Lennar and K. Hovnanian, are building townhouses to add to the mix of housing in the affluent, walkable town, according to Fulton. Active adult communities are also being built in the area by Del Webb.

“There’s lots of demand for new homes in Morris County, but prices are way up, and land prices are up exponentially,” said Karen Torrente, a Realtor® with Coldwell Banker Realty in Madison. “There’s only so much builders can pay to make the numbers work.”

According to Torrente, much of the demand for new homes in northern New Jersey comes from first-time buyers who are tired of renting in New York City and want more space.

“These are financial analysts and Wall Street people who can pay $2 million to $4 million and want something new after living in old city apartments,” said Torrente. “They can buy a new home with six or seven bedrooms on a halfacre lot for $2.4 million and up.”

Buyers with a budget of $1 million to $1.5 million in northern New Jersey can’t always afford a new singlefamily home, according to Torrente.

“People who can increase their budget will buy preconstruction and wait for a house just so they don’t have to worry about losing out to other bidders on an existing home anymore,” said Torrente.

Development Across Central and South Jersey

Like other parts of the country, New Jersey has experienced a population push away from the cities to outer suburban markets where buyers can find more affordable homes, according to Fulton.

One of the larger developments of new homes, with a mix of housing types along with retail and office space, is at the redevelopment of Fort Monmouth.

“That was one of the last BRAC [Base Realignment and Closure] decisions,” said Fulton. “They kept some of the historic barracks and other buildings that will blend nicely with the new development.”

In Asbury Park, real estate investment, development and finance firm iStar purchased numerous parcels of land for redevelopment, tearing down dilapidated buildings to build new homes, according to Fulton.

“They’ve done a great job turning this into a solid development with a unified vision, plus the area is served by a rail station,” said Fulton.

In Monmouth County, the majority of larger new home developments are active adult communities, said Brian Lichtenthal, a Realtor® with Century 21 Mack-Morris Iris Lurie in Morganville.

“A lot of people in the baby boomer demographic are selling their existing houses to move into these communities for the lifestyle,” said Lichtenthal.

In addition, Pulte Homes and Toll Brothers are building townhouse communities priced in the $600,000 to $1 million price range.

“In New Brunswick, new townhouses start in the low $500,000s, but by the time you pay the lot premium and for upgrades, they’re selling for around $700,000,” said Lichtenthal. “They’re part of a revitalization plan for the city, so the property taxes will be less than half of the usual amount for the first 10 years—around $4,800 annually instead of $12,000 to $13,000.”

While those townhouses are selling quickly, some of the more expensive properties priced in the $1 million to $1.4 million price range are slower to sell because that’s more than buyers can receive for their existing homes, according to Lichtenthal.

“Some new home communities are downsizing their clubhouses and eliminating a few planned amenities to save on costs,” said Lichtenthal. “In the communities that are slower to sell, some builders offer closing cost assistance or to buy down the mortgage rate for buyers.”

Further south, new construction is active in Gloucester County, which is popular with people working in the Philadelphia metro area, according to Fulton.

“There’s a large master planned community called Weatherby with homes that are relatively affordable, starting in the $400,000s, plus active adult components in the same area,” said Fulton. “Nearby in Camden and Burlington counties there are also multiple developments from Ryan Homes, Lennar and D.R. Horton.”

Bruce Paparone, president of Paparone New Homes, a third-generation family-owned builder in Stratford, said his company builds everything from townhouses priced in the $300,000 to $400,000 range, active adult communities with homes priced in the $400,000 to $500,000 range, and single-family homes priced from $500,000 to $1.5 million throughout central and southern New Jersey.

“Our market is very strong now, but it took a long time to recover from 2008,” said Paparone. “It wasn’t until 2019 that momentum really kicked back in.”

From the 2000s to 2010, young buyers and empty nesters gravitated to Philadelphia and away from some suburban developments, but now millennials are starting families and moving to the suburbs, according to Paparone.

“Household formation is the biggest driver of new home construction, but the lack of inventory and high prices on the resale side have also helped,” said Paparone. “New homes look like a bargain compared to resales, especially when you don’t have to bid over the asking price.”

Issues Impacting Prices and New Home Development

New Jersey tops the list of states with the highest property taxes, according to Rocket Mortgage. The state has an average tax rate of 2.2%, and an average tax bill of $8,598 on the median-priced home of $384,700. With that being said, monthly payments can be substantially different depending on property taxes.

“The townships in New Jersey can be very small, so you’ll see a lot of variation from one jurisdiction to the next on property tasks,” said Fulton. “Sometimes a high tax area will be right next to a low tax area.”

Many jurisdictions provide tax incentives to encourage development of new homes, said Fulton, often with a tax abatement for 10 years or so.

Higher mortgage rates impact buyers of both resales and newly built homes, but buyers appear to have adapted to higher rates, according to Paparone.

“Our business dropped off by 40% in 2022 when mortgage rates shot up, but then by January 2023, it reversed itself,” said Paparone. “We did start to see more cash buyers, especially in the active adult communities.”

Supply chain issues and inflation in material costs drove new construction prices higher earlier in the pandemic, but today regulations are keeping costs high, according to Paparone.

“People complain that housing is too expensive, but government regulations are driving up costs,” said Paparone. “For example, storm water management rules are constantly changing. We get development approval but then we have to make expensive changes to adapt when the rules are rewritten.”

Paparone said new homes are already built to high Energy Star standards, but some jurisdictions impose even higher levels of energy efficiency regulations, raising the cost to build by thousands of dollars.

New Construction Advice for Realtors®

Paparone said all his company’s sales representatives are licensed Realtors®, which makes it easier for buyer’s agents to work with them.

“Selling new construction should be easier for buyer’s agents since there are fewer unknowns about the quality of construction and condition of the property,” said Paparone. “Agents and buyers just need to be prepared for the time it takes to complete a house, which can take six months to a year depending on the community.”

Torrente works closely with multiple builders in northern New Jersey who build speculative houses on individual lots or in small clusters. Speculative houses are started before a purchase contract is in place and sometimes offer some personalization for buyers depending on how early in the construction process they purchase.

“It’s important to get buyers to sign an exclusive buyer’s agent contract with you before they go to new home communities to make sure they get their commission,” said Torrente.

For buyers and agents, new construction offers the benefit of avoiding bidding wars, according to Lichtenthal.

“Agents should stay in touch with other agents who work with builders and follow them on social media to know what new developments are planned,” said Torrente.

Torrente recommends agents who are unfamiliar with new construction begin by visiting model homes and asking for detailed information about the homes being built, including floor plans and fact sheets with included and optional features.

“Buyer’s agents should go over warranty information with their clients when they buy a new home to make sure they know what’s covered and any deadlines for making any claims,” said Torrente. “Buyers should always have an independent home inspection on new construction a week or two before the closing to check for any mistakes and get them corrected before they move in.”

Newly built homes may not dominate your market, but awareness of those options provides value to buyers frustrated by the lack of inventory.