Housing Supply, Lumber Costs A Challenge As Maine Real Estate Prices Continue To Increase
The Maine Real Estate Development Association is out today with its annual index, which tracks changes in the residential and commercial real estate markets, as well as construction employment. Association President Josh Fifield spoke with Irwin Gratz about the latest trends.
This interview has been edited for clarity.
Gratz: Well, let's talk in in broad strokes about real estate sectors. Was there any particular sector that showed more vibrant activity than others in the latest quarter?
Fifield: There was obviously a big shift of folks who are deciding to move to our state, the state of Maine, over this past year. And that's led to a significant amount of price changes when it comes to residential pricing. Over 2019, we saw a price of an average unit increase almost 28.9%, when comparing against fourth quarters, which is remarkable, as folks are, are eagerly trying to find a place to live here in Maine. So I would say a good portion of the index increases, as has to do with the fact that we've had a surge of residential housing that folks are looking to move to Maine.
Gratz: And supply has been part of the challenge there, has it not?
Fifield: So supply has been the biggest challenge. And obviously, the demand exceeds just supply, which is, which is why we've seen such a remarkable change of an increase. And we've had some challenges with regards to trying to get more housing built, in general, more affordable housing put in place. We have been starting to see the increased demand from young professionals who are looking to escape those high priced areas outside of Maine and areas like San Francisco, New York, Boston. We just got to make sure we have enough housing for them to continue to stay here past the pandemic.
Gratz: Well, there may be something else too, one of the big questions that hangs over the post pandemic world is what's going to happen to work, especially office work. And I guess I'm curious as to whether or not there's any clarity yet about what all of this is going to mean for Maine?
Fifield: There was a pretty good drop in office lease transactions from 2019 to 2020. In my own office based here, you know, everyone had to kind of work from home for a long period of time, then we returned to the office. And then we did make some changes to allow more work from home opportunities. You know, what we found, the biggest need was that people crave and employees crave the desire to work together and collaborate. And for that reason, the expectation is that we'll continue to see the need for office space, it may look a little different going forward and it may not be the same large structures that are needed as much. We've had some, you know, some employers that have shifted out of downtown Portland, looking for more space, maybe looking for more opportunities for where they could have employees go for walks during the day. I think overall, we'll probably see a good rebound here the next next year or two.
Gratz: The prices for goods used in construction have also been rising of late. Is there any sign yet that that's impacting development in the state? Or is that a potential obstacle going forward?
Fifield: We did get a Barra Risk Report recently that did describe the price of lumber costs being up upwards of 84 to 87%. Compared to last year, that's a staggering number. I can't speak to the fact that it's delayed or stopped development at this point. But I know that it's a moving target when looking at the cost per square foot on a reconstruction or a new build. I have the sense that if it continues on this upward trajectory, it would cause some concerns and something we have to continue to monitor.
Gratz: There is a lot of the federal pandemic aid coming into the state. More is proposed as well. Is any of that affecting or likely to affect real estate?
Fifield: Well, I think if there's an opportunity for that some of it has gone to rental assistance. You know, the federal government has done a good job of helping situate you know the resources needed in as long as we can continue to make sure that resources is getting into the right hands. And if it is not being used, hopefully it can be returned back to the government so it can be allocated to other opportunities like roads and bridges and other opportunities to kind of strengthen our infrastructure.