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Increased Construction Costs Creating Sellers & Renters Market

With the renegotiations that have surfaced under the current government, Memphis’s land, home, and construction prices are soaring. Currently, Memphis homeowners and investors have seen a 3.6%  increase in home value this year. This real estate boom is not as surprising as it may seem, however. It is directly correlated to the increased cost and difficulty in building new properties in Shelby County. There are many variables that play into this increase in cost and difficulty, and though it may appear as though the housing market may take an unfortunate turn, these circumstances have actually created a fantastic opportunity for anyone looking to sell their current properties. Not only is this a seller’s market, but it is also a prime time for current and potential renters in the city. Renters and those selling their properties will likely benefit the most during this real estate boom.



Construction Costs

There have been drastic changes to US steel and lumber exporting and importing tax laws and regulations. Steel and lumber are two key components to building any structure. The cost of lumber and steel used in property development has already increased by over 45% due to the changes that have come from the new tariff laws, and this drastic increase directly hurts the construction industry. In Memphis, the average construction costs for developing a home has increased by 32% since the beginning of 2018. This extreme hike means that a house that previously cost $200,000 to develop will now cost at least $264,000. The implications of these price increases are not simply numeric; construction companies are now being forced to cut labor hours, crew members, and buy cheaper materials. Residential property development will be the first to see the effects of these changes because stakeholders, property planners, and construction crews are now focusing their time, energy, and money into developing commercial properties over residential buildings.

All of these variables have created a real estate market that favors already developed properties. Developed properties are increasing in value and will only become more profitable under the current tariff regulations. However, the current tariff negotiations are still uncertain, and the longevity of these decisions are not entirely set in stone; they are, nonetheless, causing an immediate and drastic increase in property value that has created an opportunity for homeowners to sell their homes for a premium. The current negotiations have also created a renter’s market in Memphis. While the cost to construct a home has increased dramatically, rent prices have remained steady throughout the county. Under the current market structure, those considering building a home or developing land may want to hold off until the market is a little more steady and construction costs have dropped again.


Shelby County Regulation

Along with increases in steel, lumber, and labor costs, Shelby County and MLGW have agreed to stop building and developing new sewer systems. This may not sound like too big of a deal, but it only further complicates new housing developments. Any homes or neighborhoods built outside of previously developed segments of land will be forced to rely on a septic system. The city, county government, and MLGW will not be held responsible for any maintenance or upkeep on septic systems, therefore if anything goes wrong or the tanks need to be maintained or replaced, the neighborhood or home is solely responsible. This decision stems from the development boom that Memphis experienced in the 1990s. Properties were quickly zoned and developed with ease. However, after the 2007 recession, MLGW and Shelby County’s policy-makers decided that building any new sewer systems would be too expensive to maintain or develop.


The culmination of the increases in material prices, increases in labor costs, and the unwillingness of Shelby County and MLGW to develop any more sewer systems have created a real estate market directly benefiting sellers and renters. Sellers are benefiting because their property values are steadily increasing, and renters are benefiting because the average rent in Memphis has remained steady throughout these changes. Properties that now sit on previously constructed sewer lines are seeing an increase in value because of their prime location, and previously built homes are not susceptible to pricing changes or increases that have come with the new tariffs. Property values in Memphis will undoubtedly continue to see major increases unless the current tariff negotiations and regulations see even further change. 

Posted by: Joseph Blossman on July 25, 2018
Posted in: Uncategorized