Despite demand, few homes are built in rural Iowa due to dearth of developers and builders

November 23, 2020

By Jon Wolseth, CED Interim Associate Director

Back in the early 1970s, my parents embarked on building their first home as a married couple – literally. My father was a civil engineer and had grown up on a farm in rural North Dakota in a house in which he helped his father install indoor plumbing as a teenager. In other words, my father had skills and was undaunted by the task of constructing a home from the foundation up. He knew what he could do (framing, insulation, roofing), what he could have friends help with (electrical work, HVAC), and things he needed professionals to do (pouring the foundation).

Together with my mother he spent hours after work and on weekends building that house. My father recalled that as the single most important accomplishment he had completed up until that point in his life. My mother remembers it almost ruining their marriage.

Most Americans today, however, don’t have the skill base, the knowledge, or the determination to build their own homes. Instead, houses are bought premade, whether older fixer-uppers in need of updating and a little TLC, or newly built (or near new) and turnkey ready. Buyers are constrained by the housing stock on the market. Needless to say, purchasing a home is a big-ticket item and unless done under time constraints, most home buyers would rather wait for a house that meets most of their requirements at a price point they can afford than make too many compromises. One such consideration is opting for a longer commute by moving to a neighboring town or county because there are more available or desirable homes from which to choose. Cities without desirable housing stock will consistently miss out on attracting new residents.

Map of Iowa showing the five-year aggregate of housing permits authorized for single-family unit construction in Iowa, 2014-18.Leaders in rural communities tell us that the demand exists for new homes, yet in many communities it is obvious that homes are not being built. Statewide data for the number of housing permits granted by county indicate why concern may exist. More than half of Iowa’s counties built less than 100 new single-family homes between 2012 and 2018 (map 1). That’s an average of less than 20 new homes per year. Twenty counties in the state built less than 30 new homes in that same five-year period. The primary reason, community leaders tell us, is a lack of housing developers and contractors in rural areas.

In order to understand this claim, we will look at statewide data for registered contractors, but first we need to distinguish between housing developers and builders.

Housing developers grade and prepare lots for buildings to be erected. This includes creating lots, getting permits, connecting utilities, and installing infrastructure such as sewer, water, streets, and sidewalks. In other words, housing developers make sites buildable. In some instances, a city or local nonprofit organization may play some of the role of developer, utilizing federal or state funding to create and prepare a housing subdivision.

Builders, on the other hand, erect houses. They typically specialize in the kind of work they do. Some construct custom, high-end homes for clients. Some may be enticed to build more modest spec homes in the hopes of attracting a buyer. Other builders may have the capacity to work on multiple houses in a subdivision at the same time. Some housing developers, for instance, can be builders, or, at the very least, have relationships with builders of preference to whom they contract projects. Builders often subcontract out parts of projects to others, such as electricians, plumbers, or finishing contractors. Home construction, then, requires not just builders, but additional firms and workforce to make a project come to fruition.

The State of Iowa requires that all contractors, builders, and developers register their firms. The list is managed by Iowa Workforce Development and is searchable by county, city, and principal activity (https://contractor.iowa.gov/IowaIWD/CREG/publicSearch/publicSearch.jsp?lid=&eaaUserId=).

Using a public records request, CED staff obtained a spreadsheet of all contractor firms registered in the state. We then set out to map the counties where the firms were registered in the hope of seeing if the refrains we’ve been hearing about difficulty finding contractors rang true to the data. Granted, just because a contractor is registered in one county doesn’t mean they would be unwilling to work in another county; indeed, there is likely sharing across neighboring counties. However, there is inconvenience and expense in traveling too far outside of one’s base of operations. Firms may be willing to travel two counties over for a job but are less likely to travel across the state.

Map showing the number of registered single-family housing developers in Iowa by county.Map 2 shows the distribution of single-family housing developers per county across the state. In total, there are only 73 such developers registered with the state. Unsurprisingly, the highest concentrations are in Polk, Linn, and Johnson Counties. There are many counties in the state that do not record having a registered single-family housing developer. Even when taking into account that some counties could be served by adjacent areas, the northern and southern tiers of Iowa are likely not being served at all. Map 1 confirms this, as many of these counties have issued the smallest number of new housing permits.

Housing developers work at larger scales and so it is understandable why there are few who serve rural areas in the state. There may not be the kind of regular demand for new housing subdivisions to sustain firms in rural areas.

The number of builders specializing in single-family housing construction may be the more telling statistic (Map 3). Nine counties in the state have zero registered builders; 26 counties count one or two. Unfortunately, firms do not indicate whether they build primarily spec or custom homes, so the data are unable to be broken down further. It is likely, though, that many firms that registered as specializing in single-family construction fill out their portfolio by building additions, garages, and more complicated rehab or refurbishing projects. Again, comparing with Map 1, we see that counties with fewer registered single-family housing builders have fewer number of housing permits being recorded.

Map showing the number of registered firms in Iowa per county specializing in new single-family housing construction.Communities need access to builders for new housing to be constructed and proximity of builders can lower the cost of construction. Increasing the number of builders in rural areas, however, is a workforce and small business development issue that cities can’t easily remedy. There is a role, then, for community colleges and state government to address this issue through education, incentives, and technical assistance. Regional cooperation and coordination could also secure builders and developers to work on multiple projects at the same time, making it more financially attractive to work in rural counties.

Finally, wrapped up in conversations about the dearth of developers or contractors is the question of financial risk. With the exception of custom homes, developers and builders speculate that a house will sell. Unless some other arrangement is made, builders assume the risk. If it takes a long time for a newly built home to sell, or if it sells at a much lower price than planned, the builder loses money. In communities where there has not been recent new housing development, builders may be wary that there is insufficient demand. Instead, they will turn to markets where they know they will have success. For communities that do not have a track record of new construction, they may need to consider guaranteeing the sale of spec homes, at least initially, to prove that demand exists. This could be done by a nonprofit entity that purchases the home for an agreed upon price if the home does not sell within an agreed upon time period.

New houses don’t build themselves. It takes time, money, skill, and knowledge. Few individuals are willing and able to do it on their own like my parents were with their first home. Qualified firms must be available to meet the demand. Rural communities must have access to builders and developers to add new homes to the existing housing stock. Without it, communities will have a hard time attracting new residents or sparking movement in their housing market. Residents will choose to move elsewhere.

 

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