Meeting with Federal Reserve Bank of Richmond President on Housing

Richmond, VA – Members of the Home Building Association of Richmond’s (HBAR) Executive Committee and Multifamily Housing Council met with Tom Barkin, President of the Federal Reserve Bank of Richmond, to discuss local market conditions and challenges related to development financing, project pipelines, and operations of for sale and for rent housing. Read Tom Barkin’s opening remarks, here.

Highlights from the discussion:

The Fed can approach the 2% inflation target in a variety of ways. How that impacts housing is uncertain. Mr. Barkin shared “Fed Optimism” that keeping rates where they are currently will help bring down inflation – the course is: “take our time.”

Mr. Barkin declared working through the supply side of the economy will help reduce inflation, including housing. He noted housing demand has held up much more than anticipated; there were only a few months with a drop in housing prices. Due to the housing supply deficit prices remain firmly high.

Members spoke about the challenges of project financing for multifamily projects in the current environment, including a lack of available debt and equity and persistently high labor and construction costs. The result means a sizable reduction in multifamily housing starts over the next 12-24 months.  

Members emphasized the reduction in multifamily supply combined with a growing population will result in rent increases which may be felt as early as next year and more rigorously in the latter half of this decade. They asked compelling questions such as “how will higher rents over the next several years impact the inflation equation?”

Single-family builders reported some relief in construction material cost but sustained prices in a large part such as drywall, concrete, electrical, HVAC, and plumbing, which continue to drive up housing prices. Front line labor costs also remain sustained across all products. There has been no reset to pre-pandemic boom labor wages.

Regulations imposed by government continue to drive up housing costs and lessen the housing pipeline.  While Virginia is the northernmost southern state and southernmost northern state and that’s positive for demand, our housing supply is constrained by regulatory and entitlement challenges at the local, state and federal levels.

Regarding the affordable housing challenges the region faces, members voiced concerns that a shortage in multifamily and single-family deliveries in the near term will ultimately result in upward pressure on rents and home prices, further exasperating affordability challenges.