In his State of the State address last week, Governor Holcomb hailed an unprecedented economic development hot streak for Indiana – six consecutive years of record-breaking capital commitments, including $22 billion in 2022.
It’s a number worthy of a victory lap, but the Governor hopes to set an even faster pace for business expansion and job creation, urging lawmakers to pass a budget that helps Indiana “fly out of the fourth turn and edge out the competition” over the next two years.
Economic opportunity is fueled by human capital, and talent is a deserving theme of Governor Holcomb’s agenda: Attracting Hoosiers by choice while raising the bar for educating our homegrown workforce from preschool to post-secondary degrees and training, investing in amenities like trails that enhance our lives and public health programs to extend them.
Indiana REALTORS see another growth priority that demands attention – to call Indiana home, talent needs homes to call their own. But our housing supply isn’t keeping up with population or employment gains, threatening to put the brakes on our momentum.
Indiana grew by 125 new households for every 100 new housing units built over the last ten years. The state’s economy created more than twice the number of new private sector jobs versus housing units since 2010.
REALTORS market data depicts a more dramatic slide in housing supply as defined by monthly active listings: Our average inventory of homes for sale has dropped 80% since the start of the 2010s. Especially over the past five years of strong net migration and new business investment, this has meant rising prices and intense competition among homebuyers for fewer options.
REALTORS have grappled with this market imbalance first-hand, through the growing numbers of frustrated Hoosiers who can’t find or afford homes that suit their families close to work, especially around centers of economic activity and employment.
The growing gap between residential supply and demand pushes employees further from jobs, creating longer commutes and higher hurdles to recruiting and retaining talent. Housing is clearly a workforce and business climate issue.
This was confirmed when proposals for new housing projects made up more than a third of total funding requested through the first round of the Regional Economic Acceleration & Development Initiative (READI) program. While Indiana administered nearly $200 million in federal housing funds in 2021, these dollars come with little flexibility to support new housing development. READI demonstrated the demand for state-level support to fill the gap.
The General Assembly followed up by creating an Indiana Housing Task Force in 2022 to study strategies for rebuilding residential inventory.
So as the legislature begins negotiating a new state budget, housing and homeownership are squarely on the agenda. But do supply-side challenges have the same urgency now after the market slowed down in 2022?
The answer is “yes” – national dynamics only hit pause on our inventory pressures. The Federal Reserve raised interest rates seven times to clamp down on consumer inflation, causing mortgage rates to rise from 3% in January to over 7% in October. But despite higher rates pushing homebuyers to the sidelines, Indiana real estate was cooled but not frozen.
Statewide home sales fell 11% from 2021, but outperformed national sales trends (down 16% year-over-year) and finished less than 2% below 2019. Indiana’s median sale price grew 11.9% (to $235,000) and homes continued to sell briskly for an average of 99% of original listing price – all clear signals from the market that tight inventory persists across much of Indiana.
Inflation appears to have peaked last fall, and mortgage rates decreased seven of eight weeks to close 2022. As demand recovers, housing capacity will continue to test the limits of Indiana’s growth plans and our credibility as a place where low cost of living meets high quality of life.
One role for state government in promoting new housing is addressing the rising costs of public infrastructure associated with residential growth. We’ve seen the impacts of inflation on homebuyers and homebuilders, but the average costs of new roads and sidewalks, storm- and wastewater systems, other utility needs and material inputs have also spiked more than 40% since 2020.
These costs discourage development and strain the budgets of local governments. We strongly support state-backed grants, loans and financing tools to ease the fiscal impact of new housing – a key finding of the Housing Task Force captured in House Bill 1005 authored by Rep. Doug Miller.
Indiana REALTORS also endorse a second round of READI grants. ‘READI 2.0’ should prioritize housing as a cornerstone of regional development plans, recognizing the importance of accessible and appealing housing in attracting and retaining talent to put down roots in Indiana and put their skills to work in our economy.
After a challenging 2022, we expect the real estate sector to be firing on all cylinders again by the end of the next state budget biennium – especially here in Indiana, where we tend to avoid the boom-or-bust cycles common along the coasts and across the Sunbelt. But state investment is a necessary part of a blueprint for rebuilding our housing market.
Commitments made through Indiana’s current budget process can begin to address longer-term challenges in housing inventory, helping maintain Governor Holcomb’s “pedal to the metal” hopes for attracting people and employers and making homeownership a practical reality for more of our current and future Hoosier neighbors and co-workers.