Housing market shows influence of coastal boom
Copyright © 2002 Blethen Maine Newspapers Inc.
A hot housing market in the southern and coastal parts of Maine is beginning to affect home prices in bordering regions as prospective buyers find they can buy more house if they accept a longer commute to work, the author of a new housing report says.
The central Maine area from Augusta to Lewiston is feeling the effect of this shift, but Frank O'Hara of Market Decisions Inc. in Hallowell, who prepared the Maine State Housing Authority's recently released semiannual report on "The State of Maine Housing," says his research shows this area may be missing out on some important opportunities for the future in the midst of the surging real estate market.
"One interesting housing story for this area is the major retirements that will be happening in state government over the next five years," O'Hara said. "Something like 5,000 people will be eligible for retirement. A lot may possibly be leaving the area or possibly not, and a whole younger group will be replacing them, so there could be a lot of change in the housing market in the next five years."
O'Hara said the region, and Augusta in particular, should be planning the development of upscale condominiums and other nontraditional housing options for empty-nesters either moving out of their long-time homes or for young professional couples moving into the area who want easy access to city life and work.
"Today's young people seem to be more urban-oriented than my generation, who wanted to get out in the country," O'Hara said.
Members of both groups are likely to be looking for comfortable living in attractive places that are close to cultural events and other amenities.
"We don't have good housing stock for those groups. We're very house- and apartment-oriented," O'Hara said. "One Realtor told me if you could build condos, say with a river view, she could sell lots of those. They're backlogged for those kinds of things."
O'Hara said Augusta has been blessed not only with a relatively stable employment base provided by state government and associated businesses, but also with a burgeoning retail sales sector, all of which has maintained strong demand for housing in the area. Add to that demand for housing from people in southern and coastal regions, and prices have jumped.
"People are always moving into the area to work for state government or one of the associated businesses. I get calls from people who say they know someone who's moving in. Do I know where they can get a nice apartment?" O'Hara said.
Market forces that affect Maine come from well beyond the state's borders, the experts say.
"The Boston market, which goes through southern New Hampshire to southern Maine, is beginning to manifest itself in other parts of the state. That seems apparent," Maine State Housing Authority Director Michael L. Finnegan said.
Writing the introduction to his agency's 2002 report, Finnegan said, "Where in 1999 housing was just emerging from a decadelong slump, today many parts of Maine are riding a wave of record home prices and rental inflation. ... Maine faces an unprecedented challenge in developing affordable housing for its young people and retirees at a time when federal resources for housing are at a low ebb."
As the southern Kennebec County changed, the Waterville area seems to have felt only small ripples of those market forces so far, O'Hara said, despite its proximity.
High vacancy rates for rental properties and long waits to sell houses are indicators, as are the relatively bargain prices for homes in the northern part of the county, including Waterville. But O'Hara said at some point those relatively inexpensive housing costs could become attractive, particularly to workers in the capital city who begin to be squeezed out of the market in Augusta.
O'Hara also said these market conditions are ripe for so-called service-center communities such as Waterville and Augusta to begin to market themselves to homebuyers, not only to bolster their populations but also to help fill schools that have been losing students to surrounding suburbs in recent years. That leaves them with expensive but partially filled schools they have to maintain.
"There are great bargains in Waterville. There are great houses you can get very inexpensively right now," O'Hara said. "That could become an economic development asset. Great houses for under $100,000 might not be such a great buy four years ago, but now it's looking pretty good."
Charles G. Roundy, owner of Governmental Resources, an Augusta-based consulting firm that is about to publish a housing study prepared for the city of Waterville, explained that Waterville has a large vacancy rate, but a small fraction of that is composed of single-family homes. He said Waterville and adjacent communities offer some relatively inexpensive houses compared with other areas, but not many.
"I suspect on a secondary level Waterville is beginning to feel it, but at nowhere near as much as Augusta," the former Augusta economic development director said. "Waterville's economic conditions are very distressed."
Despite these economic realities, Roundy said he has seen a slight jump in housing prices recently.
"There is no apparent reason to justify in Waterville why house prices have increased 10 percent in the last 18 months," Roundy said. "If the Waterville economic base is sitting stagnant and the population is the same, what explanation is there for the median price going from $69,000 to $79,000? There's nothing I can account for it other than people from Augusta moving to Waterville."
While only about 20 houses may be on the market in Waterville at any one time — 111 sold in that city last year, Roundy said — there are bargains when viewed through the prism of southern Maine market forces. "A house in Waterville you'd pay $75,000 for, if you picked it up and plopped it in Portland, it would sell for $175,000," he said.
At some point, the multitude of rental units in Waterville could become a positive economic factor for that city, Roundy said. As it is, however, rents are kept so low by the high vacancy rates in the city that renovations don't become a priority, Roundy said. For landlords to invest the money, they have to believe others will invest at the same time to make whole districts attractive to higher-income renters.
O'Hara said the demographics of an aging population also have implications for housing development in coming years.
"The baby-boom generation, of which I'm a part, you get to a certain age where you have more disposable income and you want to make improvements. ... You can have flat population growth but still have a lot of money going into houses."
O'Hara said efforts to maintain affordable housing in the state as housing prices rise require major changes in local zoning regulations. And the only way communities are going to loosen up those restrictions will be if the state takes bold steps to ensure taxpayers in those communities won't be left vulnerable to large increases in school populations and other municipal expenses.
To combat those concerns, O'Hara said, probably will require far-reaching tax reform by the state to relieve property tax burdens at the municipal level.
But if housing can be made more affordable by providing apartments and lower-cost starter homes, it could serve as an important economic development tool for those communities taking the lead, because companies looking for new locations are often drawn by available work forces.
"Our zoning and our mind-set is not oriented around that kind of development. We don't make it easy to do that sort of thing. Local governments have to think about that rather than just single-family housing," O'Hara said.
Gary Remal — 623-3811, Ext. 518 gremal@centralmaine.com