With the release of our latest annual Local Leaders list—the ranking of the top 50 new-home markets ranked by closings, and the top 10 builders in each market—BUILDER takes a closer look at a few of this year's fastest-growing markets on the list. Today we focus on the seventh fastest-growing area, Richmond, Va.

Since the Great Recession, the “slow and steady” narrative has characterized the Richmond home market as it’s bounced back over the past few years. The city has hovered in the last few spots on our Local Leaders list of the top 50 new home markets (and their top 10 builders) over the past few years, not able to break out of the bottom 10 spots since 2010. This year, the market ranks 44th, up from the 50th spot last year. You can see the full list here.

While new home prices were essentially flat at $373,808 in 2016 compared to 2015, new home closings were up 6% to 2,984 in 2016 compared to 2,812 homes in 2015. The number of permits issued were up 10% in 2016, reaching the highest level since 2007, according to the 2016 RVA New Home Market Report. The Home Building Association of Richmond (HBAR), which collaborated on the report, says the numbers signal that the market will continue to see steady growth in 2017, and is optimistic about the years ahead for local home builders.

“The market is improving slowly but surely, just like the national market. It’s not crazy, but we are seeing some nice increases in sales,” says Patrick McCarthy, division manager of Blacksburg, Va.-based HHHunt Homes’s Richmond division. The company ranked second for closings in 2016 with 378, behind NVR, a Ryan Homes subsidiary and the only national builder in the market that year.

The growth in home sales has been in part driven by new jobs opening up in the area from large employers such as Capital One, The CoStar Group, Virginia Commonwealth University and its healthcare partners, and a new paper plant that will bring almost 2,000 new jobs to the area.

“We’re not a huge boom-and-bust job market, and we have steady growth that’s mostly from private industries,” says McCarthy. “That’s what’s driving really consistent job growth and that’s really where it all starts—people come in and, of course, need new houses, so it’s allowing us to see better growth in home sales.”

As the need for new homes in the market grows, builders have been plagued with challenges surrounding the availability of lots and land acquisition. This shortage of lots means it can take some builders in the market up to two years to get properties online, says McCarthy.

“Land prices are starting to get a little steamy right now. We had a long period of time where there weren’t a lot of entitlements going through the municipalities, so the lots that were approved six or seven years ago would just now be coming online, and there aren’t enough of them to keep lot prices down,” he says.

The kitchen in StyleCraft Homes' Madison model located in Harper's Mill. The Madison starts at a base price range of $310,000-$440,000.
The kitchen in StyleCraft Homes' Madison model located in Harper's Mill. The Madison starts at a base price range of $310,000-$440,000.

Land shortages have slowed the growth of some of Richmond’s local builders, including StyleCraft Homes. With 100 closings in 2016, StyleCraft is the fifth largest builder in the market. President and co-founder of the company Richard Kuhn says that the company is expecting a boom in sales and as lots that the builder acquired more than a year or two ago finally come online this year.

“We are going to experience over 100% growth this year from last year, and are projecting another 100% for 2018,” he says. “Not a lot of development occurred during the downturn, so a lot of [our growth] is predicated on our lack of land position last year.”

Dialing In on Demographics

When it comes to buyers, Craig Toalson, chief executive officer at the HBAR, says that move-up and Gen X buyers are the driving force of home sales in the area, and present the most opportunity for builders. HHHunt’s McCarthy says the company has seen the most growth with their single-family homes in the $350,000 range, often purchased by move-up buyers.

With more capital and the advantage of a strong stock market, boomers are also good buyers in the Richmond market as they’re able to put down larger down payments and purchase homes at a higher price than younger demographics.

As in other areas of the country, millennials in Richmond are still struggling to make the switch from renting to owning. “Our builders would love to build in the first-time home buyer market, but with the cost of land, materials, and labor the way they are, it’s so hard to build in that price range,” says Toalson.

HHHunt targets millennial buyers with townhomes, such as these Davenport townhome models located in the Rutland community in Mechanicsville, Va.
HHHunt Homes HHHunt targets millennial buyers with townhomes, such as these Davenport townhome models located in the Rutland community in Mechanicsville, Va.

While some builders are focused on selling to an older demographic, others are finding solutions to work around pricing constraints and appeal to the first-time millennial buyer.

“If we can find lots for them, townhomes are doing very well for us with millennials,” says McCarthy. “A lot of millennials are being priced out of single family homes right now, so they are purchasing townhomes to get started, so we see a good market with that.”

StyleCraft Homes also focuses on offering a lower-priced entry point for first-time buyers. “We’ve got several new condo projects coming to the market in the next 16 to 18 months,” says Kuhn. “We start at about $180,000 for a 1,400-square-foot for-sale multifamily product. With the land prices the way they are, it allows us to get more density out of the project and make it more affordable for the first-time buyer.”