The Housing Problem Part Three
By LYDIA BERGLAR
News Editor
“In more than 200 U.S. cities, $1 million only gets you a starter home.” This headline of Megan Cerullo’s CBS News article from July 2024 is shocking. Thankfully, this statement isn’t true in Dade County. Instead, $250,000-$300,000 gets you a starter home, but with current interest rates, this is still higher than the average household can afford.
While Cerullo’s article offers a brief summary of the national problem, local flipper and landlord Tyler Hughes notes that it’s important to look at housing from a local standpoint. As he puts it, “When you listen to CNN and Fox News talk about the real estate market, they’re talking about it from a national perspective. Real estate is local. What’s happening in Chattanooga isn’t the same thing that’s happening in Las Vegas or Boise or Texas.”
Hughes has a good perspective on the Chattanooga region, including north Georgia, because his company manages about 60 rental units, 40 of which are in Dade.
Although he lives in Chattanooga now, Hughes grew up in Dade and is often in the county for work. He’s been in the real estate business since 2016, and his primary LLC is Integrity Property Solutions. He flips homes, sells some of them, and keeps others as rental properties. He primarily works with single-family homes and duplexes.
Hughes reported that about 80 percent of Integrity Property Solutions’ rentals cost under $1,000 per month. “We try to be under market rents, and I think we are more affordable than most management companies and landlords. A lot of that is because we are in markets like Trenton and Rossville. We don’t have a lot in North Shore Chattanooga or Red Bank.”
Hughes estimated that the average Integrity Property Solutions customer earns a little less than Dade’s average household income (which is just under $59,000 per the United State Census Bureau).
One of Hughes’ goals is to provide affordable housing options in his hometown and in the greater Chattanooga area, but increases in property taxes make it difficult to keep low prices. Hughes said, “When taxes increase drastically, it’s very difficult to hold those prices, but we’re doing the best we can do. Dade’s property taxes did go up some, but I thought it was more reasonable than other surrounding counties.” He noted that his properties in Catoosa County in particular had higher tax bills.
(Catoosa’s county commission and school board both decreased their millage rates in 2024, but due to rising property values, owning real estate became more expensive. The “Chattanooga Times Free Press” reported that Catoosa’s assessor adjusted property values 30 percent higher on average in 2024.)
From what he’s seeing in the greater Chattanooga area, Hughes said the median price for a three bedroom/two bath house is $350,000—a bit higher than in Dade.
Based on trends he’s already seeing in Dade, Hughes anticipates challenges for local buyers due to increased competition. “I think we will see more buyers enter this market because it is more affordable. Competing with someone who has a higher income coming from Chattanooga will put pressure on people who want to buy here at that median price point.”
Hughes estimated that three or four years ago, 90 percent or more of his resident pool was from Dade. Now, he estimates that only 60 percent are from Dade while 40 percent are coming from Chattanooga in the search for cheaper housing. One of his tenants recently moved from a suburb of Chattanooga to one of his Dade units, dropping from a $1,350 monthly payment to $900.
Another factor driving housing competition in Dade that this article series hasn’t yet discussed is Southeast Lineman Training Center. Hughes used to rent to students at SLTC, but he shifted away from that in part to focus on providing affordable housing for locals. He said, “I think the school is one of the biggest assets to Dade County, but does it take away rental inventory? Of course it does.”
When asked what makes housing expensive, Hughes answered, “Talking real estate value is a loaded question because so many things affect it. In 2020, several things affected it: supply and demand, migration patterns, and interest rates.”
Hughes recalled how the low interest rates in 2020 and 2021 combined with low supply created high demand. It was a great time to sell. “We saw a huge inflation in housing prices, and many people were moving out of the West Coast and places like New York, moving to the Sun Belt states. It wasn’t just Chattanooga; it was everywhere in the southeast.”
Hughes reported that inventory in Chattanooga is increasing, but of course interest rates are up, and prices haven’t come down.
The real estate market often slows down in the winter months, but in 2020 and 2021, this wasn’t the case. “At that time, you threw anything out there, and you’d get seven offers. There was one house I got about 15 offers on. It was a good time to be a flipper.”
However, Hughes believes that we are now in a healthier market, saying, “You don’t need 20 offers on a house. I don’t think that’s healthy overall for affordability, although it’s good for the builder and the rehabber. I don’t necessarily think the interest rates need to go back down to what they were. That’s part of the reason why we’re in this mess.”
He explained that interest rates can cause asset inflation. “When interest rates were down at two percent, it was almost free money, so the buyer demand was high, and it pushed prices up. All interest rates lowering would do is shoot asset prices back up.”
Hughes is curious to see what happens with interest rates and the Trump administration. “Nothing’s changed in the real estate market post-election, but will it? I’m not going to speculate on that. I’ve heard 27 people give me 27 different predictions and 27 different suggestions.”
Of interest rates specifically, he said, “The feds dropped rates, but mortgages haven’t followed with it. There is a lag period. Maybe we’ll see a decrease in mortgage rates, but I also think we’ll see asset inflation go up if interest rates are cut significantly. Hopefully, they’ll do what they said they would and cut it in increments.”
Explaining that a slower interest rate decrease would be better for affordability, Hughes said, “I think we’d see healthier growth.”
As for labor and materials, Hughes said, “It used to be you could get a house rewired for about $8,500. Now, it’s $12,000-$13,000. Part of that’s labor; part of that’s material. Apply that to every subcategory of building a house, and your costs are inflated. That’s a challenge builders and investors have been dealing with ever since COVID-19.”
While some material costs have decreased over the last few years, Hughes said the pandemic years set a new benchmark for costs.
Labor costs also aren’t going to come down, and cheap labor comes with a cost, according to Hughes. “There are quality contractors out there, but are you willing to pay them? The labor costs what the labor costs, and you have to factor that in. Every house has unexpected things once you get into it, but we have a good pulse now where I know what it’s going to cost to rewire a house, to replumb a house, etc.”
As for challenges he faces as a landlord, Hughes said, “When prices are the same but your debt is double what it was, the numbers don’t work. For a rental property, there’s a huge difference between a mortgage at four percent versus 7.5 percent. If we can’t make money on it, we’re not going to buy it. That’s the biggest challenge right now: Prices haven’t cooled off, and the debt is higher than it was.”
Hughes agrees with the Faircloth’s statement that sellers want more money for properties than they’re worth. “People still have 2021 and early 2022 prices in their head. You can still find reasonable properties, they’re still out there, but you have to work a lot harder. You have to shake the bushes more. It’s challenging for people who are just wanting to buy a house to live in.”
Of Dade County specifically, Hughes (like the Faircloths) noted that sewer is an issue. He discussed one of his company’s properties in the Piney area that has duplexes and triplexes. “If they ran sewer back there, I’d build about ten more units. We can’t build now because Piney is a layer of rock, and to get septic under there is a nightmare; the costs are too high.”
On the positive side, Hughes appreciates that Dade has less regulation (i.e. zoning) than Chattanooga. His company owns a property in East Ridge that they planned to use for duplexes in an area with many duplexes. However, “Our zoning did not get approved in East Ridge because they wanted to preserve the single-family housing on that road, a road that’s surrounded by duplexes. We could’ve built four units to rent to people; now, we can only build a house.”
Noting that he himself hasn’t had to approach the City of Trenton about zoning, he said, “From being here for a long time, I think getting stuff zoned in Trenton is much easier. I think that’s a good thing. It can be a pain to get zoning changes in Chattanooga. That’s something people don’t always talk about with affordability: These regulations make it very difficult.”
(The Faircloths reported that working with the city to reduce lot sizes went well, but in an off-the-record conversation, another citizen involved in real estate talked about a different experience. In short, a number of years ago, the city was inconsistent with zoning regulations and made the process more difficult than it needed to be for the citizen.)
On the other hand, Hughes believes regulations are necessary to hold companies accountable. This ties into ongoing conversations about the development D.R. Horton hopes to build in Trenton and the never-ending debate about zoning. How much government oversight is too much? When are regulations and zoning necessary?
Also, Hughes said Dade does need more inventory. More inventory, in the form of D.R. Horton homes or otherwise, would decrease prices as supply increases.
Discouragingly, Hughes has heard and read predictions from others in his field who say that 40-year-notes will eventually become the new norm simply to make a monthly mortgage affordable. Only time will tell what happens this spring with the market, what happens with interest rates, and whether this prediction will come true.
