Construction, sales of homes falling in Sussex County

Kevin T. Conlon, Cape Gazette

Sussex County’s housing boom has cooled in recent years, and that could have profound consequences for local governments, jobs and the community.

Construction of new houses and sales of existing homes have both been declining.

The number of building permits issued for construction of single-family homes has been falling for five years, according to data from the Sussex County Planning & Zoning Department.

With three months left in the fiscal year, the county stood at 1,797 building permits issued through March, well short of the 3,202 figure for all of Fiscal Year 2025. There were 3,565 permits issued in Fiscal Year 2022.

“So, 2021, just looking at the residential or the dwelling side, that was 4,000 permits and we’re looking at 2,300 permits this year,” County Finance Director Gina Jennings said at a May 5 budget workshop. “It is a substantial decline over the last five years.”

That amounts to a 42% decrease, Jennings said. Construction of multifamily housing and townhomes, duplexes and manufactured homes declined 17% during that same period, she added. 

“It looks like the COVID boom is finally over,” Councilman John Rieley said.

Sussex County handles code enforcement in unincorporated areas and 14 of the 25 municipalities: Bethel, Blades, Bridgeville, Dagsboro, Dewey Beach, Ellendale, Fenwick Island, Frankford, Georgetown, Greenwood, Henlopen Acres, Ocean View, Slaughter Beach and South Bethany.

All of those areas are included in county building permit figures.

Meanwhile, sales of existing single-family houses have fallen in the past two years in Sussex County, according to the Sussex County Association of Realtors.

“I’d say yes, the market has slowed down for a lot of builders,” said Jon Horner, president of the Home Builders Association of Delaware.

Horner said the trend is the same across the country, with construction and sales hindered by high interest rates, uncertainty in the market and the war in Iran.

Mitch Haskell, sales manager for Bay to Beach Builders, said the number of people interested in buying homes in the area has remained steady in recent years.

“We haven’t seen a decrease in people looking,” Haskell said. “It’s more a sticker shock when they see how much it costs to build … The cost of everything is going up.”

Some potential buyers are hesitating to complete purchases, while others are choosing to buy smaller homes, he said.

Bay to Beach, which builds on individual lots, constructed 46 houses two years ago, 39 last year and is on target to build about the same number this year, Haskell said.

County budget impact

Fewer home sales means a drastic reduction in revenue for the county, most notably from realty transfer tax revenue, and less construction means less money from building permits and other fees, Jennings said.

State and local governments split realty transfer tax revenues, with the state getting 2.5% to 3% of the value of a house sale and the local municipality getting 1.5%.

The county’s realty transfer tax revenue increased from $14 million in Fiscal Year 2012 to a peak of $63 million in Fiscal Year 2023, Jennings said.

It is projected to fall to under $50 million in Fiscal Year 2026, which ends June 30, and below $40 million in Fiscal Year 2027, she said.   

The decline is a broader trend as building permits for housing units nationwide were down 7.4% in March from the same month last year, according to statistics from the U.S. Census Bureau.

Sussex County’s reliance on realty transfer tax revenue has increased from 29% of the general fund budget in Fiscal Year 2018 to about 36% since Fiscal Year 2024, Jennings said.

Meanwhile, property taxes have decreased from 24% to 22% of budget revenue, and charges for services dropped from 17% to 13% of revenue. 

The county included $39 million in realty tax revenue, or $2 million more than in the previous year, in the draft Fiscal Year 2027 general fund budget that totals $107,188,627. The increase will fund accounting services and a new ambulance replacement program for volunteer fire departments, giving them a financial boost after a state study highlighted their financial hardships.

The county’s increased reliance on realty transfer tax revenue puts it in a precarious financial position, Jennings said.

“This is a risk analysis to me,” Jennings said. “How much are we reliant on a revenue source that is going down? These are operating expenses, for the most part,” that the revenue funds.

The county earmarks 96% of realty transfer tax revenue for public safety, 3% for economic development and 1% for the next assessment update.

Councilman Steve McCarron noted realty transfer tax is a combination of new homes, sales of existing homes and other transfers of property. 

Jennings said there are no records that show how much revenue comes from each type of transfer. 

Council President Doug Hudson said the county has to add more state troopers and paramedics, both operational expenses, which are funded from transfer tax. 

The county plans to dip more into the surplus it built during the housing boom to balance its 2027 budget, and raise fees for services provided to developers so they cover the county’s costs, Jennings said.

There is growing pressure on county council to consider cutting expenses or raising taxes as realty tax revenue declines and the county uses dwindling surpluses to balance the budget.

Rieley said the realty transfer tax revenue will continue to shrink as the baby boom generation decreases.

“The question is, is this going to be a desirable retirement area going forward, like Myrtle Beach or someplace like that?” he said. “That people are going to come here regardless, that’s the function of how well built these communities are and how attractive this area is to live in.”

Chris Lind, president of the Sussex County Association of Realtors, said resales of existing homes are down about 4%, compared to the same time last year. Those don’t include new construction, which makes up a significant amount of sales in the county.

Economy, jobs hit

Declining home sales have consequences for the local economy, as those who rely on sales and related activities see a decrease in demand for their services.

“It trickles down to movers and painters and carpenters,” Lind said. “It’s a huge trickle-down effect.”

Among those feeling the pain are those in the real estate business, including Realtors, surveyors, home inspectors, lenders, settlement attorneys and their staff, he said.

Some tradesmen, however, have not felt the pinch yet, as there is a backlog of home construction projects, Lind said.

For some small contractors, business has remained strong as people who are remaining in their homes and new homeowners improve their properties.

“I’m a general contractor – for me it will be the best year I ever had,” said Anatoly Kitaev, owner of Solid Construction, based in Lewes since 2017. “I’m very busy.”

Kitaev said he has projects scheduled out seven months because of his reputation for quality workmanship. Among the many projects he tackles are house siding replacement, additions, porches, decks and renovations.

Horner cautioned that the decisions of Sussex County Council in the coming years will significantly affect future home construction trends.

He served on the 10-member land-use reform working group, which last year studied county laws, and offered 20 recommendations to control and improve development. 

County officials are considering the first changes, which include lowering density allowed in rural areas that encompass 75% of the county. Other laws are planned in coming months while more difficult changes will be included in the next comprehensive plan update, due by the end of 2028.

Horner said all of the working group’s recommendations need to be enacted as a package. Some that have not yet been considered would compensate for the proposal to lower density in rural areas by allowing more-dense development near areas where it already exists.

“I don't know that the county policies had a direct result in this slowdown in transfer tax that we’re seeing right now,” Horner said. “But I think if they are concerned about dwindling transfer tax and balancing the budget, it is clear that the policies they are pursuing, those numbers will drop off of a cliff long term.”

If the county is not careful, its policies for development and housing growth could make a temporary market slump a long-term problem, he said. And that may have already begun. 

“We hear capital doesn’t want to enter this market like it did before,” Horner said.

There are no signs of recovery of the housing market any time soon, Lind said.

“I don’t see it changing right now,” he said. “I certainly hope that it does. It’s a big economic factor in this area. I hope that [intrerest] rates will decline, but if rates fall, it will not be overnight.”