The recent rise in home prices has made home ownership out of reach for millions of Americans. Low-income households have been hit particularly hard, with new homes selling for less than $ 300,000 having a plunge from 35% to 10% in just two years.
Limited housing construction over a decade, a sudden surge in demand related to demographics, a sharp drop in mortgage rates, lifestyle changes, and a surge in housing construction costs caused by pandemic turmoil. Many factors are partly responsible.
There are also four important structural issues related to land, labor, regulation and NIMBYism, making it increasingly difficult to build entry-level homes today and exacerbating the issue of affordability.
Land prices are rising
Land is a finite resource. Over time, the availability of land in desirable areas will decrease and prices will increase. This is very important as land accounts for 20% to 30% of home prices in more affordable and developmental markets and 40% to 50% in land-restricted coastal markets.
Over the last two years, land prices have skyrocketed in response to rising demand. Homebuilders for sale, who were in a hurry to secure land, were also in a hurry to compete with other buyers.
Correspondingly, builders have expanded their search scope to less centralized locations, but they are not a solid plan to create homes at a more affordable price. Not only have the prices of these plots rised, but in some cases the land lacks rights (legal approval required for development) and infrastructure (water and sewage, roads, etc.), both of which are time consuming and time consuming. It costs money to add.
Land prices may be adjusted during prolonged housing market corrections or recessions. However, the finiteness of resources means that pricing remains a hurdle when trying to build lower-priced homes in the future.
There were over a million Home construction worker During the housing boom in the mid-2000s. In 2011, total employment in the housing collapse fell to just 550,000 as the industry suffered from sluggish demand and limited employment opportunities. Many skilled workers re-skilled and left the housing industry forever because their jobs in other industries were perceived to be more stable.
Employment in homebuilding has gradually improved to about 900,000 today, but according to Zonda data, 62% of homebuilders are still facing labor shortages. I am reporting. Opportunities for severance and alternative employment in places like the Amazon also play a role.
Skilled workers in the construction industry have enjoyed 10 years of rising wagesJune revenues increased 5.6% compared to last year. Higher wages are good for employees, but they also contribute to higher housing construction costs. There are non-labor-intensive building options such as 3D printing of homes, modular building, and other alternative building methods, but none have reached a sufficient scale on the market.
Regulation adds time and cost
States and local governments play a major role in the housing construction industry by setting rules and regulations related to labor, the environment, community integrity, building codes and more.The National Association of Home Builders has regulations imposed by governments at all levels. Approximately 24% of the final price of a new single-family home..
The turmoil caused by the pandemic only made things worse. The most notable is the labor shortage similar to that experienced in the construction industry. Local governments have noticed a shortage of personnel and have had longer schedules for qualifications, permits, inspections and other government services. This will increase the cost of builders and developers. These issues have not been mitigated yet.
Resistance from local NIMBY
NIMBY or “not in my backyard” represents resistance to new developments for fear of increased traffic, strain on local resources such as schools, pollution, and discomfort around new residents. The spread of local NIMBYism is curbing new construction as it seeks to maintain the quality of life that existing residents are accustomed to. Without further construction, today’s large buyer pools will compete for limited achievable housing supplies.
Home prices have generally been on the rise over the last 50 years, with a few exceptions during the economic downturn. Both the development community and policy makers are keenly aware of the need for cheaper housing, but market conditions and structural factors are at stake.
Many builders are trying to adapt to denser communities, smaller homes, and infill development, but many solutions are filled with backlash from residents and local leaders.
Consumers also need to rethink their expectations. Home ownership allows for stability and wealth building, but desirable bells and whistles that like upgraded countertops and high ceilings are increasingly restricted in entry-level homes.
In the future, everyone will have to play their part in order to realize a truly feasible home. Consumers need to plan trade-offs, builders need to continue to look for innovative ways to provide more affordable homes, government agencies need to drive efficiency improvements, and NIMBY Proponents need to consider the negative effects of constrained housing inventory.
Ali Wolf is the Chief Economist of Zonda, the largest new database in North America.