Is there enough affordable new construction in this country?
Affordable New Construction
Across the country,, there’s a severe shortage of new construction that is affordable to people just starting out. This is more prevalent in big metro areas on the east and west coasts. In our area, there are plenty of choices for those who want to spend $800,000 or more on a new home. However, new construction under $400,000 is pretty much limited to condos and townhouses.
I’m positive that there are builders out there who recognize a market, and are willing to fill the demand. So why don’t they?
A major factor is government regulations. Due to the cost of getting the necessary zoning changes, the cost of permits, the cost of adhering to environmental regulations, safety regulations among others, the expenses necessary just to break ground has skyrocketed. Simply put, builders work on a percentage of the sale price as their profit,. The high cost of these expenses make building lower priced homes prohibitive for builders. Sometimes they can only be profitable building expensive homes.
According to the National Association of Homebuilders, in the past 5 years the regulatory cost of building a home has risen 30%. The builders must pass these costs along to the buyer. After all, the builder must be able to make a profit. Because if they don’t, the homes just won’t get built.
A recent analysis of major metro areas found that 27 % of the homeowner occupied homes are low to moderate income in the top third most regulated metro areas. In contract, the same analysis shows the areas with the lowest regulatory restrictions had a 67% rate of owner occupancy. Due you see a correlation like I do? It seems that when a builder has to cope with more regulations, the higher the costs of building the homes are. Eventually, the higher costs will make the homes not affordable to the moderate income buyers. It seems that the builders who wish to build affordable affordable new construction for low income families are being strangled by government regulations..
Additionally, the areas with the most regulation also seem to have the strongest job markets, And this also contributes to the rise in home prices.
When builders can make a profit by building affordable new construction, they will.
Related Blog Posts: