6 constraints on new home construction
March 9, 2017 1:40 PM
Luke Sharrett/Bloomberg
More consumers are looking to buy a home than ever before, according to recent data from Redfin. And while new home sales are indeed picking up — data from the U.S. Census Bureau showed January's new home sales rate was 5.6% higher than a year earlier — new home construction still remains well below its pre-recession peak. The following are six factors that could hamper efforts to boost new home construction.
Land costs are rising
Following the financial crisis, homebuilders were able to scoop up cheap, empty lots as land prices tanked. Since then, they've built on most of those lots, and buying new lots to fuel further construction is far more expensive today than a few years ago.
Workers are abandoning homebuilders
Homebuilders are also facing a severe labor shortage, with roughly 184,000 construction jobs unfilled currently, according to financial services firm BTIG. While higher wages could ameliorate this situation, that would tighten margins for builders and fuel home price growth. And the construction industry remains concerned about the negative effects President Trump's immigration policies could have.
Immigrants' futures are uncertain
Immigrants don't just work in construction-related jobs — they are also a growing demographic when it comes to homeownership. But if President Trump's policies curtail immigration, this could hamper the supply and the demand for new homes (and the loans that finance them).
The rental market is changing the game
Homes left vacant following the financial crisis have created competition for homebuilders in the form of single-market rentals. Consumers have flocked to these properties in lieu of buying new homes to get the experience of single-family living with more flexibility, BTIG said in a report.
Millennial demand is spread out
Millennials are waiting longer to buy homes — a factor that is suppressing purchase demand across both new and existing homes. And for homebuilders, delayed millennial demand for homes has resulted in a reduction in the construction of starter homes. Without enough entry-level homes though, prices could continue to rise, creating a vicious cycle.
Credit availability remains limited
Lenders themselves share some of the blame too, though. Tight credit policies have made it difficult for would-be buyers to finance purchases of new homes. And without buyers for their products, homebuilders are hard-pressed to keep constructing.
