In the suburbs of Wichita, Kansas, local homebuilder Carl Harris was charging home buyers about $330,000 for one of his newly built homes with the goal of raising families. Now he’s selling the same home for $450,000 — putting it out of reach for the typical household there.
“Two and a half years ago, the payment for that house was about $1,700. Today, it’s a little over $3,000,” said Harris, who is also chairman of the National Association of Home Builders. “It continues to put a number of people out of the market, and that’s the real concern.”
The $120,000 added to their home’s price tag doesn’t go into his pocket — he says he makes the same 6.5% profit margin — but rather to cover the increased costs of building materials, labor and land. double digits in the last three years.
Homebuilders across the country echo his frustration as they struggle to keep up with rising demand for more affordable housing amid rising costs, labor shortages and increased construction restrictions from local, state and federal governments. Those factors, combined with the lingering effects of the subprime mortgage crisis, have created a supply-and-demand imbalance in the housing market that has pushed up prices, limiting the number of new homes it says it can build.
“From a homebuilder’s perspective, if we could build more homes in more places at more affordable prices, we would do it in a heartbeat,” said Mike Forsum, president and chief operating officer of Landsea Homes, which sells about 700 homes nationwide. second quarter. “I don’t think people understand and appreciate how many factors go into doing what we do.”
Estimates of how many additional homes the U.S. needs vary, however National Association of Home Builders and mortgagee Freddie Mac we found that an additional 1.5 million units were needed to rebalance the market. This shortage has caused home prices to rise 50% over the past five years, making housing affordability a key issue for voters in the upcoming presidential election.
Vice President Kamala Harris has proposed offering $25,000 in down payment assistance to first-time homebuyers and incentives for homebuilders to build more first-time homebuyer housing. Former President Donald Trump said he would lower housing costs by opening up federal lands to development, rolling back regulations and reducing overall inflation.
But homebuilders say they’ve been facing problems for nearly two decades that will take years to resolve.
“There is no one simple, scalable solution,” said Robert Dietz, chief economist for the National Association of Home Builders. “It took us ten years to get to this situation. It will probably take us ten years to get out.”
The origins of the current housing shortage can be traced back to the subprime mortgage crisis that began in 2007, which resulted in a glut of homes built for buyers who couldn’t afford them. As a result, foreclosures increase and home values decrease stopped new home construction in many parts of the country.
“Over the last decade, we’ve had very little housing,” Dietz said. “Coming out of the Great Recession, you had a lot of homes because there was a bad mortgage deal and the builders built to demand it. But after this excess inventory was burned, the industry was in a weaker position.”
As the pandemic hit, the industry slowly returned to the way it was before the housing market collapsed, driving up building materials costs, disrupting supply chains and creating labor shortages.
“I know no one likes this answer, but it’s real: The Covid effect has significantly increased the cost of supplies and labor,” said Sheryl Palmer, CEO of homebuilder Taylor Morrison.
Single-family home construction fell 6% last year, and the number of new home starts in July matched levels last seen in March 2017. But despite the ups and downs for the industry, the population continued to grow steadily. – continued growth in demand for homes, especially from millennials entering their peak home buying years.
Homebuilders said one of the main obstacles to lowering prices and increasing supply has been a labor shortage. The construction industry lost more than 2 million workers, averaging 300,000 to 400,000 workers, after the subprime mortgage crisis. unfilled construction jobs each month for the past several years, according to the Bureau of Labor Statistics. This shortage has led to a 42% increase in residential construction wages from 2019.
“We can only deliver so many apartments because of labor constraints, and so we have to continue to figure that out,” said Palmer, who sells three-bedroom townhomes in suburban Atlanta for about $400,000. three-bedroom single-family homes near Las Vegas for around $300,000, and larger 3,000-square-foot homes near Raleigh, North Carolina, for $500,000.
Like Palmer, Forsum said Landsea is limited in how many apartment communities it can build because of a shortage of workers — many of whom have moved to the U.S. and could be affected by changes in immigration policy.
“I’m not advocating anything illegal, but immigrant workers in the construction industry are literally at the core of what we are and what we’re about,” Forsum said. “They’re amazing people, they’re incredibly hardworking, they do the hardest work under the toughest conditions, and we need more of them and they need to feel more comfortable in the places where we need them. to build houses”.
In addition to labor shortages, the price of construction materials rose as supply chains were disrupted and demand increased during the pandemic. In the last four years, the price of bricks has increased by 29%, the price of concrete by 33%, and the price of steel products by 77%. according to to the National Association of Home Builders.
Homebuilders also say they face opposition from homeowners and local officials when they propose to build homes that are smaller, closer together and have simpler designs at lower cost.
“If you have a $700,000 house in Dallas, and I buy a property next door and want to build a $300,000 house on top of it, the natural response is to worry that it might devalue your house.” Palmer said. “It may not be true, but you can’t help but think.”
Local building fees can also add significantly to the price tag. In Sacramento, Calif., it costs Taylor Morrison more than $100,000 in fees and permit costs to start building a home, compared to $25,000 in some parts of Texas, Palmer said.
To keep prices down, developers say they are moving construction away from urban centers, where land is cheaper and there are fewer building restrictions. They are also downsizing the size and features of their homes — reducing square footage, building more townhouses and condos, and downgrading finishes like countertops, cabinets, and flooring.
“The exchange on price is closer, it’s more crowded, and it’s a lifestyle change, and it’s not what everyone wants,” said Forsum, whose company reduced the median price of its homes from $850,000 to $550,000 four years ago. year “If you want to live up to the dream that every kindergartner has when they think of a house with a side yard, a front yard, a chimney, a front door, it’s hard to do.”
Landsea is selling a 1,600-square-foot three-bedroom, two-bathroom home in Fort Worth, Texas, for about $350,000, a slightly larger three-bedroom, two-bathroom home for $420,000 in Phoenix, Buckeye, and four homes. -bedroom, 2,500-square-foot home in Orlando, Florida for about $650,000.
In Wichita, Harris said that about 40% of the increase in the price of new homes is related to higher labor costs, 25% of the additional costs are from the increase in building materials, and another 25% is related to the development of the area.
In addition to building custom homes, Harris builds two standard home models: a five-bedroom, three-bath home with a finished basement and a home for empty nesters with two master bedrooms, a safe room, entertainment area and upgraded kitchen. .
Harris said he sees some relief in the form of labor shortages and easing costs of building materials, but ultimately more efforts are needed at the local, state and federal levels to remove barriers to building more affordable homes and increase the overall supply. home builders do it willingly.
“It’s almost like trying to increase egg production by suffocating a chicken. You can’t demand more production and stifle the means of production,” Harris said. “It’s not a housing crisis, it’s a housing policy crisis, and if we can get policymakers to fix policy, maybe that can lower some of the costs and reduce the fight over existing homes.”