Slideshow 6 constraints on new home construction

Published
  • March 09 2017, 1:40pm EST
7 Images Total

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.

Content Continues Below


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).

Content Continues Below


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.

Content Continues Below


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.