Construction boom skips affordable housing
Home builders are finally responding to skyrocketing demand for housing and have picked up the pace of construction. New construction for two types of housing - apartment buildings and single-family homes - rose by 13% and 22% respectively.
But there are two parts of the market that are being neglected, and it’s creating a real problem.
According to a brand new report by the Census Bureau, just over 1 million single-family homes and almost half a million apartment homes were started in 2021. That is a sharp increase and will help with demand.
But there is one market that is being neglected - new housing for low to moderate-income families. And there are a number of reasons why this is the case:
1. The construction boom has skipped affordable housing
With optimistic builders and interest rates still low, we are finally seeing builders step up and commit to building more new homes for purchase and multifamily for apartment rentals.
Millennials are finally ready to buy or rent now as they enter their peak earning years. This massive generation is 74 million strong, and they are forming families right now.
But there is one part of the market seeing almost no new construction, that being entry-level homes for sale and affordable rental housing.
2. The problem right now
Builders make more profit on high-end homes and apartments and buyers tend to pay top dollar for new luxury housing because they can afford it. So those squeezed out of house purchasing want high-end apartments.
Communities also don't want affordable housing. Seventy-five percent of land in the United States is zoned single-family, and many require large lots.
Regulations add $93,000 to the cost of a median-priced new home. OSHA, fees, setbacks, new building codes all combine to raise costs. The median new home price right now is $416K.
3. The possible solutions
Attached townhouses and condos are perceived to be less "unacceptable" to those not wanting to live near affordable housing. Their shared walls and larger scale lower costs for builders.
Manufactured Housing is another option. A double-wide that looks and feels like a stick-built house can be had for about $120,000 plus land.
Rural areas can also seize this opportunity to grow, but they will need cheap internet, multifamily zoning, and fewer government regulations.
A large part of the American Dream has always been that anyone who worked hard, saved their money, and wanted to own a home should have the opportunity to do just that. Not everybody needs (or even wants) to live in a mansion on 10 acres overlooking the Chattahoochee. But if the American Dream is to survive, we need to make it possible for more of our fellow citizens to live in clean, decent, and affordable housing.