Outside the Box: Only 10% of new homes now sell for less than $300,000. Two years ago, a third did. It’s not just because of the pandemic.

by | Jul 22, 2022 | Stock Market

Homeownership became out of reach for millions of Americans following the recent boom in home prices. Lower-income families have been hit especially hard, with the share of new homes selling for under $300,000 plummeting to 10% from 35% in just two years. A number of factors, including more than a decade of limited homebuilding, a sudden and sharp rise in demand related to demographics, seriously low mortgage interest rates, and lifestyle changes, and surging homebuilding costs caused by pandemic disruptions are all partly to blame.

There are also four key structural issues related to land, labor, regulation, and NIMBYism that make it increasingly difficult to get entry-level homes built today, exacerbating the issue of affordability.

Land prices are up Land is a finite resource. Over time, the availability of land in desirable areas goes down, which pushes prices up. This is critical as land makes up between 20% and 30% of home prices in more affordable and development-friendly markets and 40% to 50% in land-constrained and coastal markets. Over the past two years, land prices have spiked in response to increased demand. For-sale homebuilders that were rushing to secure land were competing with other buyers also in hurry. In response, builders expanded their search radius to less-central locations, but it is not a surefire plan for creating housing at more affordable prices. Not only have those plots gone up in price, but in some cases, the land lacks entitlements (the legal approval needed for development) and/or infrastructure (water, sewers, roads and the like), both of which are time-consuming and expensive to add. Land prices can adjust down during a protracted housing market correction or recession. The finite nature of the resource, though, means pricing will remain a hurdle when trying to build lower-priced homes in the future.Labor is scarce There were over a million residential construction workers during the mid-2000s housing boom. Total employment dropped to just …

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