As buyers fiercely compete with other buyers among a smaller inventory of homes, you might wonder, why aren’t more new homes being built? It may seem the perfect opportunity for builders to take advantage of a market that’s in dire need of more homes for sale. But the economic climate is much different for builders than it was in the housing boom era over a decade ago. While we still see new areas being developed, there are a number of obstacles builders face as well as reasons to be conservative in the quantity of homes they build.

Land. There’s a shortage of land available in metropolitan areas at an affordable price to develop. Naturally this has forced builders further out of urban areas. This often is a less attractive option for many people in terms of proximity to work, family, and areas of interest. Tear down of older homes and infilling construction has taken off in a few areas of Cincinnati, but not in any significant volume to address the housing shortage.

Labor. The recession from a decade ago forced many skilled construction workers out of the business. Even with a housing recovery, many of these workers have not returned to the industry because they already landed jobs in other fields. Many of the smaller population of truly skilled workers who remain are nearing retirement. With this kind of labor shortage, the price of labor has gone up and finding the right skills is more difficult.

Loans. Development loans come with greater restrictions these days. Banks aren’t as willing to take big risks and want builders to carry more of their own capital. This is workable for larger construction companies, but it makes it difficult for smaller companies to compete and even harder for newer companies to get in the game.

Lumber. The cost of lumber continues to escalate due to restriction in importing Canadian lumber. Lumber recently hit a record high of $433 per board feet (a typical 2,400 sq. ft. home uses 19,840 board feet of framing lumber). Builders can make up the high price of lumber in luxury homes, but it’s tougher to recoup in smaller single family homes. This is one reason you don’t see many new starter homes and lower-priced tiers in new construction these days.

Because of shortages in available land, lumber, and homes on the market, builders can command a higher price per home that they construct. This actually creates an incentive for them to build fewer homes as well. Overall, builders have a positive outlook because the demand for new construction is strong. Unfortunately for buyers, it may mean moving a little further out than desired and definitely paying a lot more per square foot.

Platinum Service Realty