Home builders

‘It’s hard to find someone willing to work’: Homebuilders reveal 5 reasons the cost of your dream home has skyrocketed

By Aarthi Swaminathan

It looks pretty grim for homebuilders, and it has downstream effects on buyers and renters.

Building a house is a complicated business.

Despite the housing shortage in the United States, it has been difficult for builders to quickly increase production to meet demand.

This is due to a variety of factors – from browsing timber rates to a labor shortage. And with interest rates and mortgages rising, in addition to inflation making building materials more expensive, homebuilder sentiment has plunged as potential buyers take a breather.

To illustrate the five key factors that influence homebuilders, National Association of Home Builders chief economist Robert Dietz shared a list of the “5 Ls” of homebuilding with MarketWatch.

Each of these factors presents a challenge for builders right now, which, in turn, puts pressure on buyers, renters and others caught up in the US housing industry.

Work

It is difficult to find construction workers. So much so that a Harvard expert said the key to solving the shortage is to get more women into the construction industry and reform immigration laws so more immigrants can also get construction jobs.

The construction industry needs about 650,000 workers growing from the normal rate of hiring to meet demand this year, according to an analysis by Associated Builders and Contractors.

In 2023, the industry will need an additional 590,000 new workers to keep pace with demand, even assuming construction spending growth slows.

“Work is a bloodbath,” said Brian Tucker, owner of Tucco Home Improvements in Peyton, Colorado. His company does construction and renovation work.

“It’s hard to find someone willing to work, and even then it’s $30 an hour,” Tucker added, “which isn’t doable to haul drywall off. houses”.

Wood (and other materials)

Wood prices remain high. They’ve been on a wild ride over the past year, hitting new highs and then plummeting. But overall, rising softwood lumber prices added $14,345 to the price of an average new single-family home, the NAHB estimated in a blog post, and $5,511 to market value. of an average new apartment.

If you are a tenant, your household pays an extra $51 per month in rent for your new apartment, thanks to lumber.

Ready

Interest rates affect borrowing costs for builders and developers. And with the Federal Reserve raising rates four times since March, that will increase spending by builders, in addition to homeowners.

“Higher rates affect supply and demand,” Dietz said.

“The impact on demand is obvious,” he added. Rising mortgage rates are causing future homeowners to wait before buying a home. It also affects demand, which in turn slows homebuilders’ activities. The average rate on the 30-year fixed-rate mortgage was 5.3% for the week ending July 28, according to Freddie Mac.

But higher interest rates “also mean that the cost of lending to builders and developers goes up, making it more expensive to develop land and build homes,” Dietz said. “People often forget that.”

Laws

Regulations – from zoning approvals to fees to labor requirements – can also increase builder costs. The NAHB estimated in May that government-imposed regulations added about $94,000 to the final price of a newly built single-family home for sale.

There is also the problem of NIMBYism, where residents resist new developments for fear of increased traffic, pollution and other concerns, which also limits where homebuilders can start new construction. .

The nation lacks homes. But it wasn’t always that way, as most Americans know.

Christopher Herbert, managing director of Harvard’s Joint Center for Housing Studies, recalled in an interview with MarketWatch that in 2006, homebuilders built more homes than needed.

But after the Great Recession, the regulatory environment changed. Jurisdictions have become more restrictive, and “there is a lot more caution on the funding side,” he explained.

Grounds/grounds

Finally, builders need developed land on which to build, but there has been a shortage of it. Last October, in an NAHB survey, 76% of builders said the overall supply of developed land in their area was low to very low, an all-time high.

In its July survey of builders, the group also found that 13% of builders said they were cutting home prices in June to support sales or stem the tide of cancellations.

Write to MarketWatch reporter Aarthi Swaminathan at [email protected]

Hear Ray Dalio at the Best New Ideas in Money Festival on September 21-22 in New York City. The hedge fund pioneer has a strong opinion on the direction of the economy.

-Aarthi Swaminathan

 

(END) Dow Jones Newswire

08-03-22 0505ET

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