Why Aren’t Home Builders Building?
Home-builder confidence is at its highest level in years. But home building dropped 19 percent in the most recent month. These decreases come at a time when inventory levels are already severely constrained and many in the industry are calling for more new construction to alleviate shortages.With supply short and demand high, what is keeping builders from getting to work?
Home builders say it’s new regulations that are holding them back from filling the void. CNBC reports that such regulations may cost builders up to a quarter of the price of a new home, and a recent National Association of Home Builders study found regulatory costs have increased 29 percent in the past five years. The builders also say labor shortages are holding them back. Finally, prices for land and materials are rising and there is a lack of finished lots in neighborhoods where people want to live. These price constraints create an incentive for builders to construct fewer homes, because under such high demand, they can fetch higher prices for each home they do sell, CNBC reports.
For now, builders remain happy with the market outlook. The NAHB released a survey last week showing builder sentiment at its highest level in 11 years.
“Though this significant increase in builder confidence could be considered an outlier, the fact remains that the economic fundamentals continue to look good for housing,” said NAHB Chief Economist Robert Dietz. “The rise… is consistent with recent gains for the stock market and consumer confidence. At the same time, builders remain sensitive to rising mortgage rates and continue to deal with shortages of lots and labor.”
Source: “Home builders Super Happy But Not Building More Homes: Here’s What’s Up With That,” CNBC (Dec. 16, 2016)