Home construction comeback: Could more housing starts be on the way?

November 9, 2017 - 2 min read

A surge in supply

New home construction may finally be picking up. And if word from the National Association of Home Builders is any indication, it could alleviate the housing shortage and improve conditions for first-time buyers.

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The construction cooldown

According to Robert Dietz, chief economist at NAHB, labor shortages, the rising costs of building materials and land use issues have stifled housing construction as of late.

“It’s more expensive to build homes, and it’s having an effect on supply,” Dietz said. “Over the last five years, the total effect of building codes, land use, environmental laws and other rules have caused regulatory costs to rise 29 percent.”

The pros and cons of buying new construction

Jessica Lautz, managing director of survey research and communications at the National Association of Realtors, says those rising costs – and subsequent lagging starts, have had a serious effect on housing supply.

“The month’s supply of homes continues to be way under a balanced market of six months, home prices have risen year-over-year for 67 straight months and multiple offers on listings for sale are a common occurrence,” Lautz said.

“Without enough listings on the market, affordability is decreasing, and buyers are increasingly saying finding the right home is their top struggle.”

Bringing building back

But things may turn around soon, Dietz claims. Single-family housing starts are starting to inch higher – particularly those on townhomes.

“There’s also been the start of a shift to building smaller homes and townhomes,” Dietz said. “I’m bullish on townhouses over the next few years. They are the perfect bridge from renting to homeownership for first-time buyers.”

Dietz also indicated there’s another reason for optimism: builder confidence has surged since President Trump’s election last fall. Considering America’s builders have started to spend more in recent months, Dietz just may be right.

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Aly J. Yale
Authored By: Aly J. Yale
The Mortgage Reports contributor
Aly J. Yale is a mortgage and real estate writer based in Houston who has contributed to Forbes and worked for organizations such as The Dallas Morning News, PBS, NBC, and Radio Disney.