16 Aug The Challenges of Affordability in Home Building

Homebuilders are facing challenges in building housing that is “affordable”. Traditionally, housing that is affordable is defined as housing that can be afforded by people whose income is below the median household income. According to NAHB, 1/3 of U.S. households pay more than 30% of their income on housing. The typical budgeting advice is that 30% or less should be budgeted towards housing.

The Factors of Affordable Home Building

Housing costs have increased rapidly and wage growth can’t keep pace. There are several factors that go into such a multifaceted issue, but from a builders perspective, some are calling this a “perfect storm” of challenges. Housing prices are made up of a blend of cost of labor and materials; interest rates and financing; federal, state, and local policies; and supply and demand. Currently, there is limited land supply, a shortage of skilled labor, and rising regulatory fees which often can take 25-30% of a building project’s budget.

All of these factors— plus wage growth issues— leads to a low supply of affordable housing. So, we have identified parts of the problem, but what’s the solution? That’s more challenging to name. The general consensus is that costs need to be reduced, supply boosted, and buyers need to be empowered.

What a tangible solution is has yet to be determined. What are your thoughts on the challenges of housing affordability? Share your insight with us on FacebookTwitterLinkedIn, or Instagram.

Bruce Freides