Although Census Bureau data show that approximately 501,000 new single-family homes were sold in 2015, an increase of 14.5 percent over 2014’s sales and the highest annual tally the U.S. has seen in eight years, the climbing numbers still don’t seem like cause for celebration for many of the nation’s builders. That may be because the gains seem particularly hard won this past year, with the ongoing scarcity of land and labor becoming an even larger problem as companies attempt to ramp up growth.
This year’s Housing Giants report, which includes our annual rankings of the country’s largest builders and a state-by-state map of where they are building, as well as in-depth features on the state of entry-level housing and the future of master planned communities, offers a comprehensive view of the challenges and opportunities home builders face in the next few years along with how what they are building may be changing.
And there are plenty of challenges. In addition to the aforementioned shortage of land and labor, which 51 percent of those surveyed consider the most important issues facing home building in 2016, respondents also mentioned increased competition from other builders (27 percent) and government regulations. The latter didn’t rank quite as highly this year, but is still perceived as making business more difficult for 15 percent of Housing Giants.
Home prices, a concern that didn’t even make it into the top 10 last year, ranked 4th, with 20 percent of Giants seeing it as a serious problem. Stemming directly from land and labor shortages, as well as increases in material costs, higher taxes and fees, and the need to stay competitive with other builders, rising home prices are essentially the effect of these causes. Prices are also the only public-facing issue, and the one that may keep sales from continuing on their upward trajectory. Reported year-over-year increases in prices for starter and second move-up and beyond homes were remarkable, at 12 percent and nearly 15 percent respectively. Surveys of homebuyers in 2015 were already indicating that price was the main reason why they bought an existing home over a new one; higher prices will further tip those scales.
As for what they will be building in new markets and old, it’s clear that attached product will be part of the mix. In this year’s survey results, fewer than 50 percent of companies say they build only single-family detached homes. And the attached projects that were built in 2015 were not just townhomes, either. While not many say they are going into the five-story and above for-sale market, fully 10 percent of single-family builders on the list are also building multifamily rental.
Hedging their bets? Perhaps. But with all of the challenges facing builders of single-family homes and a growing segment of the population unable or unwilling to buy, it seems more likely to be simply a smart business plan for the foreseeable future.
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