Homebuilders are finally coming to the rescue amid a dire housing shortage. But only if you’re in the South. And if you can afford a higher-end home.
Middle-class homebuyers in the northeast and out west don’t have relief coming soon, in other words.
The US housing market remains a grim place for buyers. Prices are still skyrocketing higher, and the country simply has almost run out of homes for sale. Home inflation is expected to cool in 2022, but only by a slim margin.
The shortage has placed historic pressure on homebuilders. With buyers fighting over a small supply of homes, a jump in residential construction could eliminate bidding wars and cool the historic price growth seen through much of 2021. Yet new data shows builders bringing the most relief to Americans who need it least.
New construction is heavily skewed to the South, according to data from the Census Bureau. Housing starts have rebounded through the year and now sit at an annual pace of 1.58 million homes. Yet 54% of starts are in the South, leaving buyers on both coasts with little in the way of new supply. The South might be growing fastest, but the coasts are still home to the biggest population hubs and the most expensive housing.
Contractors are also focused on the buyers with the fattest pocketbooks. The share of new homes sold for more than $500,000 rose to 31% in September. That category has seen sales boom through 2021 and recently overtook sales of homes priced below $300,000. Builders are only servicing that demand, but as millennials and baby boomers fight over a dwindling supply of starter homes, middle-income and first-time buyers are stuck with few options.
The fault isn’t entirely builders’. The South counted for the bulk of population growth over the last decade, according to Census data published in August. The coasts either saw much weaker growth or, in some areas, saw their populations shrink through the 2010s.
It’s also easier for firms to build more homes in the South. The region has more land available for home lots and its zoning regulations are less restrictive. With construction costs rising at the fastest rates since the 1980s, those benefits lift some pressures for builders.
Still, the data shows little help arriving for most US buyers. Those expecting homebuilders to solve the housing crisis are misguided, Logan Mohtashami, lead analyst at HousingWire, told Insider in October. Builders “don’t care” about the housing shortage, since new construction eventually becomes competition in the market, he said. As such, builders will build slowly to keep demand strong.
“They’ll always go slow and steady,” Mohtashami said. “People want an oversupplied market, and we just don’t do that in America.”
Builders are also having a hard time finding land to build on, even in the South. The share of builders saying the supply of developed lots was low or very low hit a record-high 76% this year, according to a recent survey conducted by the National Association of Home Builders. Land scarcity will limit future construction more than costs or labor shortages.
Wealthier buyers in the South will have the easiest time getting a new home as price inflation eases in 2022. Other homebuyers are stuck in a bleak market, and signs point to the shortage sticking around.