Home Building Increases, But so do Costs

The National Association of Home Builders (NAHB) reports that the home building market saw solid growth in March due to high demand and low interest rates. Overall housing starts increased almost 20% according to a report from the U.S. Department of Housing and Urban Development.* Single family housing starts were up over 15% from the revised February figure. This was the quickest increase for combined single-family and multifamily housing construction since June 2006.

Regionally the greatest increase was in the Northeast, mainly due to weather conditions. Compared to February the West actually saw a decrease of 13.6% however permits for new construction however remained the same.

“Builder confidence remains strong, pointing to gains for single-family construction in 2021,” said NAHB Chairman Chuck Fowke. “However, rising costs for most kinds of building materials continue to impede positive additional momentum in the market.”

“Demand remains solid due to low mortgage interest rates and a thin level of inventory in the resale market, which is spurring the need for additional supply,” said NAHB Chief Economist Robert Dietz. “The test for the industry this year will be balancing growth and higher construction costs, given ongoing housing affordability challenges.” **

“The supply chain for residential construction is tight, particularly regarding the cost and availability of lumber, appliances, and other building materials. Though builders are seeking to keep home prices affordable in a market in need of more inventory, policymakers must find ways to increase the supply of building materials as the economy runs hot in 2021.”

Depending on what version of Biden’s infrastructure plan gets passed, there is likely to be good news, or even great news for the housing sector. 

As it stands now, the plan calls for rehab and construction of over half a million homes in low- and middle-income areas. Biden is also calling on Congress to eliminate exclusionary zoning laws, which he says inflates housing and construction costs – an issue that has crippled homebuilders across the country for more than a year.***

The advantage of funneling money to the housing sector also effectively creates a “jobs program” which will help employment in the supporting industries. There would be immediate benefits throughout multiple sectors of the economy this way.

Homes could be upgraded using ““block grants” – annual sums awarded by the federal government to a state or local body to help fund a specific problem – and through extending and expanding home and commercial efficiency tax credits.”

These could for example, credit homes with upgraded and more efficient heating and cooling systems. This $213 billion initiative would be a historic amount of money but won’t be enough to truly fix the lack of housing in the US. 

Even though a lot of money would be allocated to improving conditions in housing, it’s after years of deficit. Builders and home advocacy groups are pushing for long term commitments to new development to address the historic housing shortage.

*https://www.census.gov/construction/nrc/pdf/newresconst.pdf

**https://nahbnow.com/2021/04/housing-starts-spring-forward-in-march/

***https://www.housingwire.com/articles/what-bidens-infrastructure-plan-does-for-housing/