Starter Home Prices Rise, While Apartment Construction Slows

Rising construction costs are putting the price of new starter homes out of reach for many first-time home buyers.


A Shortage Of Affordable Starter Homes

The construction worker shortage is one factor that’s raising the price of new homes. 69% of home-builders say they can’t find enough qualified laborers to finish their projects on time.

In August, the average cost of labor and materials for a single-family home was $240,000. This is the highest price since the census began tracking home-building costs in 1988.

It’s also $87,000 higher than the average existing home. “This is why even in the midst of extreme inventory shortages for existing homes, new homes are sitting on the market instead of selling,” said Nela Richardson of the brokerage firm Redfin.


Higher Lumber costs

Lumber prices are raising the price of new starter homes.
The prices of new starter homes are rising, partly due to higher lumber costs.

Rising lumber costs are contributing to the problem.

In November, the U.S. Commerce Department finalized new import duties on Canadian lumber.

The reason? In the past, American companies complained that Canadian lumber was being heavily subsidized by the Canadian government, putting American buyers at an unfair disadvantage. The purpose of the new tariffs is to “level the playing field.”

Unfortunately, the move has had negative consequences for home-builders in the United States. “By raising the price of Canadian lumber imports the Trump Administration is effectively raising the cost of building,” said Lee Branstetter, a fellow at the Peterson Institute for International Economics. He also said that the new lumber tariffs are “artificially jacking up the price of this key input.”

Builders have no choice but to pass higher lumber costs on to home buyers, pushing up the cost of buying a new starter home even more.


Fewer New Apartments

Meanwhile, apartment construction is slowing down.

The supply of apartments and condominiums had surged after the recession. The rise was fueled by an increase in workers who could only afford to rent rather than buy.  But now the trend is reversing. The number of apartment construction projects underway – or authorized but not yet started – is plateauing.


Dodge Data & Analytics, which provides data on the construction industry, predicts that apartment construction spending may decline by 8% in 2018.

This could be good news for first-time home buyers. Fewer apartment construction projects could free up carpenters and other construction laborers for building projects in the single-family housing market. However, the issue is complicated by the fact that not all construction firms are interested in putting their resources into building starter homes.

“When high-end homes cost the same to build and are far more profitable, we lose the incentive to build smaller units,” said Isaac Stocks, a Seattle-area home builder.



Sources: PA Homepage, Construction Dive, Bloomberg, The Washington Post






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