Builders in Tough Spot as Construction Costs Increase Amid Insatiable Demand

The demand for lower density living and larger, more flexible homes shot up construction rates, but the buyers are not stopping, putting home builders in a hard spot. And as more buyers seek lives outside of city centers, more homes are needed in these less dense, less constructed areas. The cost of construction continues to increase due to material and labor shortages, yet buyer demand remains so robust that builders risk losing business because they cannot supply inventory, says The New York Times. Market penetration is so difficult for some buyers that winning bids for one California master planned community came from a raffle via Zoom call.

Every housing boom redefines where the city ends. Fields beyond the old suburbs become the site of the new exurbs until the next development wave pushes farther still. Over the past decade, however, as high-paying jobs increasingly concentrated in a handful of big cities, workers from across the income spectrum spent a growing share of their paychecks to live in downtown neighborhoods and commuter-friendly areas.

There was plenty of affordable land on the urban fringes and in smaller cities, but home builders had trouble finding buyers there. The U.S. housing market was held back by a fundamental mismatch: The places where people wanted to live were the places where it was the hardest for developers to build.

Now, after a year of lockdowns and a push to continue working from home even as the pandemic wanes, the preference for closer-in living has weakened. This has helped unleash a wave of home building.

Over the past year, new home construction in small cities and suburban areas rose 15 percent, compared with less than 10 percent in big cities, according to data from the National Association of Home Builders. Would-be homeowners are flocking to the new farthest exurbs, where home builders can meet demand — and together they are again stretching the boundaries of a city and its surrounding sprawl.

“People can move to where it’s more affordable,” said John Burns, chief executive of John Burns Real Estate Consulting. “This is a permanent game changer in the housing market.”