Building Larger Homes: Trend or Trouble?

July 11, 2017

The long-term trend of larger homes will persist in the building industry and will likely have big consequences on housing affordability, according to Robert Dietz, the chief economist of the National Association of Home Builders.

“Rising regulatory costs, increasing labor and land costs, and a tighter financing environment encouraged builders to shift to the higher end of the market in greater numbers,” Dietz notes in a recent column at BUILDER. “What’s interesting is that many of these developments are firmly rooted on the supply side of the market, not changes in demand or consumer preferences.”

Housing affordability will likely worsen as builders struggle to provide homes for all types of potential buyers, including lower-income families and smaller households. Tight inventory conditions for existing homes are also driving up prices, even among starter homes.

Some builders are now eyeing the townhome market. Townhouse construction comprised 6 percent of total single-family homes built during the 1990s. That share increased to 9 percent from 2010 to 2015, and recent quarters are showing growth in the 12 percent range, Dietz notes.

“These and other market responses will be necessary as prices, costs, and interest rates rise in the years ahead,” Dietz says. 

Source: “The Long Home Market Shift,” BUILDER (July 7, 2017)