You likely hear the terms ‘housing starts’, ‘new home construction’ and ‘new permits issued’ and hope that these WILL be the answers to the inventory shortage. While we certainly aren’t believers in scare tactics, we are realists and today we wanted to share some fast facts and figures about efforts to supplement the housing supply.
When you look around at the state of the market and the continued trend of increasingly low inventory, you might wonder why more new homes aren’t being built – and why we aren’t on the fast track to solving what appears to be a long-term problem. Just this week, Realtor.com released the news that “permits to build new abodes, housing starts, and the number of new homes completed dipped in April from the previous month, according to the seasonally adjusted numbers in the latest residential sales report.” NAR's Chief Economist Lawrence Yun states this “…continued, slow pace of construction of new homes is a major bottleneck to a faster economic and housing recovery.”
The challenges of new construction vary greatly, and include:
LAND. In highly desirable metro areas (where the jobs are), land is a premium IF available.
LABOR. Declining construction unions, post-recession career changes and plummeting wages have created the smallest construction labor force in two decades in most states.
PRICES. According to the U.S. Census Bureau and U.S. Department of Housing and Urban Development, new homes cost 33% more than existing homes, when you compare nationwide median prices across the sectors.
BUYER TYPE GAP. Realtor.com reports that new homes are typically targeting the needs of move-up buyers and wealthier, luxury buyers. First-time home buyers are often left in a lurch looking for new residences that fits a starter home size and budget.
AMOUNT NEEDED. Consider that in the year 2015, the Bay Area added 64,000 new jobs to Silicon Valley – but only 5,000 new homes. Between 2011 and 2015, the Bay Area Council reports that only 1 new home was built for every 8 jobs created. The Joint Venture Silicon Valley Institute for Regional Studies indicates that our region has suffered a shortage of 25,000 housing units per year since 2007.
The 5 factors above all point to the drastic gap in supply and demand, and conclude that even a surge in new construction starts and spending wouldn’t solve all of our nation’s inventory problems, much less the Bay Area’s. For buyers, this doesn’t mean you should give-up, moreover, it means that your persistence in the market could pay off when you go to sell that starter home in a few years (it will still be in demand!). It also reinforces the fact that rising prices aren’t an artificial bubble that’s about to burst, but the real (and lasting) economic effect of supply and demand principles, that have no clear end in sight. For sellers, it means that you stand to make a great return on investment as long as you have somewhere to go. With the right strategy and the right timeline, you could make a move that you never thought possible!
If you have any other questions on how to sustain the shortage of homes here in the Bay Area, don’t hesitate to reach out. We can’t ‘make’ more homes – but we can make more happy homeowners with a competitive edge that makes you as successful as possible in the market we are in.
What Slowing New Home Construction Means for the Housing Market: http://www.realtor.com/news/real-estate-news/new-home-construction-stagnation/
Lack of New Construction Pushes Bay Area to the Brink of a Bubble: https://www.curbed.com/2016/2/24/11102278/bay-area-housing-crisis-bubble
What Are Housing Starts, and Why Should Home Buyers Care?: http://www.realtor.com/advice/buy/what-are-housing-starts/
Creating More Workforce Housing For A Growing Region: http://www.bayareacouncil.org/issues-initiatives/housing/
Cheers,
Mark & Jason
team@homesofsv.com