Don’t expect stellar growth in single-home construction

Unless there are changes in government regulations or the establishment of single-family home buying programs, First-time single homebuyer can’t be expected to flood the market in droves. And that will affect single-home construction.

That’s not to say the residential construction industry isn’t doing well: Recent April statistics show a 6.6% rise in building starts. But April numbers are also showing that multifamily construction growth rose sharply (13.9%) compared to single home construction growth (3.3%).

This goes against some recent expert projections, but isn’t really surprising, in fact.

The single-family home market has to contend with regulations that are forcing constructors away from affordable single family units and towards building high end homes to absorb considerable costs of complying with them. For example, in California the cost of complying with federal, state and municipal codes has pushed up house pricing by 30% in the last 5 years. This cost now represents an astonishing 24% of the cost of a home.

Affordable (entry level) homes continue to be in short supply. This is driving up the price of available homes and encouraging potential homebuyers to continue to opt for more affordable choices such as rental living arrangements or a multi-family unit.

This seems to be corroborated by the number of mortgage applications, which are hardly rising, despite interest rates being lower than ever

As overall cost of living slowly continues to rise, and salaries continue not keep up, single-home buyers will be less and less able to afford a new first home, and contractors will be less willing to build them.

There is no foreseeable end to this vicious circle unless the governments at the federal, state and municipal level enable regulation or programs that enable builders to create affordable single-family units.

Millennials are not yet moving towards single family housing. The question is: how many of them will be able to?

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