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Why is it so difficult for builders to meet America’s insatiable demand for houses? Here are 4 reasons slowing down construction.

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There is more demand for homes in the United States than the total number of homes out there. Why hasn’t the country been able to keep up?

There is more demand for homes in the U.S. than the number of homes available on the market. The U.S. is short of anywhere between 3.8 million and 5 million homes, and counting, according to the most recent estimates.

According to Freddie Mac
the U.S. was short of 3.8 million homes, as of the last quarter of 2020, up from 2.5 million two years earlier. The National Association of Realtors put that figure at 5.24 million in 2021.

The bottom line: The U.S. has not been able to keep up with demand due to the way the housing market resists changes, one economist said.

“There’s a lot of protectionism built in the U.S. housing market,” Selma Hepp, chief economist at CoreLogic, told MarketWatch. “Because a lot of people’s wealth depends on the value of their home. So they’re very protective of that.”

Even though conversations about zoning reform and the shortage of homes are becoming more commonplace, “we’re not doing enough to actually solve these problems,” Laurie Goodman, a fellow at the Urban Institute, told MarketWatch. 

There are four big reasons why home builders have not been able to add more housing units to meet demand, according to a December 2021 report by Goodman and her co-authors.

1: Zoning

The first impediment to addressing the housing shortage is zoning. 

Zoning restrictions and laws at the local and state level dictate how and what type of homes are built in a given area. These laws favor single-family construction.

Some cities or local areas “outright prohibit multifamily housing,” Goodman wrote in her paper. Or even if builders can build apartments, they’re hit with requirements such as open spaces, parking, and so on.

There are also a group of people who oppose new development, and they’re loosely referred to as NIMBYs, or “Not In My Backyard.” NIMBYs resist development, particularly multifamily housing, arguing that denser housing will make their homes less affordable, or change the dynamics of the neighborhood. Their resistance can stymie denser housing that can provide more units to meet demand.

2: Strict building codes

Stringent building codes that dictate how home builders should construct a home also add to housing costs, according to Goodman’s paper.

The codes could be there for safety or even aesthetic reasons: The building code requires home builders to consider flooding, or bad weather. And sometimes it could be for aesthetic reasons, Goodman said, such as requirements for the types of windows to be used, or fences.

“Although code enhancements may be desirable, they can come with significant added costs that lock many low- and moderate-income households out of homeownership,” she wrote.

Regulatory costs can add up for a builder. For a home builder who’s constructing an apartment complex, regulation imposed by all levels of government form nearly 41% of total costs, the National Association of Home Builders said in June 2022.  This includes obtaining permits, approvals, going through environmental reviews, and such.

3: Chronic labor shortages

A shortage of workers in the construction sector is also contributing to delays, and also more broadly a slow rate of growth in new home builds.

In December, there were 413,000 job openings in the construction sector, according to the U.S. Bureau of Labor Statistics.

Young Americans are not particularly interested in working in the sector, the NAHB’s chief economist, Robert Dietz, said last week.

One academic suggested last year that women could fill in the labor gap. Immigrants have historically been relied upon to provide the labor for construction jobs.

4: High cost of building materials 

Finally, with delays and the rising cost of materials, home builders are finding it hard to finish projects fast.

The cost of construction is expected to have risen by 14.1% by the end of 2022, compared to the year before, CBRE said in a July report. The normal range for construction costs is typically between 2% and 4%.


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