Addictions are hard to kick, even when the addiction can be life-threatening. That’s why smokers find it hard to quit smoking, alcoholics find it hard to stop drinking, and the dangerously obese find it so hard to stop eating so much.

In a way, so it is with the housing industry’s long-time addiction to building bigger and bigger and more and more expensive houses. The addiction isn’t life-threatening but, when combined with rising mortgage rates, it could spell the premature end of this long and healthy housing recovery. By creating an affordability problem—particularly for entry-level buyers—the addiction, I think, is already largely responsible for this unhealthy development: In 2018, new homes accounted for only 12% of the 5.5 million homes sold, down from 18% in 2005.

Wonder why? Well, in 2005 the median price of a new home was only 9% more than the median price of an existing home. In 2018, the difference was a whopping 32%.

Like most addicts, home builders know they have a problem. In a survey conducted a few months ago, BUILDER asked its readers if affordability is a serious problem in the markets they build in. A big majority of respondents said it is a serious or very serious problem.

And, like most addicts, the builders who responded to the survey said the problem wasn’t of their making. Rather, they said big cost increases in labor, land, and materials coupled with almost uncontrollable cost increases tied to permitting, land use, zoning, and environmental regulations were to blame.

No doubt all of those costs contribute to the affordability problem. But nobody mentioned the size of the homes being built as a factor, nor did anybody point out that, while manufacturing productivity has doubled in the past 25 years, it’s basically been flat in construction. Flat productivity makes it almost impossible to control or offset increased costs in land, labor, materials, and government regulations.

Carol Galante delivers a presentation on how to meet housing needs in November at the HIVE conference in Austin, Texas.
Darcie Westerlund Carol Galante delivers a presentation on how to meet housing needs in November at the HIVE conference in Austin, Texas.

A good first step in solving the affordability problem would be to kick the big house habit. But housing shouldn’t stop there. It also should heed the advice of Carol Galante, a professor at the Terner Center for Housing Innovation at UC Berkeley and a speaker at BUILDER’s recent HIVE conference centered on innovation in housing. To solve the problems builders believe adversely affect affordability, she said that “today’s industry leaders need to evolve their business models to integrate new technology, new product types, and new methods of delivering homes.”

I think she’s right.

Better get busy.