In her recent opinion article for MarketWatch, Zonda chief economist Ali Wolf reports the share of new homes selling for under $300,000 has plummeted to 10% from 35% in just two years. A number of factors, including more than a decade of limited home building, a sudden and sharp rise in demand, low mortgage rates, lifestyle changes, and surging building costs, are all partly to blame. But, there are also four key structural issues related to land, labor, regulation, and NIMBYism that make it difficult to get entry-level homes built today.
Land prices are up
Land is a finite resource. Over time, the availability of land in desirable areas goes down, which pushes prices up. This is critical as land makes up between 20% and 30% of home prices in more affordable and development-friendly markets and 40% to 50% in land-constrained and coastal markets.
Over the past two years, land prices have spiked in response to increased demand. For-sale home builders that were rushing to secure land were competing with other buyers also in hurry.
In response, builders expanded their search radius to less-central locations, but it is not a surefire plan for creating housing at more affordable prices. Not only have those plots gone up in price, but in some cases, the land lacks entitlements (the legal approval needed for development) and/or infrastructure (water, sewers, roads and the like), both of which are time-consuming and expensive to add.Read More