Housing prices are skyrocketing right now, and developers have an opportunity to meet the need. But with high construction costs and fewer skilled workers, what’s your next move? In this article we discuss the potential in the multifamily market and how industrialized construction can get you building faster, cheaper, and better than ever before.
The combination of historically low interest rates plus the migration of people out of the cities due to the pandemic means there are fewer houses on the market.
- The current supply is the lowest it has been since the National Association of Realtors (NAR) started tracking this in 1982.
Housing prices are rising too fast.
Fewer houses on the market mean dramatic price increases.
- The median price of existing homes sold in September was $311,800, nearly a 15% gain from one year ago.
- In 2012, the average US home cost $162,000. Today that number is $259,000—over a 60% increase in just 8 years. This number far outpaces average wage increases for that same period.
Higher Construction Costs
The demand for houses—along with the shortage of skilled workers—means the cost to build has increased dramatically. The pandemic is upsetting global supply chains in every industry—especially the construction industry. This alarming trend is most obvious when looking at the cost of lumber.
According to NAHB’s standard estimates of lumber used to build the average home, the recent spike in softwood lumber prices has caused the price of an average new single-family home to increase by $14,116 since April 17. Similarly, the market value of the average new multifamily home has increased by $5,322 over the same period due to the surge in lumber prices.1
These stats mean first-time homebuyers are getting “priced out” of many markets and turning to rental homes.
So, What Will Happen Next?
Younger Americans will rent longer. Homeownership has become more difficult, so first-time buyer percentages have been trending downward since April, making the rental market demand rise.
The Housing Affordability Index below shows that Americans are finding it harder to afford housing. The lower the index—the more difficult it is for buyers to afford.
Fewer Americans will build new. With construction costs at an all-time high, the cost of building a new home has never been higher. The soaring price tag to build a new house is pushing buyers to the rental market.
Demand for multifamily units will rise. Multifamily projects are showing strong investor demand right now. As a result, multifamily origination volume is projected to grow to $390 billion in 2020, an increase of 5.7%.2
With the rising demand in the rental market, developers must act fast to meet the need, but the old ways are not going to work. The high costs of labor and lumber mean we need a better way to build. Industrialized Construction (IC) methods can get the job done—and we can walk you through the process. Offsite, prefabricated, and modular solutions using cold-formed steel provide numerous options for your next build.
For information about our Master’s degree in offsite, prefabricated, and modular construction, check out Stonepile Construction College, our institution of higher education dedicated to the future of IC.