It is getting harder and harder for first-time home-buying because the supply of single-family homes has decreased for 21 consecutive months. These limited property listings have raised prices so significantly that first-time homebuyers cannot participate. Why does this matter? Because the safest part of every city, better health, higher educational attainment, greater variety of choices in goods and services, can always be found where there are high concentrations of homeowners. Here’s what we know, and why laws and attitudes need to change.
Affordable starter homes have always served as the entry point in the housing market, which creates the ripple effect for the rest of the market. The average time housing inventory remains on the market has dwindled to less than four months. During the listing period, there are often 10 or more competing offers with many potential homeowners feeling too frustrated to keep trying. While the solution to “just build more houses” may seem like a simple one, the obstacles are not.
Consider, in the past five years, the average regulatory costs to build a single-family home have grown by 30 percent to $84,000 (Ref: National Association of Home Builders). Builders pay an average of $50,000 to comply with regulatory requirements before breaking ground, with another $34,000 paid during construction. Yet during this same period, disposable income has increased by only 14 percent. In short, regulation costs are outpacing income two to one.
But that is just the beginning. These fees are on top of money needed for acquiring scarce buildable land, durable and compliant building materials, and finding a workforce in a landscape with limited skilled labor, which increases payroll costs. This has made it nearly impossible to build a single-family home that can be sold for less than $300,000, which is out of reach for a large swath of America’s population.
So how did we get here? After the financial crisis of 2007-08, regulators and policymakers imposed new capital requirements and restrictions on lenders. This significantly curtailed construction financing by its traditional players: local community banks. Now, 10 years later, we have to help builders more easily secure financing to build new homes for the growing population.
We need smarter regulation while being mindful of consumer protections. Local banks are critical for new construction loans, as they understand their customers and risks because they are located in the same neighborhoods. But compliance costs at community banks have risen an average of 14 percent year-over-year to maintain pace with regulatory demands. This needs to be re-evaluated in order for housing to move forward.
Homeownership provides safety, stability, improved quality of life and wealth for families and communities. For this reason, it is critical we promote and protect sustainable homeownership for all segments of America. The time is now to change laws, modify regulation and focus on affordable housing and responsible mortgage originations for everyone.
Tino Diaz is senior vice president of Columbus Capital Lending, a leading mortgage lender for the Hispanic market. Their mission is to strengthen America’s social fabric through sustainable homeownership. He can be reached at email@example.com.
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