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Housing Perspectives

Research, trends, and perspective from the Harvard Joint Center for Housing Studies

A Home Builder Perspective on Housing Affordability and Construction Innovation

With housing affordability becoming a growing challenge – some would call it a crisis – in many parts of the nation, a recent survey of home builders indicates that labor, along with materials and regulations, are key factors driving up costs. It also suggests that innovation is coming to the homebuilding sector, albeit slowly.

These and other insights are discussed in A Home Builder Perspective on Housing Affordability and Construction Innovation, a new paper I co-authored with Gopal Ahluwalia. The paper summarizes the results of the unique HIVE (Housing Innovation Vision Economics) Home Builder Survey, which was commissioned by Hanley Wood, LLC and the HIVE Action Partnership to provide background information for the HIVE Conference that was held in Austin, Texas in November 2018.

About 290 firms responded to the survey, which was sent electronically to the top 200 single-family builders, the 25 largest multifamily builders, top 10 builders in each of the top 50 metro markets, and a sample of subscribers to Builder magazine. Respondents – who noted that housing affordability is a serious challenge hurting both consumers and home builders in the US – cited the costs and availability of labor as the most pressing issue facing their industry. In addition, builders cited the cost and availability of building materials (especially lumber and plywood) as a serious problem, particularly in light of trade issues related to Canadian lumber.

Builders also noted that while regulatory requirements are driving up housing costs, it is difficult to fight those requirements. Respondents identified the permitting/development approval process and zoning as the two most significant regulatory challenges. These barriers have been discussed for years, but the survey results and the growing affordability problems suggest the time has come for federal, state, and local governments to work with the private sector to address these issues to make housing more affordable.

Despite the cost pressures, the survey found that the majority of home builders felt there had been little change or only moderate change in the construction methods used to build homes over the last 40 years – another indication that productivity in the sector has not improved significantly in recent decades.

However, the survey also provides an indication that change may be coming, albeit slowly. While respondents reported that most houses are still “stick-built,” they also said that they are increasingly using other approaches such as “pre-cut” (including roof trusses and engineered floor trusses), as well as open wall and closed wall panels and factory-built/modular housing. Homebuilding is a unique industry compared to retail or manufacturing, and these distinctive characteristics – such as the need to obtain land and zoning approvals – add constraints to improving productivity. Still, many builders said they plan to increase the use of innovative construction methods over the next five years, and a number believe there will be a notable increase in factory-built/modular housing.

Taken as a whole, these responses indicate that innovations are underway, but they will take time. Moreover, it remains to be seen if the likely innovations will result in greater productivity and whether, and to what extent, they will make housing more affordable for all Americans.