“Homes ‘Unaffordable’ in 99% of Nation for Average American”… This is a CBS News headline for a topic that has everyone—from politicians to property developers—highly concerned.
The news stems from a report by ATTOM, a nationwide property data provider. The company’s analysis applies the 28% mortgage rule as the maximum income amount a person should put toward their mortgage payment. The typical home in today’s market would require at least 35% of someone’s annual wages.
With mortgage rates hovering around 7%, hundreds of dollars are added to the average monthly payment. Median home prices are holding steady at just over $400,000 due to low inventory. Homeowners locked in at lower mortgage rates are waiting for rates to drop before selling, making inventory even tighter.
Despite the headwinds, builders still need to construct and profitably sell homes. Doing so in the current environment requires a keen focus on affordability. Fortunately, there are many ways for builders to become part of the solution without compromising their bottom line. Here are some ways to take action so more people can achieve their dream of owning a home.
Affordable Design
The internet is full of HGTV memes poking fun at buyer’s inflated budgets while working nice, normal, blue-collar jobs. Something doesn’t add up. Builders designing homes for affordability prioritize practical layouts, use standard designs, and incorporate cost-effective materials. Think function over form: vinyl instead of wood, laminate instead of granite, average appliances instead of top-of-the-line brands. HGTV may not feature them, but these homes can still be beautiful without breaking the bank. While elevated features were a priority for home buyers in the past, the current environment has led to a focus on affordability over luxury. The NAHB even reports a trend in the reduction of the average new home size.
Government Collaboration
Last quarter, the National Association of Home Builders released a 10-point plan to ease housing affordability challenges. Many of the recommendations involve government support at the federal, state, and local levels. Builders can serve as their own advocates by partnering with governmental agencies to streamline the permitting process, reduce regulatory barriers, and expedite housing project approvals. When policymakers understand a problem, and a pathway for solving it, they are more likely to wield their influence to help. Housing affordability is on the radar of most politicians because it is a major challenge for constituents.
Construction Innovation
To cut down on labor costs, more builders are centralizing construction of certain home components, such as trusses, framing, and walls. The prefabricated materials are shipped to build sites for quicker construction. Modular homes can save builders up to 20% in construction costs versus building the exact same floor plan in the traditional way. Builders also are turning to 3D printing, which can create the frame and walls of a home in less than 48 hours at a fraction of the cost.
Land Optimization
Author Mark Twain famously wrote, “Buy land, they’re not making it anymore.” Optimizing land use involves building higher-density developments, mixed-use projects, or infill housing within existing neighborhoods. Maximizing available land space reduces the per-unit cost. As a result, builders can create more affordable housing options. This is especially important for urban areas balancing limited space with growing populations.
Financing Flexibility
Partnering with financial institutions can create flexible financing options for buyers in exchange for the volume of transactions introduced by the builder. Some builders negotiate more favorable mortgage rates in exchange for directing a buyer to their lending partner. Other options include working with financial entities to offer innovative programs like down payment assistance, low-interest loans, and shared-equity agreements. By collaborating to create more affordable financing, builders expand their potential buyer pool.
Sustainability Investments
Energy-efficient homes can save owners more than 20% annually on utility bills according to CenterPoint Energy. With the average American owning their home between eight to 13 years, that creates a significant cost savings. Builders investing in sustainable practices and energy-efficient materials may not impact affordability immediately but will generate additional savings for owners over time. There also may be certain tax credits available for building energy-efficient homes.
Home Warranties
For those able to afford a home, most do not have money set aside to address inevitable mishaps and malfunctions. PWSC’s builder-backed and insured 2-10 warranties provide homeowners with 10 years of protection against structural defects. Adding PWSC’s HomePRO system and appliance warranty offers additional financial coverage for nearly every appliance that comes standard with a home, plus “inside the wall” systems like electrical and plumbing. Warranties can equate to several thousands of dollars in protection for new homes and improve long-term affordability.
Learn more about PWSC’s warranty options and how they can save both builders and buyers money. Partnering with PWSC gives builders a low-cost option for improving affordability and making homeownership the dream it was always meant to be.
