By now, media coverage proclaiming that the housing market is in decline is familiar ground. For new homebuyers, this can be frustrating, but also difficult to understand.
What are the reasons behind the decline? More importantly, are there regional differences affecting the new home housing decline in various parts of the U.S.?
Why it Matters: Understanding these differences can make it easier to pinpoint where buyers should be searching for a new home.
NewHomeSource spoke to Jennifer Cowan, the managing director of Crown Community Development. Cowan is a real estate developer specializing in master-planned communities throughout the U.S. She breaks down the four aspects affecting housing decline in different areas.
Migration
Regional migration trends affect the number and type of new homes being built, but what does that mean for buyers in high-growth areas such as the Southwest versus slower-growth regions in the Northeast and Midwest?
“Regional migration trends clearly have an impact on housing demand, but one key dynamic to keep in mind is that builders follow demand,” said Cowan. “Migration into high-growth areas such as Texas has accelerated new home construction because builders see the consistent inflows of households.
“Even markets with slower population growth can experience strong demand when supply is constrained. Chicago is a prime example. Limited new home construction has left the market underbuilt as many national builders shifted attention to faster-growing regions during and after the recession. Today, demand far exceeds supply, fueling intense competition for new homes.”
Land Scarcity
Builders and developers respond to demand, but land availability shapes the type of homes delivered.
• In urban and coastal areas, larger tracts of land are scarce.
• The result: attached housing, such as townhomes and condominiums, are most common, because they’re better suited to demand for appropriately priced homes.
• Example: multiple townhomes at $400,000 each vs. one single-family home at $900,000.
• Suburban and exurban areas: land is more plentiful, allowing builders to produce more single-family homes.
• The advantage: These homes are often at more accessible price points than in city cores.
Land-Use Regulations in Coastal Areas
For buyers looking in high-demand regions with stricter land-use regulations (such as California or New York), how much more expensive or difficult will it be to secure a new home compared to less-regulated markets?
Cowan pointed out that the regulatory requirements in these areas can significantly impact the price of new homes.
Land-use regulation costs may include:
• Land development
• Stormwater management
• Specifications for materials (pipes, utility infrastructure)
• Home construction codes
• Other municipal requirements
Architectural requirements (brick, stone, design criteria) can raise construction costs and home prices. Permit costs and impact fees are major factors to consider, as well.
“[Crown Community Development] is active in some markets where impact fees exceed $100,000 per lot. In other markets, fees are only a fraction of that, directly affecting buyer affordability,” Cowan said.
Construction Costs and Market Conditions
In places where it is cheaper and easier to build (like the suburbs in the South and Midwest), construction remains more robust. In contrast, in regions where building “up” is required due to (such as Seattle or Manhattan), costs slow down new projects.
“Construction costs and market conditions play a decisive role in shaping the kinds of communities and lifestyles available to buyers,” said Cowan. “In high-cost urban areas, builders typically respond with higher-density offerings such as condominiums or high-rises since land and approvals make large-scale residential developments difficult.
“Ultimately, developers and builders will organically gravitate toward locations that balance strong demand with regulatory environments that encourage growth.”
The Bottom Line: Don’t just shop for a home. Shop the market. Research migration trends, land availability, and local regulations to know if you are entering a market of opportunity or stiff competition.
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