“99% of Nation’s Homes ‘Unaffordable’ for Average American”… This is a CBS News headline a subject that worries everyone, from politicians to real estate developers.
The news comes from a report by ATTOM, a national real estate data provider. The company’s analysis applies the 28% mortgage rule as the maximum amount of income a person should put toward their mortgage payment. The typical house in today’s market would require at least 35% of someone’s annual salary.
With mortgage rates hovering around 7%, that adds hundreds of dollars to the average monthly payment. Median home prices are holding steady at just over $400,000 due to low inventory. Homeowners locked into lower mortgage rates are waiting for rates to drop before selling, making inventory even tighter.
Despite the headwinds, builders still need to build and sell homes profitably. Doing so in today’s environment requires a strong focus on accessibility. Fortunately, there are many ways for builders to be part of the solution without compromising their bottom line. Here are some ways to take action so that 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 doing nice, normal, blue-collar jobs. Something doesn’t add up. Builders who design affordable homes prioritize practical designs, use standard designs, and incorporate cost-effective materials. Think function over form: vinyl over wood, laminate over granite, mid-range appliances over top-of-the-line brands. HGTV may not have them, but these homes can still be beautiful without breaking the bank. While high-end features were a priority for home buyers in the past, today’s environment has led to a focus on affordability over luxury. The NAHB even reports a trend in the reduction of the average size of the new home.
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 act as their own advocates by partnering with government agencies to streamline the permitting process, reduce regulatory barriers, and expedite housing project approvals. When policymakers understand a problem and a path to solving it, they are more likely to exert their influence to help. Housing affordability is on the radar of most politicians because it is a major challenge for voters.
Innovation in Construction
To reduce labor costs, more builders are centralizing the construction of certain home components, such as trusses, frames and walls. Prefabricated materials are shipped to construction sites for faster construction. Modular homes can save builders up to 20% in construction costs compared to building the same floor plan the traditional way. Builders are also turning to 3D printing, which can create the frame and walls of a house in less than 48 hours at a fraction of the cost.
Soil optimization
Author Mark Twain famously wrote, “Buy land, they won’t do it anymore.” Optimizing land use involves building higher-density developments, mixed-use projects or infill housing within existing neighborhoods. Maximizing the available space reduces the cost per unit. As a result, builders can create more affordable housing options. This is especially important for urban areas balancing limited space with growing population.
Financing flexibility
Partnering with financial institutions can create flexible financing options for buyers in exchange for the volume of transactions entered by the builder. Some builders negotiate more favorable mortgage rates in exchange for referring a buyer to their lending partner. Other options include working with financial institutions to offer innovative programs such as down payment assistance, low interest loans and shared equity arrangements. By collaborating to create more affordable financing, builders expand their pool of potential buyers.
Investments in sustainability
Energy efficient homes can save homeowners more than 20% annually on utility bills according to CenterPoint Energy. With the average American owning their home between eight and 13 years, this creates significant cost savings. Builders investing in sustainable practices and energy-efficient materials may not impact affordability immediately, but will generate additional savings for homeowners over time. There may also be certain tax credits available for building energy efficient homes.
Home guarantees
For those who can afford a home, most don’t have money set aside to deal with inevitable setbacks and malfunctions. PWSC’s 2 to 10 builder-backed warranties provide homeowners with 10 years of protection against structural defects. The addition of PWSC’s HomePRO System and Appliance Warranty provides additional financial coverage for nearly every appliance in a home, in addition to “in-the-wall” systems such as electrical and plumbing. Warranties can equal several thousand 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. The partnership with PWSC gives builders a low-cost option to improve affordability and make home ownership the dream it was always meant to be.
