Even with all the advances in data technology and AI, I still like using my crystal ball to make housing predictions. Here’s what I see happening in the near future.
The pressure of increasing interest rates, escalating construction costs, and surging demand for affordable housing options spurred new home builders to shift their focus to fewer single-family homes and more toward the construction of smaller, taller, and cost-efficient modular buildings.
Homebuilders are adjusting to the higher interest rate scenario by building “smaller, less expensive, taller units” and embracing higher-density construction.
By the Numbers
After witnessing robust double-digit growth in the construction of single-family homes during 2020 and 2021, 2022 saw a surprising downturn. Single-family home construction dipped by more than 10% — the first such decline since 2011. Furthermore, detached home construction plummeted by 12%, while construction of attached single-family homes rose modestly by 2.9%.
The changing dynamics also influenced the size of the homes being built. Builders turned their focus towards homes with fewer than three bedrooms, with new construction in this category increasing by 9.3% from 2021 to 2022. Conversely, new constructions featuring three bedrooms or more saw a sharp drop of 13.1%.
My crystal ball says those trends will continue and it also predicted that smaller homes will continue to be an influence for Millennials and GenZ’s looking for new homes.
Tract-Built Townhouses
Additional notable trends included a 4.9% rise in the construction of single-family homes taller than two stories, contrasted with a 10.8% decline in the construction of homes two stories or fewer. The median size of new single-family homes shrank by 100 square feet compared to the previous year.
The construction methodology also experienced a shift. Homes constructed off-site increased by a remarkable 23.9% between 2021 and 2022, while traditional on-site single-family home construction dropped by 11.2%. This uptick in off-site construction likely stems from challenges such as unpredictable supply chains and rising costs.
Modular and Manufactured homes are more efficiently built, generating less waste, being more climate-friendly, and ultimately cheaper to build which my crystal ball says will attract first-time homebuyers, baby boomers looking to downsize, and those seeking affordable housing options.
Code and Regulation Roadblocks
Despite these promising trends, obstacles still loom for offsite construction including over-regulation and fees which can account for up to 30% of the price of a new home. Also, zoning reforms are essential to facilitate ‘missing middle housing,’, especially in large metro areas where affordable options are limited.
Unfortunately, the most restrictive building codes often exist in the places that need these reforms the most. Therefore, to truly bring affordable housing within reach of everyone, legislative changes are as necessary as shifts in the construction sector.
