Rising Costs Impact Valley Homebuilders’ Ability to Deliver Affordable Housing

Article originally posted on Phoenix Business Journal on September 19, 2019

As demand in the Valley increases for entry-level homes, homebuilders are doing what they can to give buyers what they want, but how long they’ll be able to offer entry-level prices remains to be seen.

“We really do have a perfect storm here,” said Jim Belfiore, founder and president of Belfiore Real Estate Consulting. “Costs are just rising so fast and it’s going to continue that. It’s going to be difficult for builders to continue to deliver affordable housing in the future. It’s a large concern we need to figure out solutions to.”

Demand is still growing at a healthy clip, Belfiore said.

“The single biggest issue for homebuilders today is delivering homes at a price point that’s palatable for homebuyers,” he said. “It really is a big issue.”

At Valley Partnership’s next breakfast on Sept. 20, homebuilders and real estate experts will discuss how the influx of new residents has increased the demand of affordable housing while costs continue to skyrocket.

Jeff Gunderson, senior vice president of land acquisition and development for Lennar Homes and a panelist, said he’s been seeing pricing pressure build for a number of years.

“It just keeps coming,” he said. “We’re still experiencing a lot of upward cost pressure on the vertical side. The land development side had been relatively unaffected until two years ago.”

That’s when Gunderson said he started experiencing cost inflation in a few of the company’s work categories, but not yet across the board.

“Within the last 12 months, we’ve experienced what I call rampant cost increases in basically all of our work categories on the land development side,” he said. “We feel there might be some materials increases that affecting it but predominantly it’s labor.”

Costs have increased 25% to 30% across the board in land development during the past 12 months.

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Construction costs and a labor shortage are making it tougher for homebuilders to deliver affordable homes.