In my prior blog post I was commenting about the lack of affordable new construction. This is a great solution to the fact that there is a severe lack of starter homes available for younger buyers to purchase.But high expenses are making this out to be a severe challenge for these developers.
First, we are running out of available land on which to build large developments.These large projects would afford economies of scale for the builders. And remember – if they can keep costs under control, they can afford to build affordable homes.
But these developers are running into expenses – such as applications for zoning approval, they need to meet environmental and energy efficiency standards, they need water and sewerage connections. Quite often towns require the developer to help pay for road improvements necessary because of increased traffic from the new homes.
And while these processes are going on, and some of them can take close to a year to get final approvals, the financing costs and land taxes must still be paid on the vacant land that was purchased.
All of these add up and can easily be 30% of the value of a home. And on a smaller starter home these expenses can easily price the home out of the financial reach of many first time buyers.