The Current State of Residential Home Building

Home Prices are Rising in Maryland and the DC area - Law Offices of Matthew S. Evans, III

Home buyers in some of this nation’s biggest housing markets are finding themselves in bidding wars as the supply of available homes begins to slow. Reuters reports that housing starts in May 2017 dropped 5.5 percent to their lowest level since September 2016. Home builders are increasingly attempting to move away from luxury housing in favor of more affordable options, but many are finding that they face obstacles in the form of zoning regulations and other market factors.

The Current State of Residential Home Building

According to a recent report from USA Today, housing construction is currently 35 percent below normal levels nationwide. This is particularly the case with starter homes and what is considered to be affordable housing in many markets. This deficit is not only making homes more difficult to find, but it is also driving up prices to the tune of about 40 percent over the past five years.

There is little doubt that Americans are increasingly looking for more affordable housing and starter homes. It’s also true that homebuilders have become more willing to shift their focus from luxury housing to affordable units to fill that demand. The main culprit behind these alarming numbers is the fact that home builders are now faced with so many regulatory, zoning, and environmental requirements, that meeting the current demand is becoming more and more difficult.

Take Seattle, for example. One builder wanted to construct as many as 36 affordable homes in a Seattle suburb, but zoning changes would only permit them to build 25. The market conditions in this area have squeezed supply to the point that these “affordable” homes would need to sell for $1.2 million each to give the builder a profit.

In fact, regulations are stifling home builders to the point that affordable housing units are disappearing from the market. The National Association of Homebuilders reports that regulatory costs to build a home have increased 30 percent from 2011 to 2016, now averaging about $85,000 per home. Areas of the country with the most regulations and the fewest starter homes include Seattle, Boston, Denver, and Baltimore.

Homebuilders that want to build new developments today not only need to obtain zoning approval, but they also must meet energy-efficiency and environmental standards. Some cities and towns have increased their minimum lot size and have put requirements in place for such things as wider roads and more open spaces. State and federal regulations mandate that wetlands and more than 1,400 endangered or threatened species be protected.

Regulations aren’t the only reason that supply is sluggish around the country. Homebuilders are facing lot shortages for new home construction as well as a lack of qualified construction workers in some markets. Even though the demand for housing is present, these supply factors are driving up prices and causing bidding wars in some of the nation’s largest markets. Since the housing crash that spawned the Great Recession, many lenders are also more cautious with mortgage decisions, and developers tend to avoid riskier projects that might deliver affordable housing units.

Residential Housing Market in Washington D.C.

If you want to buy a home in the D.C.-area, the choices in affordable housing are becoming even more scarce than in the past. The Washington Post recently attempted to locate homes inside the beltway for $800,000 or less, and they labeled their efforts a “challenge.” Homes that used to be in this price range are now priced upwards of $1 million. Those who do own homes in the area are holding onto them in the fear that they won’t be able to find something else comparable to buy.

Some real estate experts believe that the influx of wealth into our nation’s capital is unbalancing the scales in its real estate market. Since 2009, the average price of a Washington home has skyrocketed 40.3 percent to $680,449. In the first five months of the new administration, real estate prices in the D.C. area have gone up 7.14 percent, the fastest pace since 2010.

Home ownership continues to be a cornerstone of our nation and one of the things that differentiates the U.S. from many other countries around the world. While there are some critical programs in place to encourage home ownership and the pursuit of the American Dream, more detail should be paid to the local, state, and federal regulations that are preventing homebuilders from delivering affordable housing units to willing buyers.

Contact An Experienced Maryland Real Estate and Construction Law Attorney

For more information about our real estate and construction law service throughout the Maryland and Washington D.C. area, contact Law Offices of Matthew S. Evans, III, LLC to schedule a free consultation. You can reach our office at (410) 626-6009.


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