Why We Cannot Just "Build More Homes" to Address the Housing Crisis

"Just build more houses!" may sound like the solution, but as with most things related to real estate and economics, its implementation can be much more complex.

Wish it were that straightforward.

Even though housing demand has grown exponentially, new construction hasn't increased as predicted. That isn't due to builders not wanting to build, but rather due to real, systemic hurdles they cannot surmount themselves.

Here are five major arguments against building our way out of the current housing crisis:

1. Mortgage Rates Are Holding Everyone Back 

Mortgage rates have an adverse effect on builders as much as homebuyers; higher borrowing costs make construction loans more expensive, thus decreasing profit margins and thus deterring them from taking risks financially. Combine hesitant buyers and slow sales cycles and you have an environment in which builders would rather take no chances than risk financial repercussions for taking financial risks.

2. Construction Labor Pool Is Eroding

Construction trades have long experienced a labor shortage that only seems to grow worse over time. Electricians, framers and plumbers--you name it--there simply aren't enough skilled workers available to meet demand for skilled jobs like electricians, framing, plumbing etc. Fewer crews means slower timelines and higher labor costs that ultimately limit what can get built.

3. Material Costs Remain Volatile

Although supply chain chaos has subsided somewhat, prices for critical materials such as lumber, drywall and steel remain unpredictable - leaving builders no choice but to overprice entry-level homes when material costs vary dramatically between projects - even though every dollar counts when pricing homes affordably.

4. Local Regulations Are A Huge Roadblock

Even when builders attempt to break ground, red tape often stands in their way. Zoning restrictions, lengthy permitting processes and community opposition can stall progress for months if not years - not simply market issues but rather complex policy and planning challenges that vary by city/county.

5. New Homes Aren't Being Constructed Where Needed

Let's be clear--most new construction is focused on mid to higher price points. Builders naturally follow profits, meaning luxury and move-up homes receive precedence over affordable starter homes which, unfortunately, are in short supply.

Whilst more homes may be necessary, without policy reform, labor investment, smarter financing solutions and an emphasis on affordability, building alone won't close the affordability gap.

If you're considering buying or selling in this complex market, having a sound strategy and working with someone who knows the big picture can only benefit your endeavor.