How To Build Homes That Regular People Can Afford

Homes have been getting less and less affordable, but there are some innovative approaches coming from the marketplace that will help to alleviate this problem.

New home construction is not keeping up with demand overall, and the homes that are being built are not priced in such a way that first-time home buyers can afford them. Skyrocketing land prices and rising costs of materials, combined with shortages of skilled construction labor are limiting homebuilders’ ability to serve the entry-level buyer. Some builders (notably D.R. Horton and LGI) have directed serious attention toward the under-$250,000 new home market, but more needs to be done. 

Home prices have been rising 41% faster than the general inflation rate over the past 25 years. When mortgage rates, currently at generational lows, start to once again move up to normal levels, monthly payments will increase and affordability problems will get worse across almost all income groups. It is important for business to figure out new ways to adapt.

With the huge millennial generation now reaching the stage of life typically associated with a home purchase, and with household formation rates rising rapidly, it is clear that the demand is there, but the supply that meets these buyers has to be affordable, either to buy or to rent. Developers, builders and land financiers are focusing their attention now on ways to deliver homes that are affordable to a wide cross-section of the population. Below are a few of the ways that different kinds of businesses can help the market match the supply to the demand. 

1. Modular Homes

One approach that can bring costs down is modular homes. Don’t confuse modular homes with mobile homes, though. You can still own your home and land with modular; it’s the same idea as a typical home, but just a different construction process. They’re much faster to build, too. “Modular” is a construction method that involves constructing sections away from the building site, then delivering them to the intended site. Installation of the prefabricated sections is completed on site. Some people prefer the term “factory-built.” Modular homes usually can be built for significantly less money than completely site-built homes, and much of that cost savings is passed on to the home buyer.  

That being said, there is a great deal of confusion about the attractiveness of factory-built homes. In fact, today’s modular homes can often be indistinguishable to the consumer from traditional site-built homes. Modular housing has a lot of room to grow, because consumers’ lack of knowledge regarding factory-built housing has to-date kept its market share very small.  This kind of housing will have to be part of the solution to the affordable housing problem. 

2. ADUs

An accessory dwelling unit, usually just called an “ADU,” is a secondary housing unit on a single-family residential lot. Detached ADUs are also sometimes called granny flats, laneway houses or DADUs, depending upon where you are in the country. There are also attached ADUs, such as garage or basement conversion ADUs. In some regions of the U.S., these might be referred to as garage apartments or carriage houses.

ADUs can be a part of the solution to affordable housing because they do not require paying for land, major new infrastructure, structured parking or elevators. They are usually built with wood-frame construction, which is much less expensive than homes in new-construction apartment buildings.

As an additional perk, an ADU can provide an extra stream of income for the owners of the property, which can help offset the cost of ownership. 

3. More Economical Site-Built Homes

Traditional homebuilders have been taking steps to make their homes more affordable in recent years. Five years ago, the spread between the average price of new homes and existing homes rose to 30%, but more recently it has come back down to 15%, which is the normal range. More builders are setting their sights on serving the millennial generation, which is at long last seeing an increase in family formation. When they eventually do have kids, they typically want a home in a safe area and in a good school district (just like every generation that preceded them).

A subset of the home builders is offering smaller homes with more practical levels of finishes and features, and a little farther from the downtowns. They are finding a huge amount of demand and a great deal of acceptance and appreciation for their offerings. D.R. Horton’s Express Homes brand is the leader in this segment of the homebuilding business, closing 19,000 homes a year in 60 markets in the U.S., but other builders are moving fast to get into this segment of the market as well.

This post first appeared on Forbes.com. To see the original, click here.