Why Aren’t New Builders Building Affordable Housing in Riverside?

Westcoe Realtors, Riverside Ca…One of our buyers asked us this question this week.  They had noticed that there is a dearth of affordable new housing being built in our area, and wondered if we had any idea why?

Well…yes we do know why, and it’s not just Riverside that is facing this issue.

To jump to the bottom line, the reason there is no affordable housing being built in our area is because builders cannot produce a finished “affordable” home and sell it for a profit.  To be more succinct, it’s too expensive to build a home and sell it at the low end of the price range.

To elaborate, according to our data, there are over 200,000 construction jobs open in the United States, with no skilled labor to fill these jobs.  We lost so many skilled laborers in the real estate meltdown of 2007-2012 (think electricians, plumbers, framers, concrete workers, etc.) and those people have not come back into the industry.

As a result, labor costs for new home construction have not just gone through the roof, but are now in the stratosphere.  There are reports of framers being offered huge pay raises to walk off one job and report the next day to another job with a new builder.  We talk a lot in this blog space about supply and demand, and here is a prime example…huge demand for workers, very limited supply, and that is a recipe for enormous wage hikes.

In line with that are material suppliers, who have some of the same issues.  So many left the industry that when a builder bids a job, the cost of supplies (again, think lumber, copper pipes, roof tiles, etc.) has also risen due to fewer places to get said supplies.

Therefore, mix all this in the “building stew” and you have a situation where lower priced homes are just not able to be produced…and we haven’t even addressed land costs.

That’s why much of what you see being built is either multi-family units (apartments…lots of units to rent to make-up for the cost to build), or homes being built in areas where the entry level market is very high…parts of Orange County, Los Angeles County etc.

In an area like the Inland Empire, where affordable housing is defined somewhere in the 300’s, new construction just doesn’t pencil out for the builders.  The cost of building a $600,000 home is not that much more than a $300,000 home, so you can see where a builder is headed…where the profit is.

So…what happens next? Hard to say.  Our crystal ball is no better than anyone else…but what we do know is that areas like Riverside, with it’s strong affordable housing base, are remaining attractive to buyers who simply cannot find affordable housing in our neighboring counties.  We are where first time buyers and young families come to live, and that is good for us all.

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