What Is Behind The Increase In New Housing Prices?

January 10, 2018 at 9:00 AM Leave a comment

Consumers may not connect tougher immigration laws with an increase in the price of new housing, but apparently, that is exactly what it is doing. What is at the heart of the cost increase? There is a shortage of immigrant workers who are willing to work for lower wages due to fewer immigrants coming to the US.

That has not only slowed the rate at which new houses are being constructed; it has also raised the price of new housing. In just one year, the cost of building has almost doubled. That means the inventory of new housing has decreased by about half and the price of new homes is increased for those looking to own a piece of real estate.

There is a reason to believe that other political policies will further raise the price of new home builds in clearview. As Trump starts to renegotiate trade deals around the world, that will likely also have an impact on building material costs, which will once again raise new house prices and reduce the market. And, with low supply comes higher demand.

Although it’s not highly publicized, over 145% of undocumented workers have been rousted since Trump took office earlier this year. There is also discussion that he wants to make only those who are fluent in English eligible for immigration. As he threatens leaders around the world to negotiate trade deals, lumber and other construction material prices will continue to hike.

Trump’s policy is to get more in return for trade with other countries, but with negotiation and threats come some harsh retaliation. Trump has already raised duties on Canadian lumber and has set his sites on South Korea, China, and the bulk of Asia, which supplies most of the materials needed for the US construction industry. Estimates are that the new implementation of trade agreements, or threats thereof, has raised the cost of new housing by thousands of dollars for each individual new home.

The part of the industry suffering the most is framing. According to statistics released by Washington’s National Association of Homebuilders, over 70% of builders have reported a shortage in finding framers. And 85% of subcontractors are having a difficult time finding framing help to move their building projects along.

This issue isn’t all about the new policies implemented or threatened by Trump’s administration, though; the framing industry has been at an all-time low since the beginning of the recession. It has only continued to get worse as immigration is on the decline and material costs are increasing, making it a less profitable business within the construction industry.

Because framing is the component of the building process that has the highest concentration of immigrant labor, it is not surprising that it has been hit hard. The question is what the industry intends to do about it.

It’s an ongoing hardship, and labor changes have made it a great hurdle for the nation as a whole, but it is starting to make an economic dent. New policies are set to cut immigration to the United States by as much as half if immigrants are required to learn fluent English to gain entrance.

The impact of imposing tariffs of almost 27% on Canadian lumber will have a trickle-down effect on homebuyers and builders alike. It might make the real estate market increase, especially for new home sales — but only in price. The availability might be at an all-time low. Also at risk of a price hike are the materials that builders call “finishings” — things like doors, windows, and lighting fixtures.

To add insult to injury, the Federal Reserve is considering raising interest rates, which will only make home purchasing more difficult. Low supply, high demand, higher prices and higher finance charges are all a recipe for disaster for a homebuyer looking for a new house. These increases are just the tip of the iceberg; only time will tell how the whole industry is changing and how the building industry will accommodate those changes.

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