Recently, with consumers frustrated over the lack of inventory and affordability in the market, new build construction has taken off. With 2024 coming to an end, will demand for new builds continue into 2025? Data suggests it will, with single-family housing starts projected to increase 4.2% in 2025. However, ongoing challenges and evolving market trends will continue to affect new construction costs and investors’ success heading into 2025.
Let’s look at the biggest challenges and newest consumer trends as of October affecting new builds, construction costs, and market demand:
Let’s look at the biggest challenges and newest consumer trends as of October affecting new builds, construction costs, and market demand:
New Construction Challenges
In 2024, the average cost to build a house is $329,000 nationally. Depending on where you live in the United States these numbers can vary drastically, with new builds ranging from $250,000 in Arkansas to over $400,000 in states like California, Alaska, and Hawaii.
Unfortunately, a universal “cost to build a house” calculator doesn’t exist, with the average price per square foot changing by city and even neighborhood. Additionally, these numbers don’t include land costs, which can also change dramatically depending on state, city, and neighborhood.
Unfortunately, a universal “cost to build a house” calculator doesn’t exist, with the average price per square foot changing by city and even neighborhood. Additionally, these numbers don’t include land costs, which can also change dramatically depending on state, city, and neighborhood.
Average cost to build a house: $329,000
Average new construction cost per square foot: $150 – $250
Average land costs per square foot: $450 – $550
So, what’s been driving up the costs of building a house, with average costs up nearly 10% from 2023? While there are several factors, none are more glaring than growing material costs and ongoing labor shortages.
Material Costs
In the wake of COVID-19, the construction industry was forced to navigate unpredictable fluctuations in building material costs. While key materials like lumber, plywood, and plastic and steel mill products have stabilized throughout 2024, geopolitical factors and inflation continue to drive up costs for other essential supplies, including:
Each of these products has seen significant price increases over the past year due to supply chain disruptions, an increased demand for energy-efficient building solutions, and higher gas prices. New construction costs per square foot have risen because it simply costs more to get material from point A to point B and to run machinery and equipment.
- Asphalt felts and coating
- Cement and concrete material
- Gypsum products
- Insulation materials
- Construction machinery and equipment
Each of these products has seen significant price increases over the past year due to supply chain disruptions, an increased demand for energy-efficient building solutions, and higher gas prices. New construction costs per square foot have risen because it simply costs more to get material from point A to point B and to run machinery and equipment.
Labor Shortages
Nearly three years removed from the COVID-19 pandemic and labor shortages continue to drive new build construction costs up. The Associated Builders and Contractors (ABC) projected an additional 454,000 new workers needed to bridge the gap in 2025.
The shortage of skilled workers is a key driver in new construction cost increases. An inability to attract new talent has exacerbated shortages, with older experienced workers moving into retirement without any replacements.
These factors have forced companies to compete over a limited pool of qualified workers at much higher wages. Real estate investment and construction companies with a team of skilled essential players will hold a substantial upper hand heading into 2025.
The shortage of skilled workers is a key driver in new construction cost increases. An inability to attract new talent has exacerbated shortages, with older experienced workers moving into retirement without any replacements.
These factors have forced companies to compete over a limited pool of qualified workers at much higher wages. Real estate investment and construction companies with a team of skilled essential players will hold a substantial upper hand heading into 2025.
Latest Market Trends
Is it cheaper to buy or build a house? For 2024 and 2025 consumers, the answer will remain new builds, especially with the median prices of existing homes at nearly $355,000 nationwide.
New builds offer several advantages, including newer, more efficient operating systems and appliances. According to The National Association of Home Builders, home buyers can pay 36 percent more for a new home and maintain the same first-year costs as a home built in the 1960s thanks to lower operating costs.
New builds offer several advantages, including newer, more efficient operating systems and appliances. According to The National Association of Home Builders, home buyers can pay 36 percent more for a new home and maintain the same first-year costs as a home built in the 1960s thanks to lower operating costs.
Catering to the Gen Z Consumer
The greatest demographic shift in consumer demands from Millennials to Gen Z is affordability. As a top priority among Gen Zers entering the market, real estate trends have begun to swing a new direction, to include:
The recent trends surrounding affordability have led to a boom in the townhouse and single-family homes with an accessory dwelling unit (ADU) market. Townhome construction has surged to its highest rate in nearly 20 years and new homes with ADU additions rose nearly 27% in the final quarter of 2023.
- Smaller Homes: Gen Z consumers are drawn to smaller, more affordable homes. The more efficiency and less maintenance and financial burden a home creates, the better.
- Suburban Markets: While urban living will always have its appeal, motivated Gen Z homebuyers are turning to suburban or even secondary markets to find homes.
- Shared Spaces: With today’s costs, the interest in shared spaces is a new phenomenon among home shoppers.
The recent trends surrounding affordability have led to a boom in the townhouse and single-family homes with an accessory dwelling unit (ADU) market. Townhome construction has surged to its highest rate in nearly 20 years and new homes with ADU additions rose nearly 27% in the final quarter of 2023.
Final Thoughts
Thanks to inflation and interest rates stabilizing, homebuyers are finally returning to the market. Although new construction costs are up, they remain the go-to choice for today’s consumers, and create a rare opportunity for investors to meet consumer demands of affordability and efficiency in three key ways:
-
- New constructions allow investors to cater to Gen Z wants, by offering newer, greener, and more efficient building materials and appliances to lower maintenance and utility costs.
-
- With thorough research, investors can identify the best places for new builds in 2024 and beyond, that include suburban and secondary markets for Gen Z home shoppers.
- By pivoting to townhome and single-family homes with ADU new constructions, investors can provide consumers with a larger inventory of affordable housing options moving forward.
Finance of America Commercial: Bridging the Gap for New Construction Costs
Finance of America Commercial (FACo) continues to help investors bridge gaps for new construction costs, ensuring you have the capital necessary to meet today’s consumer demands for new homes. We offer the most agile and reliable short-term business financing on the market, with tailored packages providing flexible options, competitive rates, and a fast approval process.
Our team of knowledgeable industry experts has the insights, tools, and capital to help you identify the best places to build a house and act CLICK HERE to schedule a FREE consultation with a FACo expert today!
