These trends are likely to spread in 2020, and builders should be optimistic
By JULIA EDINGER
A new year brings new opportunity.
Many economists are predicting strength in 2020. Still, for those in the world of housing, there tends to be a lot of anxiety as the calendar year comes to a close. This is not uncommon, as the housing market is cyclical, and tends to slow in the winter months.
At 2018’s close, builders were frantic over the supposed headwinds that major headlines promised would turn the market upside down in 2019. At the start of 2019, homebuilding professionals were working diligently to combat the headline effect that spurred from these premature statistics. Overall, 2019 was a strong year for housing, ending with builder confidence at 76 — its highest reading since 1999 — according to the latest National Association of Home Builders/Wells Fargo Housing Market Index.
While some headwinds did persist, creative solutions will help builders make more sales in 2020. The major challenge right now for homebuilders is delivering affordable products for the entry-level market. One of the major factors impeding affordability is the cost of land. In expensive metro markets like Los Angeles, the cost of land has led many prospective homebuyers to seek housing in smaller cities or exurbs, or even put off buying a home and continue renting longer. The delay in buying a home has led to the emergence of another trend: build-to-rent.
Multifamily housing is another method of combating high land prices, and the market is expected to remain strong in 2020. High-density housing projects are increasing in popularity. Those that offer energy savings, amenities, and convenient proximity to transportation are likely to see major profits.
The affordability question has no simple answer, because there are many contributing factors. One of the major factors is the skilled labor shortage. Costs of materials, land, and labor have all risen in recent years, leading to the inability to increase home construction to levels of the past.
Another major change that is transforming the industry is the implementation of “green” building methods. Sustainability has come to the forefront of the conversation, and will likely dominate in 2020.
Builders are building more certifiably green homes than ever before, and they are in high demand from homebuyers who are drawn to energy-efficient homes for a number of reasons, including utility savings, environmental concerns, and health concerns.
An NAHB study even revealed that buyers are willing to pay more for a home with green features if they are properly educated on the savings they will incur in the long term. This is going to help builders meet the needs of two challenging homebuyer segments in 2020: Baby Boomers and millennials. Buyers from both of these demographics are seeking small- er residences with cost-saving energy features.
Homebuilders in California are very aware of the shift in building methods, as the Title 24 solar mandate is in effect as of January 1st, 2020. While stricter building codes can be challenging to adapt to, there are many resources available for builders that are adjusting to the changes. Builders with questions about the codes can get more information from sources like the California Energy Commission and the California Building Industry Association.
Other states, and even cities within the state of California, are implementing their own standards of energy efficiency requirements. Builders in 2020 will likely see an increase in this pattern. Educating buyers on the cost savings of an extremely efficient build is crucial, but with the proper education, there is no cause for concern.
The other major change in the market is the widespread implementation of smart home technology. This is another feature that appeals to younger and older buyers alike. Both Boomers and millennials are seeking convenience, cost savings, and efficiency, and smart home technology can contribute to all three.
Builders implementing these features should market them by showing prospective buyers the smart home technology’s functions and teaching them that the features can be simple to operate. This means that building professionals should also be educating themselves on the functions.
Despite headwinds and media warnings, 2019 brought a year of growth to the industry. The main challenge entering the new year will be the lack of supply, specifically for entry-level housing.
This coming year is going to continue to push builders to deliver innovative, new products to meet the market demand. Properly implementing desirable features like smart technology and energy savings can help increase value, while increasing savings for the homebuyer.
There is a world of opportunity for the housing industry this year. Homebuilding professionals should go into 2020 with the confidence of a successful year behind them.