The Housing Crisis Is Real – Week 7

Road & Utility Contractors:

In my 47 plus year career of working with land, I have survived five recessions. The Great Recession of 2006 through 2010 was by far worse than the previous four recessions combined. Recessions are caused by a lack of liquidity in the real estate development community, which leads to bankruptcies and foreclosures.

The Great Recession decimated the contractors that were available to build water and sewer systems and roads. The supply of road and utility contractors has not fully recovered. Therefore, prices for constructions of those items have gone up with increased demand and a lack of capacity for construction. This lack of capacity drives up construction cost.

As construction costs go up, lot prices have to increase in order for there to be a financial incentive for the developer to take the risk to create the subdivision lots. As the cost of lots go up, the size of the house has to be larger in order to maintain the ratio demanded by the appraisers, and that means that larger houses get built and smaller houses do not.

The combination means lower priced houses called starter homes are not built. Hence the shortage of starter homes for the Generation Y buyers.