Building new homes in California and elsewhere has done little to make housing more affordable, according to a study.
New home construction won’t cure the growing challenge of home affordability because most homes being built are pricier and larger than older homes sold on the market, the Orange County Register reported, citing a study by Zillow.
Zillow compared the sales of new homes and existing homes in 46 U.S. metropolitan areas in May. In cities with the largest gaps — including San Jose, New York and Miami — new homes were typically 40 percent larger compared with older homes, and 80 percent pricier.
Of six cities or regions in California — San Jose, Sacramento, San Diego, Los Angeles-Orange County, the Inland Empire and San Francisco — buyers paid $1.14 million for new homes compared to $935,000 for existing ones. So freshly built homes are 22 percent more expensive.
The bulk of those higher prices are because builders typically sold a 2,020-square-foot house compared to 1,585 square feet for existing ones. New homes were typically 27 percent bigger.
Across the nation, buyers of new homes last spring paid a median price of $418,000, 15 percent more than the typical price of $365,000 for older homes. U.S. buyers of new homes typically got 1,990 square feet, 16 percent larger than the median 1,710 square feet for existing homes.
Some of the premium prices for new homes can be tied to mortgage rate discounts offered by builders.
The affordability gap was especially pronounced in San Jose, where a typical newly built home in May cost $2.87 million, compared to $1.6 million for a typical existing home, which was 79 percent cheaper and 48 percent smaller.
In Los Angeles and Orange County, a typical new home cost $1.15 million, 19 percent more than a median $970,000 for an existing home. New homes were also 30 percent larger, at 1,970 square feet versus 1,520 square feet.
In the Inland Empire, a typical new home cost $610,805, or 9 percent higher than a typical $562,500 existing home. New homes were 15 percent larger, at 1,980 square feet versus 1,720 square feet.
The price gaps are the result of myriad policy and marketplace conditions that make it far easier to develop high-end homes, according to the Register. Fancy new communities are simpler to sell politically in the local regulatory process.
Premium housing can be sold to wealthier buyers, with sales usually producing fatter profits.
Catering to a higher-end clientele can also be an easier sell to investors and bankers who put their dollars behind construction plans. In recent years, there are enough buyers with deep pockets willing to pay for the premium, newly built homes.
The Register acknowledged that any new supply of housing — at no matter what the price — eases “inventory imbalances.”
But it’s a glacial process for noteworthy affordability improvements to trickle down from housing’s high end to relieve house hunters seeking a modest house to build equity.
— Dana Bartholomew
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