Fewer New Homes Are Being Constructed Despite High Demand. Here's Why

People want to buy new homes -- so why aren't builders constructing them?

Home prices throughout the United States have hit record highs recently, and many would-be buyers are finding it difficult to find and purchase affordable properties. With a limited supply of housing, there's a lot of interest in building new properties.

Unfortunately, despite the shortage of homes on the market, a recent report from the U.S. Commerce Department revealed that requests for permits for home construction have fallen to a seven-month low. Not only that, but the number of new-construction homes being completed also declined.

There's a very good reason why builders aren't rushing to construct properties despite demand caused by the current shortage of existing homes for sale. Keep reading to learn more about the labor and supply shortages and how they're impacting home building.

How labor and material shortages impact new-home construction

There are a couple of big problems that are preventing a big increase in new home construction.

One of the issues is that there's a major shortage of labor. Home builders are struggling to fill open positions. Without crews to perform construction tasks, they can't build new houses for people to live in.

There are also material shortages that have driven the price of certain key raw materials up dramatically. In particular, lumber prices are through the roof, with a record 154.3% year-over-year increase in the cost of softwood lumber in the month of May based on producer price data.

Semiconductor shortages are also making appliance prices higher. And paint shortages, wiring shortages, copper shortages, and tariffs on imported steel are also sending materials prices skyrocketing.

Without affordable materials available to use for construction or a sufficient number of workers to do the work, builders are in a tough spot. People want to build, but building isn't necessarily a feasible or affordable solution.

And that's why it will likely come as no surprise that a recent survey from the National Association on Home Builders showed that confidence among builders of single-family properties has fallen to a 10-month low.

Do your research before you build

Fortunately, the news isn't all bad. Permits for future home builds are still slightly higher than the number of homes that have already started being constructed. This could suggest more homes will be built in the coming months than are currently underway. But the high costs of supplies are likely to persist for some time and will continue to make it more difficult for builders to take advantage of the competitive housing market.

For people interested in building a home, the high demand for properties coupled with the materials and labor issues is likely to make it much more expensive to build a home for the foreseeable future. Before you commit to building, be sure to get detailed quotes from builders so you'll understand the costs.

And make sure you don't end up taking out a larger mortgage loan than you can easily afford just to be able to build a home now during these unusual economic times.