Affordable housing projects have started emerging rapidly over the last few years. With population numbers increasing and a limited amount of resources available, housing projects that are available at relatively less competitive rates are becoming preferred commodities, according to Maxwell Drever As a result of this growing demand, contractors and building companies are planning as well as executing numerous affordable housing communities.
However, the construction projects have run into major challenges especially with the COVID-19 pandemic. As global supply chains were disrupted, the impact fell on prices. From lumber to steel, the costs for basic building materials and labor also went up, eventually impacting the pace of work. Numerous projects slowed down and some were even halted during this time as contractors weren’t able to fulfill delivery within the committed deadline.
Prices Not So Affordable Anymore
Construction costs have raised astronomically in the past couple of years, says Maxwell Drever. Lumber, for instance, which is a key component in building homes, saw its price go up and down 40% in a 45-window during 2021. Similarly, labor prices also saw a substantial hike. All inclusive, the overall cost for building a home even for those where construction began before the pandemic, has gone through the roof. As a result, affordable housing projects are no longer inexpensive.
Prices Driving a Gap in Demand and Supply
With prices rising, the stock for low-cost rental properties has also dropped. Rent prices have increased by 17% in 2020. At the same time, there were 3.9 million lesser units available for rent in 2019 as compared to 2011 according to a study by Harvard University. This demand and supply gap has also pushed prices further up. According to Maxwell Drever, for those looking towards the prospect of owning their own home at an affordable price are slowly witnessing their hope dwindling.
Besides pricing, the disruptions in the supply chain have also caused the pace of work to slow down significantly. From raw materials not arriving in time to processing and other procedures occupying longer durations than usual, the construction timelines have increased extensively. This has led to delays in project completion and handover. Each day that the project falls behind schedule, additional costs in terms of rent and labor are incurred which eventually hike the price of the property as well.
Government Funded Projects Also Facing Challenges
Government backed affordable housing projects have failed to respond to the change in market dynamics. The single biggest source of affordable housing finance is the Low-Income Housing Tax Credit program of the US government that was created in 1986. However, in light of rigid requirements, many recipients of credit from the institution have stated that their projects are no longer viable financially.
The impact of rising prices of construction materials and labor on affordable housing projects has been significant. The result amongst many other things has been that these projects are no longer as affordable as they were once assumed to be, states Maxwell Drever. This has translated into huge issues for prospective buyers who were looking to build a home of their own at relatively lower prices.