Builders: By the Numbers

This section of Green Builder Media’s comprehensive State of the Building Industry dives into what builders think about the industry going into 2024.

Green Builder Media’s market intelligence division, COGNITION Smart Data, keeps its finger on the pulse of builder and consumer insights. The recent State of the Building Industry survey revealed marked progress in the adoption of sustainable products and technologies, and cautious optimism about the market.

Builder respondents from coast to coast and representing a broad spectrum of housing categories (entry level, move up, semi-luxury, luxury, custom, multifamily, and mixed-use) indicated that they are selling homes mostly to millennials, followed by Gen Xers, Baby Boomers, and Gen Zs. 

These builders conveyed that the biggest challenges impacting their ability to sell homes are material prices, inflation and higher interest rates, labor challenges, and mortgage rates.

Due to economic conditions, builder respondents are offering mortgage rate buydowns, reduced home prices, and free or discounted upgrades in order to boost sales.

Forty-seven percent of builder respondents say that they are reducing home prices by 1 to 3 percent, 35 percent are dropping prices by 4 to 6 percent, and 15 percent are slashing prices by 7 to 10 percent.

Builders are also cutting costs in the office, reducing spending on staffing, sustainability upgrades for their projects, and general business growth.

Fifty-one percent of builders report that they have ratcheted back their business spending by less than 10 percent, but 34 percent report that they are cutting business spending in the 11 to 20 percent range.

While 55 percent report that COVID is no longer impacting their business, 45 percent still feel a hangover from the pandemic, mostly in the areas of labor shortages and supply chain issues.

COVID is no longer directly impacting the construction business, but builders still feel a pandemic hangover in terms of labor shortages and supply chain issues. Daniel Ingelhart/iStock

Forty-five percent of builders claim that climate events are impacting their ability to get insurance for projects.

Some good news for the sustainable building sector: Builders report a marked increase in demand for energy efficient, healthy, solar powered, all-electric homes. In fact, 60 percent of builders report that more of their customers want energy-efficient homes, 50 percent say that interest in healthy homes has increased, and 40 percent claim that buyers now want solar powered homes.

Builder respondents report an uptick in interest in energy-efficient insulation, windows, doors, and lighting, as well as smart home systems, heat pump technology, and solar plus storage systems.

Indicating a shift away from the lowest upfront cost valuation metric to full cost, builders assert that their homebuyers are willing to pay more for sustainability upgrades if they will lower their ongoing cost of homeownership. These upgrades include:

• Solar plus storage (75 percent)
• Energy efficiency (71 percent)
• Electrification (70 percent)
• Healthy home (70 percent)
• Smart home (62 percent)
• Resiliency (61 percent)
• Water conservation (54 percent)

To address changes in the housing market, 38 percent of builders are considering incorporating modular and prefab homes and systems into their offerings, 32 percent are considering pursuing multifamily projects, and 30 percent are looking into affordable housing using IRA or other government subsidies. 

Nearly seven of ten (68%) of respondents are using their products to address the vastly underserved “missing middle” housing category in their markets.

When asked about Environmental, Social and Governance (ESG), builders report that they’re engaging in strategies such as:

• Building energy-efficient homes equipped with efficient appliances and systems.
• Considering adaptive reuse, retrofitting, building smaller (right-sizing buildings), and dematerialization design strategies (e.g., structural system optimization).
• Implementing programs to retain employees and heighten employee satisfaction.
• Implementing board compensation and oversight policy for ESG.

Economic Growth Despite Market Challenges

Overall, builders have a positive sentiment with respect to market conditions. While they recognize that home prices and mortgage rates remain high, fueling affordability concerns, they claim that low inventory, cooling inflation, a robust jobs market, and solid housing fundamentals give them confidence that the housing market will remain strong.

Even though they remain concerned about labor challenges, material shortages, and supply chain issues, more than 75 percent of respondents said that they are optimistic about the long-term prospects of the housing market. Nearly 85 percent of builders report stable finances and access to funding, and they point to a solid construction backlog that they believe will carry them into 2024 and beyond.

Respondents reported a high level of interest in embracing energy-related technologies such as demand-side energy management systems, high performance building envelope systems and insulation, cool roof systems, and induction cooktops. They also reported high interest in water solutions such as greywater systems and water management devices—reflecting steadily growing demand by consumers and municipalities for solutions that will yield a net zero energy and water result.  

Nearly 75 percent of builders claimed that they are interested in building and selling all-electric homes. The 25 percent that were unwilling or unsure expressed concerns about fluctuations in future grid-tied energy costs. 

Builders indicated that the biggest benefit to selling an all-electric home to homebuyers was not cost savings, but rather reducing the homeowners’ environmental impact and being able to offer healthier, higher performance, and more-comfortable homes.

More than 60 percent of respondents indicated that they plan to use IRA funding for upcoming projects, as well as tax credits for their business operations. 

They also claim that IRA funding has incentivized them to offer more energy efficiency, electrification and solar plus storage upgrades. 

Specifically, respondents claimed that they will use IRA incentives to install products such as induction cooktops, solar systems, heat pump technologies (water heaters, HVAC, and dryers) and electric vehicle (EV) charging stations in their projects.

Key Building Industry Takeaways

When correlating these builder insights with recently gathered data about consumer preferences, purchase drivers, and behaviors, it’s clear that there is unprecedented opportunity to transform the built environment for all stakeholders involved in the home design, construction, and buying process.

Windfall funding from the IRA and Infrastructure Bill will drive the adoption of sustainable products and enabling technologies, allowing manufacturers to fast-track product development, builders to enhance the value of their projects, and homeowners to access cost-effective energy efficiency and electrification upgrades.

If we do this right, the homebuilding industry will jump light years ahead of where we are today in a short amount of time.