The year 2025 has been tough for the housing sector. Market uncertainty, high mortgage rates, erratic tariffs, mounting product costs, continued labor challenges and federal headwinds have led to sluggish home sales and hampered housing starts.
Fortunately, there are signs of relief on the horizon. Economic projections indicate that the market will begin to ease in 2026, driven by a combination of declining mortgage rates (expected to fall to around 6 percent by year’s end), pent-up demand (forecasted to fuel an 8 percent rise in home sales), and loosening inventory constraints as the “lock-in effect” fades and sidelined buyers—specifically Millennials and Gen Zs—reenter the market. These trends point toward gradual stabilization and renewed activity in the housing sector next year.
Despite federal headwinds, state and local governments are advancing robust environmental standards. The 2024 International Energy Conservation Code (IECC) introduces significant updates, including requirements for operational carbon rating and energy reporting.
States such as California and Massachusetts are leading the charge in mandating comprehensive greenhouse gas (GHG) emissions disclosures for large buildings, emphasizing transparency and accountability in carbon emissions.
In California, the Climate Corporate Data Accountability Act (SB 253), signed into law in October 2023, requires U.S.-based entities with over $1 billion in annual revenue doing business in the state to annually report their Scope 1 (direct), Scope 2 (indirect from consumed energy), and Scope 3 (indirect upstream and downstream) GHG emissions.
The reporting for Scope 1 and 2 emissions is set to begin in 2026, with Scope 3 emissions reporting commencing in 2027. This legislation aims to provide a clearer picture of corporate carbon footprints and drive reductions in emissions across entire value chains.
Massachusetts has implemented the Large Building Energy Reporting (LBER) policy, requiring owners or agents of buildings over 20,000 square feet to report their energy usage, including sources such as oil, propane, wood, and onsite renewable energy generation. This policy ensures that energy consumption data is publicly disclosed, promoting energy efficiency and aiding in the state’s climate goals.
Similar statutes are being enacted in states such as New York, New Jersey, Oregon, Washington, and Colorado. These state-level initiatives underscore a growing trend toward rigorous environmental accountability, compelling large building owners to assess and mitigate their carbon emissions proactively. While the policies are currently focused on commercial buildings, it’s only a matter of time before they are applied in some manner to the residential sector.
Because of these emerging regulations, new risks are materializing for stakeholders throughout the building industry, such as non-compliance fines, permitting delays, and reputational damage.
Yet, many builders and developers lack the tools to measure, let alone mitigate, embodied carbon. This underscores the need for enhanced carbon accounting tools that evolve alongside new mandates that can provide real-time insights.
Fortunately, such tools are being developed, such as new ANSI standard 1550, titled “Standard for the Calculation and Labeling of the Embodied Environmental Impacts of Dwelling Units Using the Environmental Performance Index.”
This standard will define the scope for calculating embodied carbon and provide a methodology for conducting calculations for residential projects. The standard is currently under development and is expected to be released sometime in 2026.
According to a recent report published by Harvard University, products with sustainability labels—such as Amazon’s “Climate Pledge Friendly,” Target’s “Target Zero,” and Wayfair’s “Shop Sustainably”—simply sell better.
The study, which compared sales rankings for thousands of sustainably labeled products with those of comparable, non-labeled products, found that the labeled products had 13-14 percent increased demand. This was regardless of the type of product, pricing strategies (changes in base price, coupons or discounts), or advertising activities.
The verdict: Sustainability drives consumer demand at all price points and in all categories throughout the economy, and features such as reduced carbon footprint, the absence of harmful ingredients, and organic production consistently stimulates buying behavior.
Green Builder Media’s COGNITION Smart Data confirms the Harvard findings, showing that:
Furthermore, Green Builder Media has been surveying the consumer audience for 20 years. For the first time, all four generations that influence the housing market—Boomers, Gen Xers, Millennials and Gen Zs—report that they are now looking more at total value of homeownership and ongoing operating costs than at upfront price and cost per square foot when making home buying decisions.
Additionally, the majority of Millennials and GenZs say that they will pay for sustainability upgrades in areas such as energy efficiency, electrification, healthy home, solar + storage, and resiliency if those upgrades will lower their operating costs over time.
Younger generations aren’t just different—they’re driving systemic socio-economic change. They don’t want a bigger house; they want a smarter one. More brains, less bling. More green, less glam. They want homes that are healthy, affordable to run and aligned with their values. They are less focused on the McMansion style of a “dream home” as a status symbol and more concerned with functionality, health and sustainability.
While the momentum toward a decarbonized built environment is undeniable, one significant barrier continues to impede full transformation: We are still valuing homes the wrong way.
For most of the 20th century, the American housing market was fundamentally local. Small and mid-sized builders worked hand-in-hand with local banks and savings-and-loans (S&Ls) to finance homes for families in their communities. This system created a virtuous cycle: Homes created wealth for local families, which in turn strengthened local banks, which then reinvested into the same communities. Homebuilding was an engine of economic growth and a foundation for community stability and generational wealth creation.
That system began to unravel with the S&L crisis of the 1980s, which dismantled localized lending and ushered in a new era of housing financialization. Wall Street entered the sector at scale, commoditizing homes into investment vehicles. Capital markets became the dominant funding source for large builders, and institutional investors quickly learned how to extract value from housing in the form of quarterly profits and shareholder returns.
This shift transformed the industry’s valuation model. Where homes were once evaluated based on their capacity to provide long-term value—stability, affordability and resilience for families and communities—valuations shifted to price per square foot, a crude metric that strips housing of its deeper social, environmental and economic benefits.
The results have been stark. Housing supply has not kept pace with demand, not because of overburdensome zoning requirements or regulations, but because consolidation, speculative investment, and financial engineering have made it more profitable to constrain supply than to expand it.
As a result, home values and rents have risen faster than wages, while ownership rates have declined. Communities once anchored by locally owned housing now find themselves increasingly controlled by distant capital.
This financialized model suffers from two systemic failures that continue to constrain the sector today:
To correct this imbalance, sustainability must shift from a “nice-to-have” feature that can be extracted in down markets, to a transactional, non-negotiable component that elevates home valuation.
This transformation requires that sustainability is embedded into every stage of the housing lifecycle:
When sustainability is embedded in these processes, homes shift from being short-term assets to long-term value creators.
Basic economics teaches us that value creation translates into profitability. A high-performance home that reduces utility and insurance costs by $400 per month saves more than $140,000 over the life of a typical mortgage. Homeowners increasingly recognize this tradeoff and are willing to invest more upfront in exchange for long-term savings and peace of mind.
Given the right market conditions, homes with performance features sell faster, command higher premiums and generate stronger brand equity. Warranty claims decline when homes are constructed with precision and better materials. Investors and lenders increasingly reward companies that demonstrate resilience and reduced risk exposure. And many municipalities are expediting permits and offering better land deals to builders and developers that have strong sustainability and decarbonization plans.
Builders such as Beazer, KB, Lennar, and Mattamy who have embraced sustainability—and are holding firm to their commitments even in a down market—are proving that they can unlock new profit pathways.
Put simply, by shifting from “cost per square foot” to “value per square foot,” builders can differentiate themselves and avoid the destructive race to the bottom that characterizes commoditized markets and purely price-driven competition.
Builders cannot achieve this transformation alone. Other housing stakeholders must step in to redefine the valuation equation. The shift will take appraisers accounting for energy efficiency, health outcomes and resiliency when valuing homes, and realtors highlighting sustainability benefits in their marketing to help buyers understand long-term value.
Lenders will play a pivotal role by incorporating energy efficiency, electrification, resiliency and renewable energy upgrades into mortgages in such a way that a homeowner’s monthly payment doesn’t increase.
Insurers are essential to incentivize resilient construction with lower premiums, directly rewarding high-performance homes. And states and utilities will need to ramp up reliable, long-term incentives and rebates for sustainability features that don’t fluctuate or sunset in the face of political headwinds.
This kind of collective action would create a housing ecosystem with sustainability embedded into its DNA. In doing so, the burden would no longer fall solely on builders to solve affordability challenges—a dynamic that has too often sacrificed performance, health and resiliency in the name of cost-cutting.
The housing sector’s fixation on price per square foot is more than a bad habit—it is a structural liability. By ignoring sustainability, the industry is undervaluing homes, overburdening buyers and leaving billions in untapped profit on the table.
Until sustainability is fully integrated into how homes are designed, financed, built and valued, the industry will continue to deliver housing stock that underperforms, costs too much to operate, and exposes families and builders to unnecessary risk.
In economics, ignoring value creation is the fastest way to erode profit. In housing, it’s the surest way to deepen the affordability crisis, lock buyers into costly underperforming homes, trap builders in an antiquated profit model and expose the entire industry to policy and climate risks.
The One Big Beautiful Bill (OBBB) is likely to impede progress within the housing sector, particularly for green building and sustainability initiatives.
While many clean energy programs face contraction, the nuclear, hydropower and geothermal sectors have been granted a longer runway. Projects that begin construction before 2033 will still qualify for incentives—offering these emerging technologies a crucial window for advancement amid tightening federal support elsewhere. As financial, policy and climate pressures intersect, builders and manufacturers will need to find new ways to preserve momentum in sustainability while maintaining affordability. Even as federal incentives recede, market demand for efficiency, durability and health will continue to expand—driven by consumer expectation, state and local leadership, and private-sector innovation.
Even in the face of sunsetting incentives and market uncertainty, many leading builders are not raising alarm bells, nor are they walking back from sustainability commitments.
The general consensus: Yes, market conditions are tough, but sustainability is helping to reduce costs, increase profitability, boost competitive advantage and meet buyer demands.
Green Builder Media’s annual State of the Industry survey revealed the struggles and successes that builders experienced in 2025.
Approximately 43 percent of builders believe that the economy is getting better, but 35 percent believe it is getting worse.
This year, builders report that the top three factors impacting their ability to sell homes are materials prices, mortgage rates and labor shortages. This largely echoes the sentiment in 2024, with marked improvement with respect to land cost, land availability and mortgage challenges they faced in 2023.
Approximately 45 percent of builders report that they are reducing home prices (by an average of 4-6 percent), offering upgrades and mortgage rate buydowns due to attract buyers.
More than 35 percent of builders reveal that high interest rates have caused them to curb spending on staffing, vehicles and office space.
Builders also report that their buyers want energy efficient, smaller homes. They’re seeing a demand for energy efficient building envelope solutions such as insulation and windows as well as heat pump technology.
Are you seeing increased demand for any of the following?
To navigate market uncertainty, builders are exploring new products, namely townhomes and multifamily units. These augment single-family home offerings and provide a wider spectrum of choices that meet today’s homeowners’ budgets.
Approximately 75 percent of builders report that they are delivering “missing middle” homes that have been severely underbuilt over the past two decades.
Nearly 70 percent of builders claim that they are promoting their homes as resilient—up from nearly 10 percent from 2024. This reflects the ethos of the market in the face of intensifying climate events.
Nearly 70 percent of builders report that climate events have impacted their ability to get insurance from their project—a dramatic increase from last year’s 35 percent response rate.
Builders are also watching the continued adoption of digital tools, prefab construction and performance modeling to stay competitive. Advances in AI-driven design, material science and supply chain analytics are reshaping how they are designing, pricing, and delivering homes.
Labor shortages, though still a concern, are prompting new efficiencies and training initiatives. Builders are investing in workforce development programs, leveraging modular systems, and turning to robotics and automation to offset human resource constraints. These measures improve productivity and enhance build quality, consistency and sustainability outcomes.
Amid consumers, affordability concerns persist, with many individuals expressing unease about mortgage rates, insurance premiums and property taxes. Yet, even in this constrained financial environment, interest in sustainability and resilience continues to rise.
COGNITION data indicates that buyers view energy efficiency, durable construction, and smart technologies as essential—not optional—features. The emphasis on low-maintenance design and total cost of ownership reflects a maturing market mindset: buyers are becoming pragmatic investors, prioritizing what they can sustain rather than what they can simply afford.
This trend aligns with broader macroeconomic realities. With inflation moderating but still elevated, consumers are recalibrating expectations, seeking homes that deliver stability, security, and a sense of permanence.
Here are some key data points:
Consumers continue to feel financially pinched, reporting that they are cutting down on dining out, entertainment, travel, and even groceries by an average of 15 percent. However, economic pressures have eased slightly when compared to 2024.
Consumers report that they are having to do things like dip into their savings, charge more on credit cards, wait on purchasing a new vehicle, and even borrow money from friends and family to make ends meet, and they report having difficulty affording daily expenses and utility bills.
In contrast to the more optimistic builders, 60 percent of consumers believe that the economy is getting worse, while less than 20 percent forecast improvement.
In light of economic conditions, homeowners are looking to take actions such as remodeling their existing homes (as opposed to moving), making their homes more energy efficient, moving to a less-expensive neighborhood, and purchasing a smaller home.
Additionally, due to economic conditions, nearly 40 percent of consumers report that they are sitting on the sidelines due to affordability challenges.
This data reflects a consumer mindset shaped by fatigue and hope. After several years of economic volatility, many Americans are recalibrating their expectations: choosing smaller homes, prioritizing energy savings over luxury finishes, and showing renewed interest in community-based amenities and durability. The preference for “right-sized” homes—spaces that are functional, efficient and easier to maintain—continues to grow as homeowners weigh the long-term benefits of lower operational costs and reduced environmental impact.
The fundamentals of the housing market remain relatively healthy. Inventory levels are tight, supporting home values even as transaction volumes fluctuate. While the elevated cost of borrowing continues to deter some first-time buyers, others are returning to the market, driven by necessity, family formation, or the belief that rates will eventually moderate.
The long-term demand picture remains strong: demographic momentum among Millennials and older Gen Zs—and soon Gen Alpha, paired with underbuilding over the past decade, ensures that the market’s core need for new homes will persist.
At the same time, builders are sharpening their focus on operational efficiency, environmental performance, and product differentiation, recognizing that resilience in the next housing cycle will depend on smarter, leaner and more sustainable business models.
Looking ahead, the defining challenge will be translating resilience into renewal. As interest rates gradually normalize and consumer confidence rebuilds, the companies that have used this period to strengthen operations, refine products, and deepen customer relationships will be poised to capture growth.