Dive Brief:
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Of single-family homes started in 2016, around 10.2% were tear-downs (79,300 homes), according to the National Association of Home Builders, up from 7.7% (55,200 homes) in 2015.
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More builders (69%) reported no tear-downs in 2016 compared to those who said the same (51%) in 2015. Ten percent of builders said between 1% and 10% of their starts were tear-downs in 2016 compared to 35% who said the same in 2015. Twelve percent of builders said between 11% and 30% of their starts were tear-downs in 2016 comparted to 5% who said so in 2015.
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The West saw the greatest number of tear-down starts (33,400), followed by the South (23,800), the Midwest (12,300) and the Northeast (9,800).
Dive Insight:
One reason builders’ average share of tear-down starts is growing has to do with the median age of owner-occupied housing, which is also on the rise. In 2015, the median age of an owner-occupied single-family home was 37 years, up from 31 years in 2005, according to a separate NAHB report. What's more, in 2015, more than 50% of owner-occupied homes were built before 1980 while 16% were built between 2000 and 2009 and 3% were constructed after 2010.
This aging inventory presents plenty of opportunities for builders looking to replace old stock with new, and for remodelers looking to fill their project pipelines. The NAHB expects more tear-down construction in the coming years as existing housing ages and demand for units in cities’ inner suburbs increases.
The current lot shortage, alongside growing demand for more single-family housing, will continue to drive tear-down construction in the near-term. Still, teardowns face challenges from aligning new properties to fit in with neighboring projects, to zoning regulations and square footage limits. In Los Angeles, city council members voted earlier this year to cut back the size allowable for new single-family homes on lots less than 7,500 square feet to prevent houses from overwhelming lots.
While Los Angeles is taking active measures to prevent ‘mansionization,’ single-family properties across the country are trending smaller. The average square footage of homes is expected to continue to decline as demand shifts the market's focus to smaller, lower-cost housing that meets the needs of the growing group of young, first-time buyers.