It’s one of the most stubborn myths in real estate:
“Developers must be laughing all the way to the bank, getting rich off every new house they sell.”
The truth? Most builders are barely hanging on by their fingernails. Margins for homebuilders today—especially over the last five brutal years—are thinner than single coat of cheap paint.
Here’s why:
👉 Land costs are insane. Good lots aren’t just rare and the shortage is real; they’re unicorn-rare—and priced like beachfront property, even when they’re not. Builders are often paying double what they paid a decade ago for dirt that’s frankly…still just dirt.
👉 Material prices exploded—and didn’t come back down. Lumber alone saw prices quadruple during the pandemic. Concrete, metals, and glass followed. Even with some corrections, supply chain chaos baked in permanently higher costs.
👉 Labor? Forget about it. There aren’t enough skilled tradespeople, period. Every electrician, plumber, and framer is booked out for months, demanding (and earning) higher wages. And frankly, they deserve it—but it squeezes builders hard.
👉 Higher interest rates clobber both sides of the table. Builders borrow heavily to fund construction. Commercial loans are often fixed for just five-years, remember the rates five-years ago? When rates doubled (and then some), their carrying costs exploded. That means every month a project drags on, it bleeds money like a stuck pig.
👉 Regulations are death by a thousand cuts. Environmental studies, zoning battles, impact fees, utility hookup fees, stormwater management plans—it’s a never-ending parade of costs and delays. And spoiler: none of it is cheap.
When you add it all up, what do you get? Builders lucky to clear a single-digit profit margin. In many cases, builders are fighting tooth and nail just to earn 5–8%—on a good day.
To put that in perspective: Industries like tech or retail typically expect 15–20% margins without blinking. Even your local sandwich shop might run fatter margins than some homebuilders right now.
It’s a Risk-Reward Relationship—and the Risks Are Massive.
Here’s the part many people miss: Homebuilding is a high-risk, low-margin business.
The risks are not theoretical—they’re real, and they just showed up in full force last month, hammering developers across the country.
The reality? Margins are so razor-thin that even a tiny shift—just a few percentage points up on debt costs or down on revenue—can swing a company’s trajectory hard and fast in a completely different direction.
A builder can go from healthy to hemorrhaging in a matter of months, just because interest rates move 50 basis points or material costs spike another 5%. One small storm, and the boat starts sinking.
Why Does This Matter?
Because if builders can’t make a reasonable profit, they stop building. This is the big story. And when that happens, we all pay the price:
👉 Inventory dries up.
👉 Prices skyrocket.
👉 Young families, first-time buyers, and even move-up buyers get locked out of the market.
Good development isn’t about gouging the market—it’s about sustaining it. Without viable profits, growth dies. Neighborhoods don’t get built. Dreams don’t get realized. Communities stagnate.
The bottom line (get to the point Adam): If we want more homes, we have to stop villainizing the builders brave (and crazy) enough to take the risk. Otherwise? We’re all going to be stuck fighting over the same 50-year-old fixer-uppers—and paying a king’s ransom for the privilege.
