Houses are in short supply, housing prices are up, there is money to be made. Why are more McMansions not under construction?

With houses selling for so much, you’d think there would be a big incentive for developers to throw up new units, which they can do quite quickly. I still remember driving around New Jersey during the McMansion boom and being amazed at how quickly houses went up. Why aren’t the developers rushing in now?

In correspondence, my old M.I.T. classmate and economist Charles Steindel pointed me to the likely answer: It’s the supply chain, stupid.

This makes sense given current conditions: an increased cost in materials plus difficulty acquiring materials might translate into fewer profits in building McMansions.

I do wonder if there are additional factors at work. A few quick ideas:

1. McMansions have an established reputation. There are still plenty of people who will buy one but there is also a clear connotation about the home when this specific term is used. Hence, “luxury homes” instead.
2. How much land is available and how many communities would welcome them? It is one thing to have teardown McMansions in desirable communities and neighborhoods and another to build McMansions on the sprawling edges of suburbia.
3. There is more money to be made in even larger houses. Why build McMansions when there are enough customers for even larger and/or more opulent homes? Perhaps the money in McMansions comes at a sizable building scale while the per lot/house profits on even more expensive homes is preferred.

McMansions are not going away as they are an established part of the American housing stock. But, it will be worth watching how many new ones are constructed, where, and by whom.