Five experts from ULI’s Residential Neighborhood Development Council discuss the challenges and opportunities ahead for homebuilders; what buyers and renters want from their neighborhoods, and how they value sustainability and resilience; what state and local housing policies are effectively encouraging housing construction; and other trends.
What are the primary challenges and opportunities for building homes in this economic climate?
Caroline Simmel: This chapter in homebuilding has brought forth unique challenges I hadn’t encountered in my 20-year career. The housing market in 2025 presents a dynamic mix of uncertainty and opportunity, urging homebuilders to adapt and refine their strategies to navigate evolving economic conditions with resilience and foresight. It’s a “tale of two cities”: entry-level buyers
struggle with affordability, while mid- to high-end buyers have equity but face limited inventory and are mostly sidelined due to higher rates. To address this, we’re using unprecedented tools like rate buy-downs for affordability. Future opportunities lie in leveraging AI across every aspect of the business, including architecture, sales enablement, lead generation, and underwriting, with our data offering powerful insights into key trends.
Scott Laurie: Record low affordability and cyclical high interest rates create a challenging combination, especially in California. The recent wildfires have only worsened southern California’s under-supply of housing. In the Pacific Palisades, if someone bought a house 20 or 30 years ago for $400,000 or $600,000, and that house today is worth more than $3.4 million, that increase represents a significant amount of that person’s net worth. But insurance settlements may only cover $800,000. You can’t rebuild those houses for anywhere near what they originally cost. The opportunity is that, despite these challenges, demand for housing remains strong, and state and local governments are much more receptive today to addressing the need to build more housing.
Kelli Lawrence: Interest rates are a major challenge, both for our customers and for homebuilders looking to start new projects and raise debt and equity capital. Many homeowners are essentially locked into their current homes due to the extended period of low interest rates we’ve recently had, and they are adjusting to a new normal in terms of mortgage rates and what they can afford. We’re seeing declining supply of housing in many areas, especially creative housing that private homebuilders like us focus on, such as infill housing, denser housing, and missing middle housing. The overall development costs of building homes are increasing. But there is strong demand, despite some of the headwinds, and some customers who have been on the sidelines are finally deciding to go forward with their home purchase. Also, build-to-rent is a growing segment, allowing people to move into a house in places where they are priced out of the market, or that allows them to have a low-maintenance lifestyle.
Jacob Karasik: There are real challenges. Honolulu County is particularly slow in processing permits, which has slowed down the pace of development. But there are also opportunities: developers are able to provide a high standard of product in our new homes, and there is less competition from the resale market these days. Developers are working to provide whatever incentives we can for buyers, and some are buying down rates, but the important difference is quality.
Jeffery Cernuto: Creating urgency to buy is the primary challenge. The industry and the consumers were expecting mortgage rates to drop in 2024, and that didn’t happen. Homebuilders are maintaining sales prices by buying down rates, but buyers are taking longer to decide, because they don’t have the fear of rising mortgage rates. Obtaining approvals for rezonings and land development permits has become a major issue. Many municipalities do not have the infrastructure capacity for water, sewer, and utilities for new developments. [But] North Carolina is one of the highest in-migration areas in the country, because we’re still relatively affordable. A tremendous number of millennials are moving into multifamily apartments, and they will eventually become buyers of single-family detached homes or townhomes. So, the pipeline looks great.
What are homebuyers and renters looking for from the neighborhoods they consider living in?
Laurie: I live near the Pacific Palisades. People chose to live there because it was safe. It had a true sense of community, more so than almost anywhere in Los Angeles. Residents could walk to retail, schools, and parks. It was one of the few places in Los Angeles where you would see kids walking around without their parents. When people were buying a house there, what they were really buying was membership in a community. So, with every community we build, we are always thinking about what happens outside the front door. A great neighborhood has good schools, parks, safety, and proximity to freeways or transit.
Simmel: Health and wellness has emerged as the top amenity. Walking trails have surpassed swimming pools and indoor gyms. A lot of our communities are on Atlanta’s Beltline, a 22-mile [35 km] loop of trails, parks, and future transit connecting 45 neighborhoods and creating a vibrant public space for recreation, commerce, and cultural expression. We call it our oceanfront property, because it’s where the action is and everyone wants to be.
Karasik: We do our best to landscape our communities beautifully. We want to make sure that there is a pleasant experience to let kids play, [to] walk your dog, or [to] jog around the neighborhood. We are less apt to build pools, gyms, or other standalone structures, because we feel that, for the same dollar, we would rather improve the floor plan and amenitize things like the kitchen. Some of these community amenities, while great, carry a huge burden, with insurance and management, which ultimately is borne by the residents.
How much does sustainability and resilience factor into consumers’ decisions, and how are homebuilders responding?
Cernuto: Consumers prefer sustainability and companies who incorporate sustainability, but they aren’t willing to pay a premium for it. Regarding resilience, in North Carolina, we have a lot of shoreline that’s vulnerable to hurricanes. The biggest concern homebuyers have is insurance. They are asking, “Can I get home insurance? And if I do get it, is the company going to drop my policy after I move in?”
Lawrence: We are definitely seeing heightened awareness of resiliency and sustainability in housing due to the recent, unfortunate, natural disasters. In Florida, we build primarily all-block construction, with hurricane-rated impact windows and doors—things that aren’t always required by the building code but provide that next level of resiliency. Our customers are demanding that.
Karasik: Affordability is the primary driver in Honolulu. We try to do our best but always balance that against still keeping things affordable. Energy efficiency can really have a meaningful impact to residents because of monthly utility bills. Energy Star appliances and a tight building envelope are really helpful for that. A lot has also been absorbed into code requirements so that we have no choice but to deliver it: solar hot water, solar panel readiness, and electrical vehicle charging. And lots of climate/seismic resiliency measures are baked into the codes already.
Laurie: During the pandemic, clean water and air became significant factors for homebuyers. They want air purification and water purification systems. They want the house to be manageable and efficient. With resilience, we need to create a common definition, because people don’t know what it is. I think we will hear a lot more about resilience after these wildfires in southern California. People may have thought their houses were protected because they had indoor sprinklers, but in a firestorm, this didn’t help.
Simmel: Our company has a sustainability initiative, ERTH360, that we are implementing over time. It focuses on creating healthier homes with improved indoor air quality and reduced environmental impact. Presently, the affordability crisis has eclipsed sustainability, especially for entry-level buyers. I believe that sustainability will emerge as a significant factor once the affordability crisis is mitigated.
Which state or local housing policies are doing the most to encourage the production of housing, especially for low- to moderate-income households?
Karasik: It’s a particular challenge to build low-income for-sale housing. Some zoning in the state requires a portion of housing to be reserved for moderate-income households. But it can be challenging to find a buyer who meets all of the various requirements in a small state like ours. To sell any home, you need someone to love the area you are building in and like your product type better than any other—and want to buy a house in the current market. That’s not always so easy, but it’s compounded when the buyer must also earn . . . 120 to 140 percent of area median income, have the ability to make a down payment, and have the credit score to qualify, but also doesn’t have too many assets or own other property.
Lawrence: In Florida, we have the Live Local Act, which allows some regulatory and density incentives for affordable housing provisions. Communities are embracing accessory dwelling units, allowing those by right, which adds a significant amount of housing stock over time. We’re seeing density bonuses for implementing sustainability measures and affordability measures. Many municipalities offer tax incentives that require affordable housing as part of the community. It’s still very challenging, especially in areas that need affordable housing. We still see housing policies and regulatory hurdles throughout the zoning and entitlement process that make it very challenging to add density.
Simmel: We have two communities in urban Atlanta that have affordable/workforce housing units incorporated as part of the zoning process. They primarily serve our first responders—firefighters, police, and others in essential roles who face affordability challenges, living in our urban core—contributing to the vibrancy and sustainability of our city, which is undeniably a positive step forward.
Cernuto: In many cities, ordinances are being put into place to encourage developers to make 10 to 15 percent of housing units affordable within a community. However, there are not enough density bonuses, setback relief, and fee discounts to make this viable yet. Most municipalities promoting affordable housing are requiring units to be sold to households earning 60 to 80 percent of the AMI [area median income]. But with current land pricing and material costs, and high interest rates, we lose money on the affordable units. The percent of affordable units needs to be in sync with more incentives through a partnership with the municipality to create a win-win solution.
Laurie: Good policies at the state level for California are incentivizing builders to provide affordable housing as a component of for-sale projects, like SB-1818 [State Density Bonus Law Interim Guidelines] and SB-330 [Housing Crisis Act of 2019]. . . . For the first time, builders have tools to use to ensure entitlement certainty, and the unpredictable nature of entitlements has been the biggest challenge in California.
What other trends excite you?
Lawrence: I’m excited about the growth of the build-to-rent segment, especially in the Midwest, where it is relatively new. Multigenerational households are becoming more common. There’s also the potential for modular and 3-D–printed construction to address affordability challenges. For example, Lennar recently partnered with ICON to build Wolf Ranch, a community in Georgetown, Texas, that consists of 3-D–printed homes. Our company is exploring the use of AI to improve operational efficiency and deliver better value for homeowners.
Simmel: One of the most significant recent changes is the NAR [National Association of REALTORS®] proposed settlement, designed to enhance consumer transparency in real estate transactions. I fully support the decoupling of commissions and the push for consumers to better understand the value realtors provide. Additionally, our company has launched a centralized sales platform that integrates sales, lending, design, and closings under one roof for multiple communities in key areas. This has been transformative, offering consumers a broader view of our portfolio while streamlining the process—eliminating the need to visit numerous communities or work with multiple agents.
