Before the Keys: The Money and Players Behind a New Home

It’s easy to think a home gets built like this: a developer buys some land, builds a house and sells it. The reality has a lot more players.

Before construction even starts, developers and homebuilders have to acquire land, line up financing and get through local zoning, permitting and approvals. Banks and private investors may provide the money needed to buy the land and finance construction. Cities and counties determine what can be built and under what rules.

For affordable housing, even more players can enter the picture. Federal and state grants, public loans and tax credits can help fill the gap between what a project costs to build and what lower-income residents can afford. Nonprofit developers and housing finance agencies may also be involved.

Then the home gets built.

Once it’s finished, a different group of players becomes important. Mortgage lenders  finance the buyer. Fannie Mae and Freddie Mac help keep mortgage money flowing by purchasing qualifying loans from lenders. State housing finance agencies, such as California’s CalHFA, and down-payment assistance programs may help eligible buyers get through the front door.

Put all of those players together, and you can see how differently the system works depending on the housing being built. Affordable housing can have substantial public support on the development side. Luxury and most market-rate housing generally rely much more heavily on private capital. Starter homes occupy an interesting space in between.

Follow a home from dirt to homeowner, and those differences become much easier to see. Who is at the table, when they enter the process and what they help pay for can influence whether a project gets built and, ultimately, the price point of the homes it produces. And that starts to explain why building a new home is one challenge, while building one a first-time or middle-income buyer can actually afford is another, and why we see so few of those homes being built today.