The residential construction market focuses on building living spaces for individuals and families, in contrast to the commercial construction market, which caters to businesses and government agencies.
The residential market includes several key segments: single-family homes, modular homes, multi-family homes, townhouses, and custom homes.
Interestingly, this construction market is projected to reach a staggering $7.68 trillion by 2030, driven by rising home demand. Various factors contribute to this trend, including government policies and demographic trends.
Coupled with this rising demand are trends such as modular construction, green buildings, living building materials, 3D printing, and the integration of smart homes with the Internet of Things (IoT).
However, the construction sector faces several challenges, including managing project timelines, dealing with labor shortages, navigating regulatory delays, and adapting to evolving customer demands.
To counter these challenges, construction professionals rely on software technologies transforming the industry, such as project management tools, mobile apps, 3D modeling platforms, and digital marketing tools.
Keep reading for the latest trends and updates in the residential construction market.
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What Is the Residential Construction Market?
Residential construction is a vital component of the construction industry, focusing on the development, renovation, and maintenance of housing units. This includes various property types, such as apartments, multi-family homes, condominiums, townhouses, and others.
The residential market encompasses a range of activities, including the construction of new buildings, routine home maintenance, and remodeling or renovation projects. It supports population growth, addresses housing shortages, and drives urban and suburban expansion.
As of 2022, the global residential construction market was valued at nearly $5.3 billion. With increasing demand for housing, it’s projected to reach $8.3 billion by 2032.
Residential vs. Commercial Construction Market: What’s the Difference?
The construction industry comprises multiple sectors, with commercial and residential construction being the most prominent. But even as they share similarities in materials and methods, they differ in terms of customer type, project scope, timelines, regulatory demands, and building codes.
Customer type: Residential construction is primarily for individuals or families. Commercial construction, on the other hand, is mostly for businesses, government, or other types of organizations.
Project scope and scale: Residential construction primarily focuses on living spaces, resulting in generally smaller projects. Commercial constructions are larger in size and more complex.
Regulatory demands: Residential construction is generally governed by relatively straightforward residential building codes. Commercial construction is subject to stricter regulations and requires compliance with sector-specific standards.
Timelines and complexities: Residential buildings are generally completed more quickly due to their smaller scale and simpler regulatory requirements. Commercial properties often take longer to complete due to their size and the need for various permits and inspections.
Budget: Residential buildings typically require a smaller budget than commercial buildings, which typically require a significant cost overlay.
Understanding these differences will help you effectively allocate resources, manage customers, and comply with regulatory frameworks.
What Are the Key Segments Within the Residential Construction Market?
The residential construction market is segmented based on the type of structure. It encompasses single-family homes, condominiums, custom homes, and more, each with distinct regulations, demands, and opportunities.
Let's see each of these segments in detail.
Single-family homes
These are standalone residential structures designed for individual families needing long-term residence. They are generally larger and more expensive.
Single-family homes are typically preferred by families because of the ample space they provide.
85 million out of the total 133 million housing units in the United States are single-family homes, according to Statista.
However, for over a decade now, there’s been a steady decline in the number of single-family homes constructed, largely due to builders focusing more on multi-family housing like apartments that reap higher rental costs.
This has led to a shortfall of almost 6.5 million single-family homes.
Multi-family homes
To build single-family homes, construction experts need space. However, the space they require is typically not available in metropolitan areas.
In metro areas, seven new jobs are created for every new building permit issued by local authorities, according to recent data. This means the available space and rate of home construction, specifically in metro areas, are insufficient to meet the housing needs of people migrating to find work.
That’s where multi-family homes come in.
The multi-family market is predicted to grow to $55.73 billion by 2025, at a CAGR (growth rate) of 6.9%. A recent spike in permits for multi-family projects in the USA proves this prediction.
Recent data shows that multi-family homes accounted for 60% of all home construction projects in 2023.
The reason is that multi-family homes help to optimize land use and are cheaper for renters and young professionals in metro areas.
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Townhouses/condos
Townhouses are a hybrid of single-family and multi-family homes. They appeal to buyers looking for affordability, low maintenance, and urban accessibility.
Additionally, townhouses are more popular in build-to-rent communities as they offer larger floor plans and private amenities. They are mostly suitable for middle-income families, retirees, and first-time homeowners.
Contractors benefit from this segment by designing community-oriented homes that balance private living and shared infrastructure.
Modular homes
Modular homes are created in a factory, then transported and assembled on a designated building site. Once assembled, they’re considered real buildings, just like conventional site-built homes.
The global modular homes market was estimated to be worth $101.1 billion in 2024 and is projected to grow at a CAGR of 7.8% between 2024 and 2031. Rising housing costs, increased urbanization, and a strong emphasis on sustainable and time-saving construction methods primarily drive this increase.
Modular homes are affordable, customizable, and budget-friendly compared to traditionally built homes. This way of building reduces both labor costs and construction timelines.
Custom homes
Custom homes cater to individuals with premium tastes. They are tailored to individual specifications, including unique designs, smart home integration, expansive layouts, and other luxury features.
They are meant for families who want comfort, prestige, and uniqueness. Developers who cater to this segment adopt advanced design tools and high-end materials to provide unique residences.
What Factors Influence the Residential Construction Market?
The residential market is shaped by an interplay of social, environmental, economic, and regulatory factors that affect demand and supply, from fluctuating material costs and interest rates to government policies and labor availability.
Below are the core factors that determine the demand and supply of the residential construction market:
Government policy
Government policies are among the top forces shaping the residential construction market, thanks to regulations about land use, zoning, tax incentives, environmental standards, and building codes.
Let's say a government policy offers tax credits for energy-efficient homes. This increases demand for such properties and drives innovation in materials and methods.
A more vivid example is the impact of the COVID-19 pandemic on supply chains, which increased material costs, forcing contractors to delay projects. Home builders were forced to pay more for materials, inflating their construction budgets. Therefore, most prioritize residential construction projects with a manageable cost overlay.
Another example is the low-interest loans rolled out during the COVID-19 pandemic, which temporarily boosted the housing market. They made it cheaper to borrow money, allowing more people to build homes.
Material costs
Fluctuations in the cost of materials like steel, cement, lumber, and others directly affect project budgets and timelines and influence the overall market size.
For example, when prices increased in 2020-2021 due to supply chain disruptions and demand surges, many builders paused their projects, reducing the housing supply. This increased home prices and reduced construction activity.
To manage this, you can adopt strategies like bulk purchasing, locking in prices through contracts, or sourcing alternative materials. You can also employ value engineering practices, such as reviewing design plans to maintain functionality and quality while reducing material expenses.
Additionally, establishing strong supplier relationships and maintaining supply chain visibility can help protect you from sudden price fluctuations.
Labor shortages
When a worker shortage occurs, residential construction projects bear the brunt.
Projects get delayed, and expenses may increase as companies need to pay extra for overtime workers or to hire subcontractors. Sadly, this trend continues, as 74.2% of the construction market still struggles to find skilled workers.
To address this, you can initiate training programs to help workers acquire new skills or enhance the ones they already possess. Partnering with training centers can also help provide a steady supply of talent.
Demographic trends
Population growth, urbanization, and preferences affect the location and the types of houses built.
As more people migrate to cities in pursuit of education, employment opportunities, and amenities, demand for urban housing remains high. This results in mixed-use areas featuring homes and businesses.
At the same time, older people often prefer homes that are easier to access, such as single-story houses or buildings with elevators.
Young people, including millennials and Gen Z, prefer smaller apartments with smart technology, shared living spaces, and buildings with additional amenities like gyms or community areas.
Supply chain disruptions
Factors such as political tensions (for example, the war in Ukraine) have made it more challenging to obtain construction materials, including steel, metals, and HVAC equipment.
Natural disasters like storms or wildfires also damage warehouses, ports, and roads. This can lead to project delays, additional costs, or even the cancellation of the entire project.
You can avoid such disruptions by diversifying suppliers and developing relationships with multiple vendors across different regions. Additionally, you can stockpile essential materials to prevent unexpected delays.
Digital tools and real-time tracking can also help you anticipate potential delays.
Interest rates
When interest rates are low, developers can build new projects and buyers can purchase new homes.
A hike in rates would increase costs and cause homebuyers and investors to reconsider their purchases. Higher interest rates translate into increased mortgage rates, which makes home ownership more expensive.
High interest rates also lead to a decline in the supply of homes as they increase the cost of capital. Construction companies will struggle to get capital at favorable rates to build new homes.
What Are the Current Trends in the Residential Construction Market?
The residential construction market is experiencing a major transformation. Developers are transitioning from traditional methods to modern construction techniques that offer sustainability, durability, comfort, and cost-effectiveness.
Let's see some of the most recent construction trends in the residential segment:
Modular construction
Modular construction involves building structures off-site in a factory and installing them on-site. This method offers faster construction times, ensures proper quality control, and cost effectiveness.
Unlike traditional buildings, a modular home can be constructed in just a few weeks. Plus, modular construction is easier to predict and streamline, as a significant portion of the work is conducted in the factory, minimizing the need for on-site labor.
Green buildings
Green buildings are designed to protect the environment. They are made with eco-friendly materials, use less energy, and produce less waste.
Customers are increasingly concerned about issues such as climate change, indoor air quality, and energy efficiency. As a result, they prefer homes with green certifications, such as LEED, BREEAM, and Passive House, for health reasons, sustainability, and lower utility bills.
Additionally, Millennials and Gen Z are willing to pay premium prices for features like smart thermostats, solar panels, and efficient insulation.
Living building materials
Living building materials, such as mycelium (fungus-based brick), bio-concrete, and algae-infused concrete, are transforming construction by offering durability, resilience, and sustainability. These materials provide durable alternatives to traditional building materials and are ideal for eco-friendly buildings.
Also, living building materials help to reduce maintenance costs. Materials like bio-concrete repair themselves using bacteria, reducing the need for costly repairs.
3D printing
3D printing involves using large-scale printers to build structures directly from digital models.
It's suitable for early-stage projects, where professionals can quickly create small models of buildings, allowing designers and builders to visualize what a project would look like. With this, they can test ideas and fix problems before starting construction.
Smart homes and IoT integration
Smart homes are transforming residential construction by embedding technology into the infrastructure of new homes.
Builders now incorporate centralized hubs, smart wiring, and IoT-enabled devices into the construction process rather than adding them after the building is complete. This includes systems for managing appliances, lighting, water, and security, providing a seamless experience for homeowners.
Smart homes not only appeal to tech-savvy buyers but also offer enhanced resale value to owners, making them highly attractive and competitive.
What Are the Common Challenges in the Residential Construction Market?
Like every other market, the residential construction market comes with its unique challenges, such as:
Managing project timelines and cost overruns: Project delay due to weather conditions, material shortages, or scope changes often results in cost overruns, which affect both the budget and client trust.
Labor shortages and resource constraints: It's tougher to meet timelines when there's a shortage of skilled labor. According to a research report by the NAHB, 85% of builders face labor shortages.
Regulatory delays and compliance issues: Many builders face challenges when navigating regulations during the construction process. This can delay the project, increase costs, or even necessitate redesigning projects.
Adapting to evolving customer demands: Homebuyers now expect energy-efficient, tech-savvy homes. This means builders need to embrace smart technologies.
What Software Tools Are Shaping the Residential Construction Market?
Software technologies are driving growth in the residential construction market. These solutions help developers effectively perform activities like estimating, marketing, and collaboration.
Here are some ways technology is shaping residential construction execution:
Job costing
Job costing tools enable construction managers to track every expense, like materials, permits, labor costs, and many others, in real time. This way, they stay on budget and keep projects on schedule.
The most effective job costing tool provides dashboards and reporting features. This enables construction managers to access performance metrics, view profitability by job, and spot trends across different projects.
Tools like the ServiceTitan Job Costing Software integrate with your company’s financial data to provide real-time visibility into project costs and help you stay on budget and maintain profitability.
Accurate cost estimation and budget tracking: ServiceTitan consolidates all project-related expenses (e.g., materials, labor, equipment rental fees) into one system that updates with the job progress. Its Pricebook Pro feature also helps you access the price of each item used in construction as quoted in supplier catalogues, enabling you to create profitable estimates.
Automated collection and analysis of job cost data: Eliminates the need for manual data entry and reduces the risk of errors. For example, when a tech purchases materials or logs hours on-site, those costs are automatically recorded and assigned to the project without any manual input.
Custom dashboards and reports: The platform’s dashboards provide instant insight into job performance. You can see the jobs that are more profitable than others, team productivity, and where money is being lost. This helps you spot issues early and avoid unpleasant surprises at the end of the project.
Field service and mobile apps
Mobile apps designed for field service management are crucial for improving on-site operations. They enable teams to access job details, task assignments, and real-time updates.
They also ensure that teams are always informed, avoiding miscommunication and delays. They execute the project to the customer’s satisfaction, preventing rework.
With ServiceTitan’s Field App, techs can view job details like customer name, address, and other important details on the app’s dashboard. As the job progresses, the dashboard automatically updates to include project details.
Additionally, the job page is designed to provide technicians with the necessary information they need to suggest additional services. This includes previous invoices and estimates, photos and videos of past jobs, and notes from previous service visits.
Even better, the app’s offline functionality enables technicians to access these features even in remote areas with poor network coverage.
3D modeling and virtual planning
3D modeling and virtual planning tools let homeowners and stakeholders see how the finished home designs will look, ensuring fewer revisions during construction.
Additionally, 3D modeling accelerates the planning process by allowing builders to identify design issues early and minimize costly changes during construction. This helps to reduce delays, keep projects on track, and prevent expensive revisions.
Digital marketing and customer acquisition
Thanks to digital marketing tools, businesses can engage larger audiences and target specific demographics based on interest, location, and project needs. Marketing resources are well managed, ensuring quality leads and increasing the chance of lead conversion.
Tools like ServiceTitan Marketing Pro help you build an audience list using the existing information that's already stored in ServiceTitan. Depending on your needs, you can make the list as narrow as you wish, using criteria such as service history, equipment details, and location.
For example, if you built some custom homes six years ago and want to upsell a remodeling service, Marketing Pro can help you send a personalized email saying something like:
We loved building your home, and we hope it's been a perfect fit for your lifestyle. Now that it’s been six years, are you thinking about more space, updated features, or a fresh look?
Whether it’s a kitchen remodel, an expanded living area, or energy-efficient upgrades, we’re here to bring your next vision to life.
Let’s talk about how we can help your home grow with you.
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Additionally, Marketing Pro enables you to run targeted mail campaigns that focus on high-growth neighborhoods, areas with older homes in need of renovation, or recently purchased properties. You can easily send direct mail offering a tailored service to each audience segment.
The tool also helps track every campaign's progress to see what's working and what isn't. This will help you know if you need to tweak your strategy or perform a complete overhaul.
Finally, to protect your online reputation, Marketing Pro enables you to automate the collection and management of online reviews, helping you attract more clients.
Over to You!
Despite the challenges outlined earlier, the residential construction market is poised for growth thanks to shifting customer preferences, evolving demographic trends, and technological advancements.
To capitalize on the shift, you must adopt smart solutions to help you stand out and attract the right customers.
Who knows? This could be the big break your construction business needs.
You can get started with innovative tools like ServiceTitan to enhance your job costing, field service management, digital marketing, and customer acquisition, ultimately setting your business up for long-term success.
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ServiceTitan is a comprehensive software solution built specifically to help service companies streamline their operations, boost revenue, and substantially elevate the trajectory of their business. Our comprehensive, cloud-based platform is used by thousands of electrical, HVAC, plumbing, garage door, and chimney sweep shops across the country—and has increased their revenue by an average of 25% in just their first year with us.
