Washington, D.C. (CNN) The United States is not building enough homes to account for the number of people who set up their own households. As a result, there is a significant shortage of new homes after more than a decade of underbuild relative to population growth, according to a new analysis from Realtor.com released Wednesday.
The gap between single-family housing and household formation grew to 6.5 million homes between 2012 and 2022. However, this figure overstates the housing shortage, as new multifamily housing offers opportunities for both buyers and renters. If multi-family buildings are included, which are mainly rental properties, this gap is reduced to 2.3 million homes.
In the decade between 2012 and 2022, 15.6 million households were formed. In the same period, 13.3 million homes were started and 11.9 million completed. This includes 9.03 million single-family homes and 4.2 million multi-family homes. Of these, only 8.5 million single-family homes and 3.4 million multi-family homes have been completed.
In the second half of 2021, single-family homes were both started and delivered at the fastest pace of the past decade. The early part of 2022 continued the trend of the previous year into the middle of the year, when mortgage rates rose as part of the Federal Reserve’s historic campaign to contain inflation. The housing market felt the impact of the rise in mortgage rates, red-hot buyer demand cooled, and builders began to pull back on single-family home starts.
“Declining buyer demand and builder confidence led to slower single-family construction last year and a shift in builder focus to multi-family homes,” said Hannah Jones, economic data analyst at Realtor.com.
The pace of total housing starts slowed in 2022, while completions increased. About 1 million single-family homes will have started in 2022, which is 10.6% less than in 2021, but still more than in any other year as of 2012.
“While that brings more supply to market, most of it will be used for rentals and will not address the ongoing affordability issues in the for-sale space,” said Jones.
Building several families helps, but household formation is faster than building
Multifamily housing can alleviate current housing affordability problems by providing more choice for renters. But while a single-family home typically takes 7 months to complete, multi-family homes take much longer, at 15 months, so it will take more time for those units to hit the market.
According to the analysis, multifamily homes accounted for an average of 32% of home starts between 2012 and 2021, but grew to 35% in 2022 as mortgage rates rose and prices on the owner-occupied market led to a decline in demand for single-person households. – single-family homes. This led builders to target the multi-family market, which is dominated by rental properties. Nearly all – 95% – of the multi-family homes started in the first three quarters of 2022 were intended to be used as rentals.
Despite this increase in multi-family housing, a supply gap remains.
But in 2022, the United States saw its highest level of annual household formation in the past decade, with 2.06 million new households, faster than the start of housing construction. This widened the gap between the total number of home starts and household composition from 1.8 million units between 2012 and 2021 to 2.3 million units by the end of 2022, the report found.
The gap between single-family home starts and the number of households grew from 5.5 million at the end of 2021 to 6.5 million at the end of 2022, as the number of households increased and single-family home construction declined.
This trend of substructure is reflected in the vacancy rate, both for homeowners and rental properties.
As households are formed and the start of housing does not keep pace, the number of vacant homes decreases. Homeowner vacancy rates fell from 2% in 2012 to 0.8% at the end of 2022. At the same time, rental vacancy rates plummeted to a low of 5.6% at the end of 2021 and again in early 2022, before rising slightly to 5.8% at the end of 2022, the report said.
What needs to be done to close the housing shortage?
If construction and household formation continued at their current pace – growing family formation coupled with a slower start to housing construction – the gap would never close.
Closing the overall housing gap will require an increase in both single-family and multi-family supply to help rebalance the housing market by putting pressure on both sales and rents, the analysis shows.
Looking at single-family homes alone, the number of home starts would need to triple to keep up with demand and close the existing gap of 6.5 million homes in 3 to 4 years.
However, if the number of homes started (including single-family and multi-family homes) increased by 50% compared to the rate in 2022 to an average number of 2.3 million homes started per year, it would take between 2 and 3 years to close the existing gap of 2.3 million households, assuming an average number of households over the past decade of about 1.3 million households per year, the report said. This would return construction to early 1970s levels and some of the peak months for construction in the mid-2000s.
“As inflation and mortgage rates are likely to fall later this year, buyers are likely to return to the market looking for an affordable home, and the continued housing shortage will only continue to depress the market,” said Danielle Hale , Realtor.com’s Chief Economist.
The good news is that overall inventory levels are rising from their pandemic lows.
“With less competition in the marketplace from other buyers today, some homebuilders are offering potential buyers incentives that may help some new homebuyers find success in this challenging market,” said Hale.
Leave a Reply