Housing Shortage, Yet Few Homes in the Pipeline
The new construction single family home market is tight, and it won’t be loosening up anytime soon. At the close of the second quarter 2017 housing starts were down by 5.5-percent to 1.09M units—lower than the Commerce Department’s projected 1.22M units and the lowest number of housing starts since September 2016.
Year-over-year, homebuilding declined by 2.4-percent, which is adverse for economic growth. Economy experts are suggesting various contributing factors for the decline including shortages in the construction labor workforce, available land, and building permits.
A declining trend in building permits has been seen. In May of 2017, building permits declined 4.9-percent to a 1.17M unit pace. At the start of fall, we continue to see most types of building permits issued down in sheer numbers from 2016.
Reduced Permits Issued in September
Permits indicate the amount of new home starts expected, thus allowing housing market supply projections to be made. The number of building permits issued also allow economists to gauge the amount of development investment in the local economy, and therefore local economic health.
The residential sales report released by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau in September indicated a decline in the number of building permits issued. Overall, building permits issued declined in September by 4.5 percent from August and 4.3 percent year-over-year.
The largest permitting decreases were seen for condo and apartment developments and in the Southern parts of the country affected by the 2017 hurricanes.
In September, private home construction starts were down 4.7 percent month-over-month, and single-family home construction starts were down 4.6 percent from August. Currently, few residential home starts are underway. Fewer single-family home construction starts may further the housing market shortage for the near future.
Will More Single-Family Home Construction be Underway?
Since spring, we have seen mostly declining rates for new home construction starts. In July, home starts declined another 0.8-percent. But finally, as autumn rolled in, single-family home construction starts are back up, an increased 17-percent year-over-year. Single-family homes are now leading in construction starts.
In September, condo and apartment building construction permits plunged 17.4-percent from August and 25.3-percent year-over-year, but single-family home construction permits increased from August by 2.4-percent and a whopping 9.3-percent year-over-year.
In October, Boston’s housing shortage began spilling into the Ashland and Brookline suburbs where developers are proposing a multitude of multi-family developments. These suburbs are known to be single-family home communities, and the neighborhoods aren’t thrilled about multifamily buildings barreling through under the new affordable housing law.
Hopefully, to prevent further tensions due to the housing shortage, this increase in single-family home construction permitting will lead to new housing starts soon and an expansion in market inventory not far down the road.
Completed and Hitting the Market
The housing starts pipeline isn’t seeing much improvement, but housing completions are up.
In September, privately owned housing completions were up 1.1-percent from August and 10.3-percent year-over-year, and single-family housing completions were up 4.6-percent from August.
These increases in housing completions hitting the market will benefit the housing market. New construction homes are generally more expensive than homes for re-sale, and the privately-owned housing completions are often custom homes which sell at higher prices in an already expensive market.
Majority of new home completions were in the southern U.S. The Northeast has less available land which makes it more expensive to build—resulting in housing completions down by 41.1-percent from August but only 14.4-percent year-over-year.
The shortage in the housing market is very real, and has persisted and strengthened throughout the year. We can optimistically speculate that the current increase in building permits will result in more housing starts and completions in the near future—it’s possible that the housing pipeline may begin flowing again.