The U.S. isn’t building enough houses — and that’s not changing anytime soon, economists say
September 25, 2019
Real-estate website Zillow, and research firm Pulsenomics conducted a survey of more than 100 economists, real-estate experts and investment strategists to gauge their expectations regarding the U.S. real-estate market. A 54% majority of those experts said they don’t expect new-home construction to reach an annual rate of 1 million units until 2022 or later.
And that has implications for buyers. “Without new homes to meet population growth and replace an aging housing stock, home buying is expected to move further out of reach,” Skylar Olsen, Zillow’s director of economic research, said in the report.
Since 1959, single-family housing starts have occurred at an average seasonally-adjusted annual rate of 1 million homes. In 2006, just before the recession, housing starts hit an all-time high pace of 1.8 million units.
But in the years following the Great Recession, the U.S. has not built homes at that pace — let alone the long-term historical average rate. And the situation isn’t expected to look much better in the coming years.
Indeed, just as many people (16%) said they expected housing starts to hit their long-term average next year as those who expect this milestone not to occur until 2025 at the earliest. One in four experts surveyed cited 2021 as the year they expect home-building activity to rebound to its historic levels.
One factor that Zillow said could stymie home-building activity is the slowdown in home value growth, as it provides less upside potential for builders. The experts polled now only expect home values to increase 3.6% this year and 2.5% in 2020. That’s much more pessimistic than a year ago, when economists surveyed by Zillow and Pulsenomics anticipated a 4.2% rate of home value appreciation in 2019 and a 2.9% pace the following year.
A separate poll of nearly 20,000 Americans, conducted by Morning Consult on behalf of the National Association of Home Builders, found that 80% of people believe that a lack of affordable housing is a problem in the U.S. Even small upticks in home prices in many parts of the country can now make buying a home unaffordable, though declining mortgage rates in recent weeks have offset this somewhat.
To combat the slow-down in home-building activity, the economists polled by Zillow and Pulsenomics suggested a range of solutions. Over half of these experts suggested relaxing local regulations surrounding home construction — a suggestion some politicians made during a Senate hearing about housing finance reform this week.