● Despite healthy and persistent growth, U.S. home construction rates remain far behind historic norms.
● If construction over the past decade matched historic norms, accounting for population change, the country would have had 2.3 million more single-family home permits.
● Consequently, U.S. housing stock is staying in service longer and getting older fast.
Escalating housing prices across the country are closely tied to an ongoing inventory shortage, which is a function of both high demand and not enough supply to meet it. To some extent, that’s because builders aren’t building the way they used to.
If permits were issued at historic rates (defined on a per incremental capita basis) over the last 10 years, there would have been some 2.3 million more single-family homes built nationwide. That represents almost two years of ‘lost’ building at the current rate of 1.3 million per year.
Although construction rates have been steadily rising – with June new home sales up 2.4 percent from a year ago – the U.S. is still building fewer single-family homes on a per capita basis than it did historically.
From 1985 to 2000, there were 3.9 single-family residence building permits for every 1,000 residents. Currently, that number is 2.6, a decrease of 33.5 percent.
One could argue that, because of slowing population growth, it may be more appropriate to look at permits per increased population. Done that way, the analysis shows that for the past 10 years, new permits per capita for just the increased population also are below historic norms and trending downward.
Another possible argument is that migration within the country can create pockets of deficit and surplus. However, the trend across 28 of the largest 35 metros is a deficit of new permits compared to historic norms (using the incremental population method). Three of the seven metros with permit surpluses (Cleveland, Pittsburgh and Detroit) have seen population declines over the last decade. Only Chicago, Houston, Austin and St. Louis are both gaining residents and issuing permits at historic rates.
An analysis of housing permits since 2008 does not take into account the housing boom, during which builders created a surplus of homes, particularly in certain parts of the country. From 2000 to 2008, U.S. permits per capita were 17.4 percent higher than the previous 15 years, resulting in 1.6 million more permits than would have been expected if the rate had stayed the same. It’s possible — even likely — that some markets are still working off that surplus.
However, many major metros actually issued permits at lower than historic rates during the housing bubble, including New York, Los Angeles, Philadelphia, Washington, D.C., Miami, Boston, San Francisco, Seattle and San Diego — meaning they never experienced a building boom, compared to construction rates of the past.
Demolitions and vacancies also deplete the housing stock, pressing remaining homes into longer service. Between 2005 and 2006, the number of structures built before 1990 dropped by 732,000 or 0.8 percent, likely due to demolitions and vacancies. Between 2015 and 2016, the number of structures built before 2000 dropped by only 530,000 or 0.5 percent.
Another way to look at that same phenomenon is to gauge the increasing age of existing homes. In 2007, the median age of homes sold was 21 years; in 2017, it was 34.
A third way is to say that in 2006, 10 percent of homes were built in the last 10 years and 32 percent were older than 56 years. By 2016, only 4 percent were built in the last 10 years and 39 percent were older than 56 years.
Two solutions to the housing shortage include smaller families and “doubling up,” and it’s clear that people are doing both. Fertility rates have dropped, particularly in areas with the fastest-growing home values. And 30 percent of working-age adults now live in doubled-up households, up from a low of 21 percent in 2005.
People can also shift from single-family to multi-family residences. However the share of households in single-unit structures is 61.5 percent — virtually unchanged from 60.3 percent in 2000, which indicates that no such shift has occurred.