Realtors Say Home Construction Is Lagging
The National Association of Realtors finds a troubling trend in the home-building industry that may lead to a shortage of houses and higher prices for homebuyers.
The problem? Based on a 50-year-old pattern, too few houses are being built for every new job that’s created. According to an article published in The Wall Street Journal, since 1960 this ratio has been one new single-family home for every 1.5 new jobs. But in 32 states and the District of Columbia, the ratio is out of whack. It takes more than five new jobs to produce one new house in Michigan and California, for example, while other states also show a higher-than-average ratio.
“Not all new jobs result in a new household and an increase in demand for housing,” the Realtors report said, “but that relationship is strong and the implication is that the lack of construction has hamstrung supply and thus home sales.”
Among the factors that could be affecting the number of housing starts, the report said, are limited access to credit for smaller builders, tight credit and student debt for entry-level homebuyers, and generally lower levels of affordability over the last year.
“While tight inventories will help to sustain price growth, it also limits turnover and could further erode affordability,” the report said. “Without a stronger response from homebuilders, consumers may struggle with options and affordability if income growth cannot compensate. It is difficult to discern whether builders can produce at a lower price point given frictions in the current market.”
Nationally, the median price of an existing home was $201,700 in April, an increase of about 5% over a year earlier, The WSG reported.
A homebuilders group says apartments and condos are a factor
The National Association of Home Builders agrees that home construction needs a boost, The WSJ said, with single-family starts currently running at about 65% of the 1 million annually they’ve averaged since 2000.
But, NAHB chief economist David Crowe told The WSJ, the Realtors report overlooks the fact that more young workers are flocking to apartments and condominiums rather than single-family detached homes. Multifamily starts were 293,700 last year, the most since 2005.
Also, the report adds, a more reasonable ratio of homes built to jobs created would be 2 or 3, not the 1.5 cited by the Realtors group. That would bring more states into the “ideal range.”
High land prices and a shortage of lots ready for construction are hampering construction, Crowe said, and more builders are focusing on more expensive homes that go to buyers who have no credit problems.