Dive Brief:
- Although single-family home construction starts are up compared to where they were during the worst of the housing crisis, their current pace has only reached six homes per every 10 new households, according to the Urban Institute's Housing Finance Policy Center.
- This gap between available housing and demand has caused an increase in home prices and rents that shows no signs of ending until that imbalance is corrected.
- In order to meet demand, the Urban Institute said that local, state and federal housing policies must change to encourage an increase in the rate of construction in low-supply areas, to make rents more affordable, and to spur lending institutions to provide more first-time homebuyer mortgages.
Dive Insight:
According to the Urban Institute, the housing market emerged from the 2008 crisis with a glut of supply, but, since then, starts have fallen to below pre-2009 levels by at least 32,000 units a year — a circumstance that has led to the absorption of much of the inventory left over from the crash. In addition, demolition, natural disasters and other events reduced existing 2015 supply of 968,000 homes to approximately 620,000 — meaning that not all of the more than one million households formed that year succeeded in finding adequate housing.
Tight inventory conditions are an ongoing concern in the housing market. Real estate groups have called on builders to ramp up construction of new homes, but builders point to increasing regulatory costs as a major obstacle to adding more inventory. A recent National Association of Home Builders report found that builder confidence in May, at its highest level since January 2016, means that the "housing market should continue to move forward in the second half of 2016." However, the NAHB still has concerns about the availability of building lots as well as the cost of compliance of regulatory requirements that have added nearly 25% to the price tag of new homes.
This Urban Institute report follows the Commerce Department's announcement that housing starts dropped 0.3% from an annualized 1.167 million rate in April to 1.164 million in May. However, May 2016 housing starts were still 9.5% higher than May 2015. Housing analysts had expected May 2016 starts to come in at 1.15 million, so May's numbers, although slightly down from April, were still good news for the housing market. In addition, Reuters found that new applications for building permits increased 0.7% in May, perhaps indicating that the housing market is continuing its upward march.
