We all know buyer demand is incredibly high in today’s market, and coupled with low inventory for existing homes, it’s causing home prices to consistently rise. But there’s more to this housing market picture than what’s happening in the short term. Since 2000, builders in the U.S. have been 4.3 million units short on single-family housing. Sure, supply chain issues and labor complications are impacting the rate of building right now but the truth is, in the last two decades, household formation has increased at a rate that’s just too fast for builders to keep pace, and they’ve been scrambling to construct new housing ever since.
According to Inman News, between 2015 and 2020, the average household formation was 1.5 million households per year, and when juxtaposed with the average rate of single-family home completion – 806,000 homes per year – you can see how we’d experience a decades-long shortage. Even if single-family new home construction increased its pace to 1.6 million, or double the 806,000, the gap between household formation and new single-family homes would take another 20 years to close.
In reality, we know supply chain issues and labor shortages are only compounding this problem. The current pace of single-family home construction is the slowest recorded since 1995. CNBC recently reported 12.3 million American households formed from January 2012 through June 2021 but only 7 million new single-family homes were constructed in that same time frame.
There are two important takeaways from this scenario: First, we are sorely in need of more new homes if we hope to close the ever-growing chasm between household formation and new home construction. Second, strong demand for housing in the U.S. is not going anywhere anytime soon.
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