New-Home Construction Activity Increases, But Massive 5M Home Shortage Continues

On Tuesday, the U.S. Census Bureau reported that August showed significantly increased activity from U.S. home builders. Permitting for new homes hit a seasonally-adjusted annual rate of 1.73 million (a bump of 6% compared to July 2021).

The entirety of this increase is attributable to activity in the multifamily sector, where demand continues to outpace supply. Realtor.com has estimated that the United States faces a shortage of around 5.2 million new homes, due to years of under-building.

So the August increase appears to be good news. But it is not clear that the new activity from home builders is addressing the sectors of the housing market where the gap is largest between demand and supply. Instead, due to increased costs, as well as perceived risk, home builders are focusing much of their efforts on the premium segment of the market.

“The pace of new construction reflected homebuilder shifts toward higher margin projects amid fluctuating costs,” George Ratiu, manager of economic research at Realtor.com, said following the report’s release. He added that “completed new homes have been mostly aimed at the premium segment of the market, with the share of new home sales priced at or below $300,000 dropping from 43% of total in 2018, to 32% in the first half of 2021.”

Realtor.com

Continued economic uncertainty, as well as inflation concerns, will likely contribute to the shortage of affordable housing as a long term issue plaguing the U.S. housing market.