Forbes Bill Conerly asks the quesiton: "Will construction get back to historical good times, which many think of as 1.6 million starts?" His answer: "That’s very unlikely, because our population growth simply does not justify much more construction than we currently have."

Expectations of normal were formed prior to the last recession, when starts averaged over 1.5 million units. If one dropped recessions, the average was 1.6 million. Of course, if you take any series of numbers and remove the low ones, the average is higher.

For a reasonable expectation of construction in the coming years, start with population growth. The United States population increased by 2.5 million people last year, according to the Census Bureau. We live about 2.54 people per household, so population growth justifies about one million new housing units.

The near-term outlook is favorable, thanks to job growth that enables young people to live away from their parents and without roommates, as well as enabling divorce. Low mortgage rates help, though tight rental markets limit housing demand. The current economic expansion can drive housing construction above a million units for a year or two, but at some point slack population growth will prevent further increases in residential construction. That’s likely to coincide with rising interest rates, double-whammying the housing market along about 2018, give or take a year.

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