The future of home building, multifamily development, remodeling, and land development in the U.S. looks strong, despite ongoing challenges associated with industry expansion and rising regulatory concerns. And I am pleased to report on these conditions as NAHB’s new chief economist; I took the reins from David Crowe, who recently retired after a distinguished, 40-year career as a housing economist.
Despite occasional sluggishness, a positive growth trend is in place. In 2009, there were just 445,100 single-family starts. That annual total rose more than 60%, to 714,500, in 2015. And there is plenty of room to grow, with a potential sustainable rate of construction equal to 1.5 million single-family homes a year. However, supply-side headwinds, most notably the three “Ls” (lots, labor, and lending), are constraining the speed at which the industry can increase production.
As the industry recruits new workers and develops new lots, construction will expand to meet rising demand. The NAHB expects single-family building to post a gain of at least 14% in 2016, rising to more than 800,000 starts. And multifamily development should be able to maintain a production level of just under 400,000 starts this year. The remodeling sector should post small gains, despite flat conditions for existing-home sales, due to supporting factors such as an increasing need for aging-in-place and energy-efficiency improvements.
Looking at market fundamentals, the most important reason to be confident about the growth prospects for our industry is that the demographics for housing demand are so favorable.
For example, there are just over 25 million Americans ages 20 to 25. While most of these 20-somethings will seek to rent first, consumer surveys overwhelmingly indicate that they have the same aspirations as prior generations—marriage, children, and homeownership among them. And like those before them, millennials mostly wish to purchase a single-family home in the suburbs. Those analysts and pundits suggesting that today’s young adults have given up on homeownership and will mostly seek to live in downtown locations are, quite simply, wrong.
However, younger Gen Xers and millennials are achieving these traditional milestones later in life. And this is one of the reasons the housing recovery has lagged. But flat existing-home inventory, growing job creation and wages, historically low mortgage interest rates, and favorable demographics all point to a positive outlook for home building.