Ten years ago--as the U.S. economy crashed, eliminating between 600,000 and 800,000 jobs per month across a six-month span of time, that four-letter word was uttered like a prayer. In practically a blink of an eye, 8.5 million jobs were gone by December 2009. Then, we could hardly hope for home sales. More could only hope against bread line flashbacks to the early 1930s.
With this morning's release of the latest--November--employment report from the Bureau of Labor Statistics, there's every reason to expect solid tidings of continued job formation. That would make 98 consecutive months of job creation, record low unemployment, and an economy the Fed still believes it may need to keep from overheating.
So, from those darkest of times in December 2009 through today, the U.S. economy created more than 18 million new employment opportunities, and this morning's BLS release--per a consensus of economists--will affirm an unemployment rate of 3.8%, or thereabouts.
While many of housing's smartest people in the room in 2008 and 2009 felt "all we need is jobs to turn this thing around," it turns out not to have been so.
The jobs have come. The low unemployment has come. Even the consumer confidence housing recoveries need came roaring back, and remain at highly favorable levels.
But not housing. Housing has not come back. Housing--meaning the community new home builders, developers, investors, manufacturers, distributors of building materials, and their partners--is stuck in the throes of a self-fulfilling, vicious circle of high housing costs constricting supply and thereby causing housing costs to go higher.
So, a vast majority of those more than 18 million job holders the American economy has created since 2010 have been priced out, left out, or SOL relative to the six million or so new housing units--for-rent and for-sale--developed during that time period between 2010 and now.
This jaw-dropping analysis from Sam Khater, chief economist at Freddie Mac makes this stunningly, pathetically clear.
The United States is not building enough housing to meet demand. The current annual rate of construction is about 370,000 units below the level required by long-term housing demand. And after years of low levels of building, a significant shortfall has developed, with between 0.9 and 4.0 million too few housing units to accommodate long-term housing demand.
In our latest Forecast, we forecast housing construction to pick up gradually. However, it will still be a year or more before the level of building matches incremental annual long-term housing demand. To bridge the shortfall of total units, the U.S. housing market may need to supply more than 1.6 million units per year.
Until construction ramps up, housing costs will likely continue rising above income, constricting household formation and preventing homeownership for millions of potential households.
The conundrum here reminds me of a remark Shea Homes ceo Bert Selva said to me way back in 2016, when builders like Shea needed to "cadence" their sales by raising prices in order to slow down demand and deliver homes to buyers as promised.
"We can sell every home we can possibly build," Selva told me. "Selling them is not the problem. The problem is building them."
He was speaking then especially about constraints on skilled labor, and the risks home builders dealt with at not having smooth, predictable, price data on labor costs in their construction models at a time.
The prescience of Selva's observation is all too evident today. A vice-grip of constraints on supply--too many ways and reasons to say "no" to new residential development in too many places--feeds into a self-perpetuating cycle of greater demand on less supply.
Higher prices shrink the market universe, so the ultimate effect of eight years of strong economic recovery has been to, in effect, suppress and suffocate and strangle demand for new housing. As Freddie Mac notes here:
The following factors impact household formation: housing costs, income, employment, education, marriage and children, race, and geography. Of these factors, our study identified housing costs to be the biggest impediment to household formation, followed by labor market outcomes. The target number of households would be the number of households when we assume there are no constraints from housing costs, or income, or employment. The unconstrained number of households could range between 122.5 million in the baseline scenario and 123.8 million in the high scenario.
Three essential, inter-dependent, and inescapable opportunity areas--every one of which private sector stakeholders have a role, responsibility, and efficacy in addressing--arose in our Hive event in Austin last week, which squared precisely with the housing business community's challenge to touch a larger, not a smaller, marketplace in America.
- Productivity: builders, investors, and developers must attack between 25% and 35% of their direct and indirect expense base in producing new home units, lost to time, labor, materials waste, process and model inefficiency.
- Policy: builders, investors, developers must engage policy gatekeepers, from Capitol Hill to City Hall, in attacking between 25% and 35% of selling and renting costs to consumers to bring that number down significantly, restore essential worker housing options to communities, and bring balance back to housing's supply and demand equilibrium.
- Finance: Now that America is running at full employment, housing finance stakeholders need to eliminate friction and barriers from essential worker households' access to an array of housing options, and from builders and developers aiming to serve them. GSE reform has been talk, talk, talk since the Great Recession. Now it's time for action.
Jobs carried the U.S. economy this far, through one of economic history's most enduring recovery trajectories.
Now it's housing's turn to return the favor.