Highlights:
In 2020 and the first half of 2021, the U.S. saw 2.1 million household formations, resulting in 12.3 million household formations between 2012 and June 2021. In this time period, 7.5 million single-family homes were started, and 7 million single-family homes were completed.
The gap between single-family home constructions and household formations grew from 3.84 million homes at the beginning of 2019 to 5.24 million homes as of June 2021.
At the five-year average rate of home completion and household formation, the gap would only widen.
Assuming household formations continue at current 5-year average, the average rate of home completion would have to triple to close the gap in home completions and household formations in 5 to 6 years.
If instead household formations sustain the sluggishness of 2021 and home completions continue to be strong, it will only take double the rate of home completions (as assessed in 2021) to close the gap in 5-6 years.
Builders are accelerating production:
In the first six months of 2021, 565,000 homes were started, which is 57% of the total homes started in 2020. If sustained, this will mean a 15% increase in housing starts for 2021 compared to 2020.
Home starts per 1000 households increased slightly in 2020 from 7.1 in 2019 to 7.9 in 2020, indicating acceleration.
New Home Sales data suggests that a decreasing proportion of affordable homes are being built and sold in 2021 compared to 2018-2020. Only 32% of new homes were sold for less than $300,000 in the first half of 2021, down from 43% in 2018.
Builders are ramping up most in the south and west:
Over 50% of home starts through June 2021 were in the south, and almost 25% in the west.
Through June 2021, 13.8% of all building permits were granted in Dallas, Houston and Austin, Texas metro areas.
Cities such as Austin (TX), Nashville (TN), Raleigh (NC), Phoenix (AZ), Denver (CO) and Tampa (FL), are seeing an outsized proportion of housing permits.
Smaller scenic towns such as Boise City, ID, and Provo, UT as well as beach towns across Florida are seeing significant proportions of building permits relative to their size.
Builder confidence suggests that this trend could continue. Home builder sentiment is strong and up year-on-year, though dropping from its peak in November 2020.
The Gap Between Home Starts and Household Formations Continues to Widen
As discussed in the writeup the last time we examined the question of housing supply adequacy, 2012 to 2019 marked a period of economic expansion and prosperity. Right after the January 2020 research, the Coronavirus pandemic changed daily life worldwide. Being stuck at home led to a re-examination of home life, resulting in increased housing demand across the country. However, as housing demand ramped up, the construction industry ran into issues with material and labor scarcity, driving the cost of both inputs up and widening the already large gap between home construction and household formations. Housing demand was strong enough that these hang-ups did not stifle home sales growth, but these trends exacerbated the preexisting shortage, making the problem worse.
Between 2019 and 2021, an additional 2.1 million households formed, resulting in a total of 12.3 million new households between 2012 and June 2021. Through 2020 and the first half of 2021, homebuilders started construction on about 1.55 million single-family homes, bringing the 2012 to 2021 housing starts total to 7.47 million homes. As combined household formations outpaced housing starts in 2020 and 2021, the gap between these metrics widened to 5.24 million fewer housing starts than household formations.
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