Home building in the U.S. has been walking a fine line since the start of the year, further igniting concerns about new construction and inventory in the housing market.
The U.S. Census Bureau [1] and the HUD [2] on Tuesday jointly released new residential construction statistics [3] for March 2016, which showed privately-owned housing starts were at a seasonally adjusted annual rate of 1,089,000, down 8.8 percent from February's estimate of 1,194,000, but is 14.2 percent above the March 2015 rate of 954,000. According to the data, single-family housing starts in March were at a rate of 764,000, down 9.2 percent from 841,000 in February.
Robert Dietz, Ph.D., Chief Economist and SVP for Economics and Housing Policy for the National Association of Home Builders [4] (NAHB) sat down with MReport to provide a complete view of some of the pros and cons within the home building picture.
MReport: Why are home builders standing pat while inventory level remain low and demand continues to heat up?
Dietz: Home building is expanding, and builders are optimistic about growth conditions. The current pace of single-family starts is 23 percent higher than a year ago, despite the monthly drop reported in the March Census estimates. And there are almost 19 percent more single-family homes under construction currently than a year ago.
The HMI stands at a level of 58, and NAHB is forecasting stronger gains for 2016 than 2015. In fact, 2016 will be the first year since the recession for which the single-family growth rate will exceed that of multifamily.
However, there are limits to how fast the industry can expand. And those limits are the supply-side constraints I’ve called the 3 Ls–lots, labor and lending (lending being loans for builders to build, AD&C loans). All three must expand before builders can start more homes. While tight existing inventory is an incentive for more building, it takes time to add workers, develop lots and expand the lending base on which the home building industry depends.
MReport: Do home builders not have an incentive to build? Is demand not enough of an incentive? If not, how can they be encouraged to build more homes?
Dietz: One area where we could improve conditions, for both rental and for-sale new housing, would be to consider regulatory costs. NAHB surveys indicate that about one quarter of a typical new homes costs are due to various regulatory burdens, most notably land use requirements. If we want more affordable housing, policymakers should look at the costs of construction.
MReport: What can be expected for the rest of the year in terms of residential construction numbers and inventory?
Dietz: Single-family construction will continue along its growth path. We expect at least 10% growth for single-family starts in 2016, over the 2015 totals. New home inventory will continue to rise. However, the pace of multifamily development will slow compared to 2015 due to growing vacancy rates in some local markets. Overall, residential construction and remodeling should be a bright spot for a sluggish economy.