Five Facts about Our Housing Supply Explain High Rents and Home Prices
Since 2009, housing demand has outstripped supply in the United States—quite significantly in some areas. In 2018, the latest full year for which we have comprehensive data, we estimate 1.2 million new households were formed, but we produced a net of only 850,000 new housing units.
How did this shortage of 350,000 new housing units occur? Builders completed 1.2 million new single-family and multifamily housing units in 2018, and 100,000 new manufactured housing units were shipped. But roughly 450,000 units go obsolete each year, resulting in a net addition to the housing stock of 850,000 units.
This shortage has contributed to higher home prices and rents, a trend that will continue for the foreseeable future absent policy changes.
The good news: the affordable housing crisis has been part of national debates, and several presidential candidates have released housing plans that recognize how critical supply is to solving the affordability crisis. This is a significant departure from past elections.
To promote greater understanding among policymakers, thought leaders, and interested stakeholders in the dimensions of our housing supply challenge, we recently released a publicly available, comprehensive collection of data about housing supply in the US today.
Our new Housing Supply Chartbook contains 71 charts, graphs, and tables that describe our current supply situation in detail. The chartbook provides answers to questions surrounding many factors of our nation’s housing supply, including its:
- cost of construction
- evolution since the Great Recession
- regional differences
The chartbook explains how we arrived at our current housing supply challenges and begins to explain why we face such high rents and home prices.
These five facts, in particular, best sum up our current housing supply challenge:
1. Growth in the total US housing stock has been muted.
The nation’s housing stock expanded 20 percent to 138 million homes between 2000 and 2018, but after taking population growth into account, the total housing stock has expanded only 3 percent and has actually contracted 0.2 percent since 2008. See page 15.
2. Housing production is significantly less than its average between 2000 and 2003.
The years 2000–03 were the last generally considered normal (before the run-up to the crash). New housing production has increased 123 percent since 2009 but remains 28 percent below its 2000–03 average annual level of 1.87 million units.
Single-family starts and manufactured housing shipments remain 35 and 48 percent below their respective 2000–03 annual averages, but multifamily starts are 10 percent higher. See page 15.
3. Private single-family construction spending per unit completed is elevated.
Over the economic recovery, private single-family construction costs on average have outpaced broader consumer inflation. On a per-completion basis, total spending in 2018, $344,701, was 70 percent higher than its 2009 low of $202,528. In contrast, consumer inflation has risen by 17 percent over the same period. See page 43.
4. The number of multifamily units completed has recovered, but these units are in larger buildings.
At 348,000 the number of completed multifamily units in 2018 is 6 percent above its 2006 level. However, the number of completed multifamily buildings has fallen 60 percent over the same period. Multifamily construction spending per building reached $5.0 million in 2018, 186 percent above its 2006 level of $1.8 million. See page 43.
5. As a share of gross domestic product, residential fixed investment (RFI) is highly variable and tends to lead business cycles.
RFI decreases heading into a recession and accelerates out of one. In 2018 and the first half of 2019, real RFI fell, sparking fears of a recession. But more recent numbers have partially alleviated these concerns. See page 55.
We hope the new chartbook will offer policymakers, thought leaders, and all stakeholders a solid evidentiary foundation to build sound and effective policies.
Photo illustration by Rupert King via Getty Images.