The US housing market is coming up short in the number of singe-family homes being created compared with the growing number of households seeking them.
Earlier this month, new statistics were realised by Realtor.com demonstrating how population growth was outpacing housebuilding across many parts of the US. It revealed that the gap in 2022 had grown to 2.3 million homes, when taking the whole market into account.
However, when looking at just single-family construction – which involves singular units to house just one household, rather than a complex or apartment blocks, for example – this rises to around 6.5 million homes, because of an increase in people looking for single-family units.
This, says Realtor.com, is due to a decade of building levels falling short of the growing population. It adds that, between 2012 and 2022, 15.6 million households were formed, but only 13.3 million housing units were started, while 11.9 million were completed.
Single-family houses have dominated the construction landscape, though, with 9.03 million of these started during the period, compared with 4.2 million multi-family properties.
Shift in focus for US housing market
Just like in the UK, mortgage rates have been on the rise in the states, which has had an impact on the US housing sector. This is due to the Federal Reserve attempting to curb inflation by raising interest rates – as the Bank of England has increased its base rate with the same mission.
This has slowed down the speed of the market, as some buyers are now holding back in the US, leading to a knock-on effect where builders have also pulled back. This has been particularly evident in the single-family space.
Hannah Jones, economic data analyst at Realtor.com, commented: “Cooling buyer demand and builder confidence led to slower single-family construction and a shift in builder focus to multi-family last year.”
Although new homes were being completed last year, the number being started dipped, with a 10.6% annual decrease in the number of single-family construction starts to around one million. This is still at a high level historically, though.
“While that brings greater supply to the market, most of it will be used for rentals and won’t address ongoing affordability challenges in the for-sale space,” said Jones.
Tackling affordability
One way to deal with affordability struggles within the US housing market is to focus on multi-family. This is where multiple families or households share amenities, such as can be seen in apartment blocks or housing complexes, which can be a much cheaper option for both buyers and renters.
However, as the report points out, the construction time for these property types, due to their nature, is much longer, so the properties take a greater length of time to become available and boost the US housing supply.
Around 35% of all new housing starts in 2022 were multi-family properties, according to the data. Almost all of these (95%) from the first three quarters of the year were being built in order to be used as rentals – also known as build-to-rent, which is a hugely popular option in the US housing market.
In order to try and close the supply-demand gap, both types of property need to increase their construction levels, to cater for the growing number of households. Housing starts in the single-family market would need to triple from their current level, in order to close the gap in three to four years.
However, looking at the whole market, if all construction were to increase by 50% across both property types, the gap could also be closed in the next two to three years, if we were to continue with the current rate of population growth and demand across the US housing space.
Danielle Hale, Realtor.com’s chief economist, commented: “As inflation and mortgage rates likely soften later this year, buyers are likely to return to the market and be in search of an affordable home, and the ongoing housing supply shortage will only continue to put pressure on the market.”
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