Even as foreclosures continue to flood some of the worst-hit housing markets in the country, economists are beginning to sound the warning that today’s extremely low levels of new residential production could lead to significant housing shortages, especially among market-rate rental apartments, as household formation rates return to normal.
The housing downturn and economic recession have kept household formation rates at below-normal levels for roughly three years, said NAHB Chief Economist David Crowe. As the economy moves to higher ground, the housing market will begin to feel the pressure from new households, he said, and there will be a surge of demand from echo boomers, who comprise an even larger group than their baby-boomer parents.
NAHB economists project that the industry will need to deliver 16 million homes over the next 10 years to keep pace with demand. As the excess inventory is worked off, which is likely by the end of 2012, the long-run demand for new housing — based on population growth, immigration and the replacement of losses from the housing stock — will average approximately 1.5 million single-family and 300,000 multifamily units annually, or about 1.8 to 1.9 million total starts.
Coming off extremely low levels of construction, starts last month were running at a seasonally adjusted annual rate of 591,000, a level that is far below what will be needed.
When housing starts bottomed out in the first quarter of 2009, they were running at only 27% of average starts during the “normal” production period of 2000 to 2003, according to analysis by NAHB. This year, production is expected to rise to 45% of normal, with a further increase to 67% of normal next year.
The road back to normal levels of residential construction will be longer for some states than others. By the end of 2011, the top 20% of the states will see their production levels back to normal. Those states include Montana, Wyoming, North Dakota, New Mexico, Kansas, Oklahoma, Texas, Louisiana, Mississippi and Alabama.
So, how long will it take to bring new Lots on-line in the Puget Sound to meet our coming demand? The average nunber of years (from plat application to recording) in King County for single family lots has been 4.75 years!
Average processing time (in years): (Source, New Home Trends)
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King County: 4.75 years
Other Cities in King County: 3.26
Pierce County: 5.44
Other Cities in Pierce County: 3.25
Snohomish County: 3.09
Other Cities in Snohomish: 3.09
Thurston County: 3.09
Other Cities in Thurston County: 2.85
