By Lisa Sturtevant, PhD
Chief Economist, Bright MLS
Newhome starts in November were up briskly. The surprisingly strong November residential construction activity was driven by single-family building activity, with the number of new single-family homes under construction up more than 40% compared to a year ago. Starts of units in multifamily buildings (buildings with five or more units) fell 33.7% compared to a year ago.
Data on residential permits suggest that new single-family housing construction will continue to be robust heading into 2024, though apartment construction will be slow.
Despite the higher starts in November, we are still not building enough new housing to keep up with demand. Estimates of the housing shortfall range from 3 million to 6 million units. A lack of sufficient new housing construction drives rents and home prices up, making it difficult for individuals and families to find housing they can afford.
We know that the solution to the housing affordability challenge is to build more housing. There were record levels of new apartment construction in some markets in 2023, and these are places where rents have come down or where rent growth has slowed. The uptick in apartment construction earlier this year began to put downward pressure on the shelter component of the inflation measure, which is typically the largest contributor to the overall inflation measure.
On the for-sale side, however, the lack of inventory of existing homes and a long-term deficit in new construction activity is increasingly pricing people out. Homeownership is the primary way in which middle-class families in the U.S. accumulate wealth. Families are having to delay—or put off altogether—that key opportunity to build wealth. Less access to homeownership means less economic stability and fewer opportunities to pass along wealth to younger generations.
Mortgage rates will come down over the coming months, which will improve affordability somewhat. But the solution to making homeownership more affordable is simply to build more housing. Local governments should ease regulations that make it difficult to construct new housing. Builders need to find ways to build homes more efficiently. Without an increase in the housing supply, an entire generation is losing out on the chance to take full advantage of the benefits of homeownership.
