Nine years after the housing crisis, housing construction as an industry hasn’t yet fully healed. The slow but steady growth, however, might be a positive factor in boosting new home construction – and the economy.
As a reaction to the slow pace of recovery, housing construction will likely continue to add significantly to economic growth for some time. Recent data illustrates the strength of the residential construction sector.
With inventory of previously-owned homes persisting at long-time lows, housing analysts and economists turn to home builders for relief from the supply pressures in the housing market. That’s good news for housing and, at the same time, good news for the economy.
Aside from providing more units for homebuyers to choose from, housing construction – especially single-family homes that need furniture, appliances, flooring and more – helps improves economic growth that could lengthen the business cycle in the process.
The National Association of Home Builders (NAHB) estimates that building the average single-family home generates about three jobs. For a construction industry that lost 1.5 million jobs in the wake of the financial crisis, this explains why the rate of recovery for home construction has been so slow to some extent. Builders are also contending with higher costs, including land and materials.
Still, builders broke ground on 784,000 single-family homes last year, and NAHB Chief Economist Robert Dietz forecasts a 9%-10% increase in both 2017 and in 2018. Dietz describes a normal level of production—one which replaces older and obsolete homes and sustains population growth —as about 1.3 million single-family starts.
While it’s unlikely the U.S. will reach the 1.3 million level until around 2021, housing starts have run close to 1.2 million for the past several months. Total starts and single-family comprise nearly 64% of the industry’s long-run averages. Dietz and other private housing analysts anticipate the current trend toward building more single-family homes (instead of apartments) will continue.
As home builders shift production from multi-family structures to predominantly single-family units, that’s a good indicator of faith in a stronger economy and housing market. It is also an economic boost as it increases business associated with the homebuilding process.