The historic inventory crisis is the product of a perfect storm, and the finger points all the way back to the years following the Great Recession, a new report reveals.
The rate of housing production in the U.S. has slowed over the past two decades and fell short of an estimated 5.5 million new units from 2001 to 2020 compared to 1968 to 2000, according to a report released Wednesday by the National Association of Realtors (NAR).
“It’s the most critical factor affecting the housing market right now,” Gay Cororaton, a senior economist at the NAR, told Inman.
From 2001 to 2020, an annual average of 1.225 million new units were being built, down from the annual average of 1.5 million from 1968 to 2000.
As a result of the pandemic, low mortgage rates, slowed construction and a pull back from sellers have all contributed to the housing shortage, but they are not the only catalysts.
“Following decades of underbuilding and underinvestment, the state of our national housing stock, which is among the most critical pieces of that infrastructure, is dire, with a chronic shortage of affordable and available homes to house the nation’s population,” the report reads.
Building lagged for years after the Great Recession due to the loss of construction jobs that have yet to be fully replenished.
The state of new construction, as it stood in early 2020, was not prepared to handle the sudden growth in demand that was coming.
“When housing demand really accelerated in May, June, and July of last year with historically low interest rates, the industry couldn’t simply turn on a dime and suddenly build 30 percent more than they were a quarter, or a year ago,” Robert Dietz, a chief economist at the National Association of Home Builders, told Inman.
As a result of the lack of supply, home prices have skyrocketed. In April, the median existing-home sales price rose by 19.1 percent year over year to $341,600, a record high.
While it is important to point out that population growth is slowing, a solution to underbuilding is a critical component in the race to ease the strains on inventory and affordable housing.
The NAR report found that builders will have to build over 2 million new housing units each year for the next decade to bridge the estimated 5.5 million unit gap. The organization is calling on the government for help, asking for policies that will increase the rate of construction.
“It’s absolutely critical for household wealth accumulation for younger households that are trying to start their careers,” Dietz said, referring to the need for a solution. “Homeownership is a primary source of household wealth accumulation. Without that available inventory and higher home prices, it’s harder for those first-time and first-generation homebuyers to get into the market and therefore benefit from homeownership.”