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Report: We need 4.3M more housing units in the U.S.

Report - We need 4.3M more housing units in the U.S.
by Brad Cartier, posted in Newsletter

Chris Clow of HousingWire opens up the week by reporting that the U.S. Department of Housing and Urban Development (HUD) announced the establishment of a new Office of Manufactured Housing Programs. The office will seek to accelerate manufactured housing development and financing to improve the overall housing supply. 

On this move, Assistant Secretary for Housing and Federal Housing Administration (FHA) Commissioner Julia Gordon noted “This organizational change represents a recognition of the critically important role that manufactured housing plays in our country’s housing market…Thanks to the work executed by our Office of Manufactured Housing Programs over the last two years, we have made significant progress to support the availability of modern and affordable manufactured homes.”

A new report released by PR Newswire from Research and Markets shows North America’s modular construction industry will grow to $35.7 Billion by 2028, up from $25.9 billion in 2022 (CAGR of 5.49%).”The increasing demand for prefabricated building structures along with growing focus on reducing overall construction cost and time is primarily driving the market for modular construction in North America.”

Another research firm, Grand View Research, sees equally impressive growth in the modular construction market over the coming years.

Modular home industry growing

Source: Grand View Research (June 2023)

The same company released another report on the global prefabricated building market, which is currently a $117.4 billion industry, and is projected to reach a$202.7 billion by 2030 (CAGR of 7.1%). The market in the U.S. alone currently sits at $21.2 billion.

Even some of the big retailers are jumping on the modular bandwagon, with Camille Fine of USA TODAY reporting that Home Depot is now offering prefabricated tiny houses ranging from about $4,000 to $40,000.

4.3M homes 

According to a new report from Zillow, housing stock in the U.S. grew by 6.3 million units between 2015 to 2021. Further, 7.1 million new households were formed during the same period, with Zillow estimating that the number of homes needed exceeds available homes by about 4.3 million units. And that number continues to increase:

Housing gap widens

Source: Zillow (June 2023)

“Some steps in the right direction include zoning reforms to allow for more housing units as opposed to just single family detached homes. This alone would create millions of critically needed new housing units and surveys show most residents would support such changes in their own neighborhoods to increase supply. More steps, such as  eliminating or reducing parking requirements, minimizing building permit approval delays, establishing and expanding affordable housing trust funds should also be explored. Ultimately, developers need to be at the forefront of new home construction in order to meet the demand that exists in every part of the housing market.”

The housing shortage is exacerbated by the fact that no one appears to be putting their homes on the resale market, according to Redfin. While demand is up substantially from last year, pending home sales fell 16% year-over-year in mid-June. 

Lily Katz also of Redfin, reports on new listings, showing they’re down 25% to the third-lowest level on record. Homeowners feel trapped by rising rates, causing them to stay put as the Fed’s rapid rise in interest rates subsides. 

Supply of homes for sale low

Source: Redfin (June 2023)

Redfin Deputy Chief Economist Taylor Marr comments on the above data:

“There are two things that would jumpstart the housing market: A big drop in mortgage rates and/or a big surge of new listings…Neither of those things happened this spring; instead, rates rose and new listings dropped to record lows. And with one or two more interest-rate hikes expected this year, mortgage rates are likely to remain elevated at least through the summer, continuing to limit both demand and supply.”

According to Felix Salmon of Axios, the work-from-home movement has not improved our housing shortage either. This has increased demand for housing as more people spend more time in their homes. For example, new apartments built after the pandemic were about 10% bigger than new apartments built in the past 10 years. “When that person works from home, the household is going to feel more cramped than usual unless it expands by about 150 square feet. If the family demands 150 more square feet, that’s a substantial increase in demand, at 15%.”

WFH update

Speaking of work-from-home, James Rodriguez of Business Insider reports on separate data showing that the rise of remote work and ‘zoom towns’ will reduce housing prices and rents in the long term. 

“That’s because the places where remote workers are flocking — the Sun Belt region in the Southern US and suburban areas outside big coastal cities — are exactly the kinds of locations that are best-equipped to build cheap housing to absorb the flood of newly remote workers.”

Caitlin Gilbert, Teddy Amenabar, Hanna Zakharenko, and Lindsey Bever of the Washington Post report on government data showing that one in three Americans still work from home. “The dramatic shift toward at-home work is most pronounced in the female workforce. Pre-pandemic, 26.2 percent of women worked from home in 2019, which increased to 49.3 percent in 2020 and dipped to 41 percent last year.”

In commenting on the same government data, Thomas Barrabi of the New York Post reports that over 60% of the increase in home prices during the pandemic was attributable to the remote work trend. The key to understanding this trend is it was an underlying demographic shift rather than a speculative bubble, putting concerns to bed that a housing crash is imminent. 

Jane Thier of Fortune (subscription required) reports on WFH, noting that a new study shows remote workers earn $8,533 (9.7%) more on average than their in-office peers. Remote workers are also twice as likely to earn above the local median pay for non-remote workers in the same industry.

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