America has a housing shortage.
The improving labour market is expected to create more demand for housing over time, as those that moved back in with their parents will slowly begin to contribute to household formation.
It’s become an increasingly common refrain that supply (or more specifically, lack thereof) is one of the key factors holding back the housing recovery.
Now one of America’s biggest homebuilders has given us the sheer scale of it. On an earnings call on Thursday, Lennar CEO Stuart Miller said the U.S. now faces a 4 million deficit in homes (emphasis ours):
“I still think that there are complications in managing a diverse array of products and buildings that are located in scattered locations. But given the fact that we have a long-term production deficit in this country in terms of the amount of homes multi and single-family homes that have been delivered over the past few years since we went into the downturn and we kind of estimate that that’s about 4 million in deficit over the past few years.”
A new paper from the Joint Center for Housing Studies of Harvard University identifies the key things that have held back housing supply:
“Many sellers are unwilling to accept today’s prices, given how low they are relative to the market peak. Expiration of the Mortgage Forgiveness Debt Relief Act at the end of 2013 also created a significant disincentive for under- water homeowners to sell because these households now face taxes on any debt forgiven in a short sale. In addition, owners that refinanced recently would have to pay higher interest rates if they moved to new homes. Longer-term factors are also at play, including the ageing of the population and the consequent decline in the number of households that move each year.”
“Tight inventories feed on themselves by limiting the options for potential trade-up buyers, in turn preventing those households from listing their own homes for sale.
“…Yet another reason for the shortage of inventory is that millions of homes have been taken off the market and are sitting empty. According to the Housing Vacancy Survey, the number of vacant homes held off market spiked to over 7 million units during the housing downturn and is only now beginning to level off. If the vacant/held-off-market share of the housing stock (currently 5.6 per cent) were the same as in 2001 (4.5 per cent), an additional 1.4 million homes would now be available for sale or rent.
And then of course there’s the other problem we’ve heard from homebuilders for some time: the shortage of lots.
Fred Cooper at Toll Brothers told Business Insider that there are shortages in approved lots. He said small builders in particular are having a hard time raising capital to buy and build projects in many markets.
“You don’t have that component of the industry supplying lots to the industry in any large scale and that’s a typical source of supply that isn’t coming in force now,” Cooper said in an telephone interview.
But things aren’t all dire on the supply end. Existing homes for sale on the market have recently moved up from record lows.
“The absolute level of home on the market is up 23% year-to-date,” writes Gluskin Sheff’s David Rosenberg. It is a “welcome development as it helps to ease the supply constraints that have restricted activity and somewhat tempers the pace of house price appreciation.”