Chart of the Week: Housing Starts and Housing Starts for Every 1 Million People
Last week as we said a final goodbye to President Jimmy Carter, I was thinking about the turbulent macroeconomic environment that prevailed in the years before, during, and after his administration. While it is difficult to make a true apples-to-apples comparison, several articles point to similarities between the 1978 to 1982 housing market and the current market (i.e., similar demographics, rapid house price growth, inflation, higher interest rates, and mortgage principal and interest payments increasing sharply).
In this week’s MBA Chart of the Week, we look at one statistic–aggregate single-family and multifamily housing starts–and examine how it has evolved since the start of the Carter Administration. In 1977, there were almost two million starts (blue line). Given a population of a little less than two-thirds of the current U.S. population, we also look at the number of starts per one million U.S. residents (orange line). In 1977, this was about 9,000. During the recessions that followed, there were steep declines with a dip to 3,800 starts per million people in 1982. However, it quickly recovered in 1983 and 1984.
Fast forward to today and it is hard to avoid talk of the current housing shortage. Recent estimates of the gap between the housing we have and the housing we need vary from 3.7 million (Freddie Mac), to 3.85 million (Up for Growth), to 4.9 million (Brookings). This shortage can be traced back to the Great Financial Crisis (GFC). In 2010 only 2,000 units were started for every million people, and as opposed the fast bounce back in the early eighties, the slow increasing trend in annualized starts in the decade after the GFC meant we entered the Covid pandemic with fewer than 1.5 million annualized starts, or 4,400 starts per one million U.S. residents. That is, after a decade of recovery, the rate of housing starts when we account for population size, was less than half of what it was at the start of the Carter Administration.
MBA forecasts that housing starts will increase over the next two years (blue line to the right of the black vertical line). However, we predict that they will stay below 1.5 million in 2025 and 2026.
The good news is that as population growth slows, household formation will also slow. This week’s release of the Joint Center for Housing Studies of Harvard University (JCHS) study on new housing unit demand provides baseline forecasts that project nationwide demand for new units will be 1.13 million per year over the next decade and 0.80 million per year from 2035-2045. If JCHS’s projections are realized and if we build 1.5 million residential units per year, we should be able to slowly reduce the gap between the housing we have and the housing we need.
-Eddie Seiler (eseiler@mba.org)
