Figures for new construction in the US surged in October to their highest level since 2007. However, despite the hike in housing starts, high demand for property continues. This in tandem with very low inventory levels means the US housing shortage looks likely to continue for at least another four years.
2016 has generally been a good year for new homes in the US. The National Association of Home Builders/ Wells Fargo home builder sentiment survey for December showed a climb of 7 per cent to reach 70 points. This is the highest level for 11 years.
Between January and October, sales of new-build properties in the US soared by 12.7 per cent compared to the same period in 2015. Furthermore, the median price reached US$304,500. However, in an article for Forbes, Chief Economist of the National Association of Realtors (NAR) Lawrence Yun argues that despite these bullish figures, the US housing shortage is set to continue.
Lack of supply fuels US housing shortage
According to Yun, at the end of October there were some 2.02 million properties on the market in the US. In terms of months’ supply, this figure represents just 4.3 months, considerably below the 6 months considered by experts to reflect a balanced market. In addition, the October inventory is 4 per cent lower than the same time last year.
Yun believes that there’s no sign of inventory levels rising. “What is needed is for homebuilders to boost construction and/or for buy-to-let investors to unload their rental properties onto the market soon,” he explains. He adds that since buy-to-let investment in the US brings in “nice rental income flows”, the only way to increase supply in the US market is “for homebuilders to get really busy”.
High demand for US property
A look at the figures supplied by Yun show just how busy property developers need to be in order to seriously tackle the US housing shortage. Between 1.1 and 1.2 million households are formed every year in the US. These plus the upwards of 300,000 properties that are demolished annually means that around 1.5 million new homes are needed every year.
This figure is probably a conservative estimate and potentially falls short of real demand in many parts of the US. This is particularly true of Florida where an above average rise in population places extra pressure on the property market. In some parts of the Sunshine State, the influx of new inhabitants far exceeded the national average.
For example, the Tampa population grew by 2 per cent in 2015 while in Orlando, the census went up by 2.6 per cent, three times the national average. Unsurprisingly, inventory levels for property in Florida are very low and median prices rising fast despite a surge in new construction this year. In Q3, new home starts in Southwest Florida went up by 14.5 per cent, one of the highest since Q3 2006.
Rate of construction needed to end US housing shortage
According to Yun, historically the level of new construction in the US was sufficient to meet demand. He cites the figure of 1.51 million units build annually prior to the year 2000. This number has, however, not been reached over the last decade, resulting in a considerable shortfall.
Between 2007 and 2016, home builders in the US constructed just 870,000 units a year. If 1.5 million new homes are needed annually to fulfill demand, Yun estimates that the current US housing shortage stands at 8.3 million units.
“The bottom line is that we need a few years of above-normal construction activity, say 1.7 million housing starts per year,” he says. With just 1.3 million forecast for 2017 and an only slightly higher figure of 1.4 million projected for 2018, there are no immediate signs of the US housing shortage coming to an end. Indeed, Yun believes that it will be at least four years before the deficit begins to fall.
“One of the fundamentals behind property investment is to invest in supply to meet the demand,” says Dies Poppeliers, Managing Director of BRIC Group. “Purchasing a buy-to-let property in the US or building land clearly fits this metric and will obviously continue to do so over the next few years.”
BRIC Group, an investment company specialising in global real estate opportunities, offers US real estate investments including turnkey properties in Florida and Houston, and land plots in Florida. BRIC Group is also developing The Coral resort, in Northeast Brazil, a luxury beachfront resort with land and villa investment opportunities. BRIC Group has been creating wealth for its clients since 1996 and has offices in Brazil, Dubai (consulting office), Hungary, Spain and the US.
(Sources: Forbes, The Washington Times)