Latest statistics for new construction reveal that the US property market is still a long way from fulfilling demand. The number of new homes entering the market sits at rock-bottom levels while demand for property continues to soar across the country.
A recent report by the National Association of Realtors (NAR) finds that new home construction lags behind the level required to match the rate of job creation. In the 146 metro areas examined, NAR discovered that the vast majority show a big gap between new jobs and new housing, a divide that has reached extreme levels in some parts of the US such as New York and Miami.
In terms of foreclosures and sales, the resale market for US property has recovered from its crash in 2007. Bank repossessions are currently at pre-crisis levels and sales have increased dramatically to reach figures previously registered in the early 2000s. “The demand for buying has drastically improved this year and is propelling home sales,” said Lawrence Yun, NAR Chief Economist, although he pointed out that the lack of new home construction carries with it housing shortages and unhealthy price growth.
Construction of single family homes in the US has increased over the last 12 months and is set to continue to do so over the next decade, but the rate is still well below that seen in the 1990s. Sales of new homes too have risen – 20 per cent so far this year – but this has failed to make a significant difference to market conditions.
US property developers face several important issues within the market, which has changed significantly since 2007. Homeownership is currently at a historic low, particularly among the younger section of the American population. In turn, the lowest ownership rate for nearly 50 years has brought with it a massive increase in the number of people opting for rental accommodation.
Households renting property rather than owning it now account for 35.5 per cent of the population, the highest level ever. Unsurprisingly, the number of vacant rental homes on the market has dropped to its lowest for 30 years exerting further pressure on the US property market.
In tandem with the lower rate of homeownership, developers in the US are faced with a change in location requirements. The US has experienced a marked shift in living preferences over the last few years with more and more households favouring city-dwelling so they are nearer employment options and social activities. However, land prices in US metro areas have soared and pushed construction prices out of the reach of many small developers.
These factors explain why new residential construction in the US remains at a rate that is failing to keep up with demand. And there are no signs of this situation changing significantly over the next five years. As a result, the supply of US property will continue to fall short of demand in both the resale and rental markets.