Economists warn of severe shortage of property in US as construction dives
The US could be heading for a national housing shortage this year despite the real estate sector struggling with healthy inventories, three million foreclosures, falling values, and rising vacancy rates, it is claimed.
Several leading economists are warning that not enough new properties are being built to keep up with expected population growth. They estimate that only a third of what will be needed is currently under construction.
According to Brian Wesbury, chief economist at First Trust Advisors, the US needs to add 1.5 million housing units per year just to keep up with population growth plus another 100,000 for fires and tear downs. ‘We need 1.6 million or more per year. Right now we’re down to about six and a half, seven months’ inventory, whether you look at new homes or existing homes. Housing starts are now between 500,000 and 600,000 a year,’ he said.
‘I think one of the secret investments, if you will, over the next decade is going to be housing. It is extremely cheap, inflation is on the way. But people are running away from it. You know, it’s that old adage – when there’s blood in the streets, that’s when you invest. And this is the time, I think, for real estate,’ Wesbury added.
William Strauss, senior economist at the Federal Reserve Bank of Chicago, said that though he sees a growth in housing production, he foresees a potential shortage in housing units.
‘Kids who have graduated are mostly still living at home, more people are sharing houses and divorce rates go down in a recession. It’s a lot cheaper to be together than to separate,’ he explained.
‘The housing market is looking better on affordability measures. After World War II we had a boom with 170 million people living in this county. Now we are over 300 million and we have fewer houses for these people to live,’ he added.
MIT economist William Wheaton has come up with similar figures. ‘If we conservatively add 200,000 demolitions per year, the US economy will need at least 1.25 million new units yearly in the near future. With today’s currently depressed construction, this generates a yearly deficit of 750,000 units,’ he said.
The construction industry has predicted that demand for multi-family housing units will outstrip current supply by the middle of 2011, with increasing shortages of rental housing through to 2014.
But developers are still struggling to obtain finance, according to Jerry Durkin of Wood Partners in Atlanta. ‘Over the last 10 years, our company built about 3,500 apartment and condo units a year. In 2009, we closed on one development deal, in December,’ he revealed.
Greater New York City, certain Washington, DC suburbs and dozens of college towns report low inventories and rising demand that is not being met by new construction. Yet in California last year, a bank demolished 18 completed new homes whose builder had defaulted rather than try to sell them.