Single-Family Housing Starts Falter as Worry Over Inventory Woes Increase

Just as the nation was starting to catch its breath in this crazy housing market, a dip in housing starts might cause another squeeze on inventory.

On Wednesday, the Commerce Department released a report showing an increase in building permits after three consecutive months of falling short. However, the sector that posted the rebound was multifamily. So as far as an increase in inventory on the national level contributing to market stabilization, we can sit right back down.

Plenty of projects should be underway if all the permits secured by builders were actually getting some dirt turned. For July 2021, the number of builders sitting on permits but not starting projects was the third-highest on record. That shows that builders are second-guessing new projects.

The demand is there, though. Can inventory catch up?

“There was a housing shortage before the pandemic, and the shortage has been exacerbated during the pandemic. Therefore, homebuilding needed to be greatly ramped up as the jobs recovery took hold,” said Lawrence Yun, Chief Economist for the National Association of Realtors. “Yet in July, housing starts fell by 7 percent — single-family construction is down by 4 percent, and multifamily construction is down by 13 percent.”

Of course, there’s a lot to be hesitant about. Builders are worried about actually getting the materials they need because of widespread supply-chain disruption, and lags in getting approvals for land lot development are a factor, too. And let’s not forget the looming issue of labor shortages.

“With home prices having risen by record amounts over the past year, homebuying will become an increasing challenge, and a good number of households may simply decide to rent,” Yun added. “In addition, the jobs recovery is enticing people out of their parents’ homes to seek their own housing. Consequently, rental demand is rising strongly. With an inadequate supply of available homes, rents will be strengthening and adding further pressure to overall consumer price inflation.”