Master Builder

Summer 2022

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Page 47 of 63

BY ROBERT DIETZ, PH.D. CHIEF ECONOMIST NATIONAL ASSOCIATION OF HOME BUILDERS @DIETZ_ECON I t is almost universally accepted that the U.S. faces a housing deficit. The size of that deficit is a matter of debate, however. The NAHB Economics team has estimated that the U.S. faces a shortfall of about one million homes. The National Association of Realtors has estimated that the deficit may total at least five million. The fact that the shortfall is measured in the millions is striking in itself. Of course, the only workable solution to solving a housing affordability crisis caused by a lack of housing is increased homebuilding. In the wake of the COVID-19 crisis, spurred by historically low interest rates, the construction of single-family housing has accelerated. For example, in 2021 alone, single-family housing starts were up almost 14% to more than 1.1 million. But more supply is needed. In fact, single-family housing starts would need to approach 1.2 million per year to meaningfully reduce the existing deficit. While zoning for and building Adding Housing Supply via Density more traditional single-family homes is a clear way to add additional housing supply, increasing medium-density homebuilding is also needed. This is particularly true for markets where the cost of land and regulatory burdens are high. Townhouse construction is a useful way to add "light-touch density," a term popularized by Emily Hamilton of George Mason University. This market increased by an incredible 28% in 2021 for a total of 146,000 new starts. The current market share of townhouses, about 13% of single-family homebuilding, will likely rise to 15% or higher in the quarters ahead. Townhouses are also part of the missing middle. And while single-attached housing saw expansion in 2021, other parts of this missing middle remain, well, missing. For example, two- to four-unit multifamily development posted a 3.3% decline in 2021, when most elements of the residential construction sector were expanding. The primary challenge to adding this kind of housing remains zoning. Nonetheless, I expect to see ongoing expansion for townhouse construction and a rebound for small-unit multifamily in 2022 as housing demand remains solid. From a geographic perspective, those communities that minimize regulatory and bureaucratic costs associated with land development and home construction will add relatively more housing. And these are the areas that businesses will seek out as the economic sorting that has followed the COVID-19 crisis continues. While zoning for and building more traditional single-family homes is a clear way to add additional housing supply, increasing medium- density homebuilding is also needed. Follow more market trends and industry forecasts at 48 master BUILDER | SUMMER 2022 MEMBERSHIP VALUE

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