Housing Boom Will End After 2021

chart homebuilding relative to population growth, 1960-2020

New housing units started per 100 new residents. DR. BILL CONERLY BASED ON DATA FROM U.S. CENSUS BUREAU 

Housing starts in the United States last year exceeded population growth. Even if every new resident lived alone, we increased supply more than fundamental demand. And if a few people are shacking up together, then the excess supply is even worse.

This imbalance will ease, though, as multi-family construction will drop over the course of the year. The single family sector will see demand continue to grow as people move out of apartments, continuing to push up demand for standalone housing. If immigration returns, we’ll be glad we add the supply that we did in 2020—but that’s a big if.

Comparing total housing units built, both apartments and single family homes, with population growth helps to see gross imbalances. (Chart above.) For example, we clearly overbuilt from 2002 through 2006. Then we underbuilt relative to new demand because we had an excess supply left over from the boom years. Builders have been overbuilding from 2018 through 2020. This comparison is rough, though. Population change is measured from July 1 through the next July 1, but the building data are for calendar years. Demolitions and mobile homes are not counted in this simple comparison. But for big imbalances, the measure provides valuable information.

The 2020 pandemic led many people to try to move from apartments to single family houses, and that’s the greatest part of the story. Some people had been planning on buying a home in a few years, and cheap mortgage interest rates enabled them to move ahead of schedule. Others wanted more room for working remotely. And for others, the fun of urban living dimmed during lockdowns. We economists focus on changes “at the margin.” We recognize that most people will remain in their current housing types—renters keep renting, owners keep owning. But a change by a small number of people from one type to another can have a pronounced impact on prices. So demand for single family houses jumped, prices rose and builders stepped in to meet demand.

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