Economists urge for housing construction increase

A housing supply increase is crucial to the healthy of the economy, according to economists who recently spoke at the 2018 Realtors Legislative Meetings and Trade Expo.

During the “Outlook for Home Prices and Residential Construction” session, speakers focused on rising home prices and tight inventories. There was also mention of a bubble.

“Young adults of today are forming households at a much lower rate than previous generations, and high housing costs contribute to that,” said Len Kiefer, deputy chief economist for Freddie Mac. According to Kiefer, one third to three quarters of U.S. markets have an elevated home price-to-income ratio and many major markets, such as Austin, Miami and Portland, are getting close to surpassing their 2008 ratio.

“Are we in a bubble? No, not currently,” said Kiefer. He outlined ways the current market is different from the one leading to the recession, such as no signs of over leveraging and the very low ratios of household income to debt. The aggregate risk of mortgages in the U.S. is also comparatively low “Those risky loans that contribute to the last bubble have largely gone away in the current market,” he said.

The panel pointed out that just because the nation is not currently in a bubble does not mean we won’t enter one. If supply and demand continues to become more and more out of balance, it could trigger a fast price growth, according to NAR Chief Economist Lawrence Yun.

“A best-case scenario is largely dependent on new home construction. An increase in inventory will provide some much-needed release,” Yun said.

Ken Simonson, chief economist for Associated General Contractors of America, discussed how low employment in construction is also contributing to the lag in new home construction, despite high demand.

“Construction saw a 30% drop in employment in the previous decade, the largest drop of any industry. They also began laying people off a year before the recession began and did not start hiring again until much later than other industries,” said Simonson.

This has led to difficulty in bringing skilled laborers back to the industry. “Construction companies are having to hire people with no experience and spend more time and money on training,” he added.

Material costs have also contributed to the low rate of construction. The price of diesel fuel, which is used in earth moving vehicles and in transporting materials, has risen 42% since 2017. The cost of lumber and plywood has also increased 11%, copper and brass mill shapes have risen 10% and ready-mix concrete has risen 7%.