Some Economists Predict Severe Housing Shortage

Washington, DC, March 1, 2010--Some economists are beginning to warn that a significant housing shortage may be on the horizon, especially among market-rate rental apartments, as household formation rates return to normal, according to the Kitsap Peninsula Business Journal.

The housing downturn and economic recession have kept household formation rates at below-normal levels for roughly three years, said NAHB Chief Economist David Crowe.

As the economy improves, the housing market will begin to feel the pressure from new households, he said, and there will be a surge of demand from echo boomers, who comprise an even larger group than their baby-boomer parents.

NAHB estimates that the industry will need to build 16 million homes over the next 10 years to keep pace with demand. As the excess inventory is worked off, which is likely by the end of 2012, the long-run demand for new housing — based on population growth, immigration and the replacement of losses from the housing stock — will average approximately 1.5 million single-family and 300,000 multifamily units annually, or about 1.8 to 1.9 million total starts.

Starts last month were running at a seasonally adjusted annual rate of 591,000, a level that is far below what will be needed.

NAHB is forecasting 647,000 total housing starts in 2010 and 991,000 in 2011, an indication of expectations for housing to recover at a relatively slow pace.

Multifamily developers said at a recent trade show that their segment is suffering disproportionately because of the credit crisis. New multifamily construction has been reduced to a snail’s pace, they said.

With multifamily buildings typically requiring two to three years to be completed, leaders in the industry predict that there will be a severe shortage of apartments over the next few years.

Builders are expected to break ground on only 87,000 multifamily units this year, according to NAHB projections, compared to an average of about 300,000 in recent years.