Housing starts fell to an annual rate of 1.172 million in April – a decrease of 2.6% compared with 1.203 million in March but an increase of 0.7% compared with 1.164 million in April 2016, according to estimates released by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.
The drop comes after housing starts fell 6.8% in March.
The one bright spot? Starts of single-family homes were at a rate of about 835,000, an increase of 0.4% compared with an estimated 832,000 in March. Starts of multifamily homes (five units or more per building) were at a rate of about 328,000, a decrease of 9.6% compared with about 363,000 in March.
Building permits fell to an annual rate of about 1.229 million, a decrease of 2.5% compared with a revised rate of about 1.260 million in March but an increase of 5.7% compared with 1.163 million in April 2016.
And it doesn’t look like the pipeline will be picking up anytime soon: Permits for single-family homes were at an annual rate of about 789,000, a decrease of 4.5% compared with a revised 826,000 in March. Permits for multifamily dwellings were at a rate of about 403,000, an increase of 1.5% compared with 397,000 in March.
The big problem with the lack of production, of course, is that the housing market is facing a severe inventory shortage. According to Mark Fleming, chief economist for First American, the supply situation is only going to get worse until builders bring more homes online.
“The lack of inventory of homes for sale is one of the most pressing challenges in the housing market today, and new homes are the source of supply that increases the total stock of housing to meet our nation’s growing demand,” Fleming says in a statement. “Yet, many builders have noted the challenge of increasing production with constrained labor supply.
“Unlike many industries that are adopting automation, robotics and artificial intelligence, building a home does not easily lend itself to outsourcing and automation,” Fleming says. “Home building still requires manual labor as a key input into the production process. While the need for manual labor may be changing or declining in other industries, it’s very hard to build a home without construction workers.”
Fleming points to recent survey data from the National Association of Home Builders (NAHB) showing that labor shortages are part of the cause. As home construction labor force shrinks, builders must pay higher wages in order to attract workers to their projects. This, in turn, not only impacts the pace of production, it increases home prices.
“An increase in the number of people working in residential construction is needed to increase the pace of housing starts,” Fleming says. “We estimate that for every 1,000 new residential construction jobs, we can expect to see an approximate 1,900-unit increase in the annualized pace of housing starts. Yet, this months’ employment situation report indicated that residential construction job growth is slowing down, which will only make it harder to increase the number of housing starts.
“Until the supply of residential construction labor increases and housing starts pick up the pace, expect continued supply shortages in many housing markets,” he adds. “Good for prices and homeowners, but an affordability challenge for the millennial first-time home buyer.”
