Housing Starts Jumped in August as Builders Battled Supply-Side Constraints

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Housing starts reached a seasonally adjusted annual rate of 1.6 million in August, an increase of 3.9% compared with July and up a whopping 17.4% compared with August 2020, according to the U.S. Census Bureau and U.S. Department of Housing and Urban Development.

Most of the increase came in multifamily housing.

Regionally, and year-over-year, combined single-family and multifamily starts were up 35.9% in the Northeast, 14.0% in the Midwest, 20.2% in the South and 23.9% in the West.

The annual increase is somewhat inflated due to the fact that builders saw their production slowed during the third quarter of 2020, due to the economic impact of the pandemic.

Starts of single‐family homes in August were at a rate of 1.076 million, a decrease of 2.8% compared with July. Starts of multifamily homes (five units or more per building) were at an annual rate of 530,000, an increase of 21.6% compared with July.

Building permits also increased in August, reaching an annual rate of 1.728 million – up 6% compared with July but down 13.5% compared with August 2020.

Permits for single‐family homes were at a rate of 1.054 million, an increase of 0.6% compared with July. Permits of multifamily dwellings were at a rate of 632,000 in August, an increase of 19.7% compared with July.

Regionally, and year-over-year, permits increased 25.6% in the Northeast, 21.7% in the Midwest, 25.6% in the South and 28.1% in the West.

Housing completions were at a rate of 1.33 million, a decrease of 4.5% compared with July but an increase of 9.4% compared with August 2020.

“Single-family construction is normalizing at more sustainable levels after an increase in building material pricing,” says Chuck Fowke, chairman of the National Association of Home Builders (NAHB), in a statement. “Demand remains strong, but the market is facing increasing housing affordability issues after a run-up in new and existing home prices. Multifamily construction increased in August, with NAHB expecting a solid gain for apartment construction in 2021 after a slight decline last year.”

“More inventory is coming for a market that continues to face a housing deficit,” adds Robert Dietz, chief economist for NAHB. “The number of single-family homes under construction in August — 702,000 — is the highest since the Great Recession and is 32.7 percent higher than a year ago. While some building materials, like lumber, have seen easing prices, delivery delays and a lack of skilled labor and building lots continue to hold the market back.”

Odeta Kushi, deputy chief economist for First American, says, “The August month-over-month increase in permits and starts indicates that builders are eagerly responding to near record-low rates, a limited supply of existing-homes for sale and sturdy demand driven by millennials aging into homeownership.”

Kushi adds that builders “continue to battle supply-side constraints, including a shortage of skilled labor, materials and lots, all headwinds to increasing the pace of new home construction that is necessary to alleviate the supply shortages in today’s housing market.”

“In August, the number of single-family homes permitted, but not started, was 50 percent higher than one year ago, which suggests that delays in obtaining building materials and the rising costs of materials contribute to delays in home building,” she says.

“The bottom line is the housing market has been under-built for a decade and builders can’t close the gap between supply and demand overnight, but they are trying,” Kushi adds. “Yet, strong supply-side headwinds remain. Many existed even prior to the pandemic, but worsened during the pandemic.”

Photo: Annie Gray

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