You won’t find this term in any serious economics textbook, but the only clinical way to describe the US housing market is bananas. Affordability is at record lows and mortgage rates are the highest since 2000. And yet, home prices continue to rise and the number of days a house sits on the market before it is sold is down by a third compared with this time before the pandemic, both suggesting strong underlying demand.
Everyone knows what the real problem is with housing: a lack of supply. But what’s less well understood is why there’s a persistent lack of supply in both housing for sale and for rent. In a market economy, high prices are supposed to lead to an increase in supply. And at least on the multifamily side, government data show developers have started construction on around one million units, surpassing the previous record set in the early 1970s.
But starts aren’t the issue; it’s completions that we need to worry about. A combination of bureaucratic red tape and a shortage of workers is preventing all that supply in the pipeline from reaching the market and, theoretically, helping to contain prices and rents. So, although the number of homes under construction has been near record highs for more than a year, the number completed each month lags far behind.
That’s in part because the ratio of apartment units to single-family homes under construction has reached highs not seen since the 1970s. Historically, there were usually more single-family homes under construction at any given time than apartments. But since May 2022, the relationship has flipped, with more apartment units construction than single-family homes.
It takes more than twice as long to build an apartment building as a single-family home, or 20 months versus nine months. But that’s just some of the explanation. A decade ago, it took only 12 months for the average multi-family project to come to market. That time to completion has extended since then due to onerous regulation and increasing supply constraints.