New home construction in the United States falls short of demand – Quartz

New home construction in the United States edged down in October even as demand continued to grow. The latest US Census Bureau report on new construction shows that work started in residential construction fell 0.7% from September, while new permits issued for future construction rose 4%.

Labor and material shortages are now the bottleneck in the housing market. The gap between housing demand and construction capacity is widening due to the supply chain and labor constraints triggered during the pandemic. An increase in demand for new homes from people seeking to change their living circumstances during the pandemic pushed up the price of lumber in May 2021 and made it difficult for builders to obtain other materials such as wood. ‘steel, aluminum and electrical supplies. Months later, there are still shortages and delays.

“Sometimes that’s it, including the kitchen sink,” says Robert Dietz, chief economist at the National Association of Home Builders. “The costs are higher and the delivery times are longer. “

This October marks the third time in five months that the number of new homes under construction has declined, as indicators show pent-up demand. The number of new permits issued for houses has increased, as has the number of houses authorized in 2021 that have not started construction. In October, the number of dwellings authorized but not yet started was 259,000 units, the highest since 1978.

For potential buyers, the backlog makes homes more expensive. Fewer new homes are adding even more pressure to house prices, up more than 20% over the past year, while the stock of existing homes remains low. Usually you would say, ‘if there isn’t enough inventory, the construction industry will provide the rest’, but the challenge is that we have already entered this labor-constrained pandemic. and the earth, ”says Dietz.

This prompted home construction companies to cut back on sales. DR Horton, the largest homebuilding company in the United States, told investors at its last meeting of shareholders on November 9 that they intentionally slowed the pace of sales at the end of 2021 to account for the slowdown in construction. . They expect the supply constraints to be resolved “at some point” in 2022. The company generated $ 27.8 billion in revenue in 2021 and is forecasting around $ 33 billion in revenue for 2022.

Some economists expect the market to cool down in 2022 as more homes come online and higher interest rates dampen demand. But supply is so limited that it will be years before the market is rebalanced. Last month, 78,000 affordable homes were put up for sale, but this is only just starting to add to the affordable housing stock that plummeted during the pandemic. With lingering supply chain and labor issues, builders can’t build homes much faster.