Housing supply was a major challenge for the housing market during 2018 and will continue to be a problem for years to come, according to research by Freddie Mac.
“From 1968 to 2008, a span of 40 years, there was only one year in which fewer new housing units were built than in 2017 — and this despite rising demand in a growing economy,” Freddie Mac Chief Economist Sam Khater said in a release.
“We estimate that over the next decade, young adults will add about 20 million households — and those households will need a place to live,” Khater said. “Until construction ramps up, housing costs will likely continue rising above income, constricting household formation and preventing homeownership for millions of potential households.”
Freddie Mac said the current annual rate of construction is about 370,000 units below the level required by long-term housing demand. It estimates 1.62 million units are needed annually to meet the housing demand: 1.1 million to accommodate household growth; 300,000 units to replace depreciated existing stock; 100,000 to meet the demand for second homes; and 120,000 units to provide enough vacant homes to maintain an efficient marketplace.
According to Freddie Mac’s estimates, at least 50,000 American households each year can’t buy or rent a home because it hasn’t been built.
“Conventional wisdom suggests that the following factors would have an impact on household formation: housing costs, income, employment, education, marriage and children, race and geography,” Khater said. “Of these factors, we have identified housing costs to be the biggest impediment to household formation, followed by labor market outcomes.”