New research by NAHB Economics highlights the significant extent to which much of the U.S. single-family housing market is underbuilt following the severe decline in production that has taken place since 2006.
According to the authors, this "underbuilt" condition is present in the sense that excess or pent-up demand for new construction exists, compared to the long-run trend we would expect if housing, labor and credit markets were functioning normally and generating a normal rate of household formations. Focusing on single-family building permit data, the report shows that, while overbuilding did occur to a significant extent through the end of 2005, this condition was worked off soon afterward by record low rates of production that dropped to a million units per year below trend. Using a similar line of reasoning, the authors determine that a condition of net cumulative underbuilding now exists in 45 states.
According to the report, South Carolina is underbuilt by 5,600 units, and the nation is underbuilt by more than 2 million units.
The bottom line is, there is a significant pent-up demand that will at some point need to be worked off and begin to impact single-family housing production in a positive direction.
Click here to download and read the research report from NAHB.
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