Friday, December 20, 2013

Research: The Long-Term Outlook for Residential Construction

by Calculated Risk on 12/20/2013 01:39:00 PM

From Jordan Rappaport, Senior Economist at the Kansas City Fed: The Long-Term Outlook for U.S. Residential Construction. Here is the complete paper.

Excerpt:

Long-term demand for both single- and multifamily housing can be projected by considering the observed, historical housing choices of different demographic groups defined by age and gender. By combining this information with U.S. Census Bureau forecasts for the size and composition of the country's population through 2035, we project the long-term path of the number of occupied housing units in the United States. This projected trend is well above the current number of occupied units, especially for multifamily housing. Closing the gap between actual occupancy and the projected trend will require a significant rise in construction over the next few years.

However, the longer-term outlook for construction growth is significantly weaker. ...

Single Family StartsUnder a baseline projection, single family starts increase by 150 percent from 2012 to their peak in 2021 (Chart 1). The annual level of starts at this peak is about the same as in 2002, one year into the single-family construction boom. Single-family construction is then projected to fall over the subsequent decade ...
CR Note: I haven't looked at all Rappaport's assumptions for the longer-term, but I agree that demographics are favorable over the short term, and that we should expect single family starts to continue to increase over the next few years.