New research by NAHB economists Robert Denk and Paul Emrath 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. 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 (see Figure 3 below). The findings  suggest that the underbuilding represents a significant pent-up demand that will at some point need to be worked off and begin to affect single-family housing production in a positive direction.