Over the 40-year span from 1961 through 2000, housing starts averaged a little over 1.5 million a year, but they have been nowhere near that high since 2006.  As a recent NAHB study explains, one outcome of this shortfall has been a tendency for older homes to remain in service longer.  Attempts to improve the stock of housing in the U.S. (for example, through new development standards or building codes) therefore make relatively little sense without a concomitant strategy to increase overall production.

More than one industry expert has reported on the production shortfall.  In an April 2018 article, for instance, Laurie Goodman of the Urban Institute estimated that, in 2017, the supply of new homes fell about 350,000 short of the level needed to meet demand.  Similarly, the NAHB study showed that the number of homes completed has been running below even the number of net new household formations.  Whichever way you want to look at it, this shortfall creates pressure to keep older homes in service longer.

It should therefore not be surprising that data from the Census Bureau’s American Community Survey show that the number of homes built before 1970 has been declining at quite a slow pace.  There were 52.83 million of them in 2014, and by 2016 the number had fallen only to 52.17 million.

This implies that only a little over 6 out of every 1,000 homes built before 1970 are removed from the stock each year.  Some of the loss rates the Census Bureau uses to estimate the number of housing units in the U.S. are even smaller, showing less than 1 housing unit per 1,000 being removed from the stock per year in the Northeast and West regions.

In the long run, loss rates as small as this are not sustainable, of course, as that would imply half of new homes built in some regions last 1,000 years.  But in the medium term, it may be possible to keep removal and production rates as low as they are right now.  As a thought experiment, consider what would happen were loss rates to remain as currently estimated by the Census Bureau and 1.20 million new homes were built every year (1.20 million homes were started and 1.15 million were completed in 2017, the highest either number has been in a decade).  In that case, after 20 years, only 16 percent of the housing stock would consist of new homes built between now and then, and 45 percent would still consist of homes built before 1970 (as high as 65 percent in the Northeast).

In 1970 there were no codes or standards for energy efficiency, and the resiliency requirements motivated by the experiences with Hurricane Andrew in 1992 and the Northridge earthquake in 1994 were still years off.  Many code changes targeting fire safety (such as requirements for smoke alarms, fire separation, fire blocking, draft stopping, emergency escape openings, electrical circuit breakers, and capacity and outlet separation) were also implemented after 1970.

In short, in just about every way imaginable, new homes are being built to higher standards than they were in 1970.  So if you want to improve the built environment, one of the first things you need to do is figure out simply how to increase the production of new homes, built to modern  standards, so it becomes possible to retire more of the older ones.

Additional details, including thorough descriptions of the data sources and underlying calculations, are available in the full study.

Tags: economics, home building, housing, housing production, shortfall, shortfall of production