Top 5 Housing Challenges in 2021
Year in Review: Top 5 Housing Challenges in 2021
This past year has proven challenging for the housing market. Covid-19 continued to morph with significant impact to industries across the board. Skyrocketing prices sidelined many would-be buyers. Low mortgage rates have caused a frenzied demand for home purchases and renovations. But we fought our way through 2021. Looking back, here is our list of the Top 5 Housing Challenges.
Inventory Shortage: Freddie Mac estimates that we are short 3.8 million homes to meet current demand (Khater 2021). Inventory of both new and existing homes for sale is currently at a historical low. Builders and Realtors®cite a number of reasons for housing shortages including the lack of construction labor, zoning restrictions, and a general lack of lots to develop. But the most important reason is the long-term decline in building new construction single-family homes—particularly entry-level homes where the highest demand exists as Millennials enter the housing market. Between 1976 and 1979, the construction of new entry-level single-family homes averaged 418,000 (Khater 2021). Today that number hovers around 65,000 (Pollack 2021).
Affordability: The median existing home price grew by 13% to $353,900 in November 2021 compared to a year ago, according to the latest National Associations of Realtors (NAR) report. In some markets, Prices are up 30% or more year over year. Limited supply, a rebounding economy, the flexibility to work remotely, and historic low interest rates have driven up demand to all-time highs, far out pacing supply.
Materials Costs: Costs across the board are up 26% on average making construction and renovations more expensive. Thank to shocking lumber price increases, which includes items like beams, joists, rafters, trusses, trim, decking, and fences, new construction home prices shot up 36k in on year according to the NAHB (NAHB). Multi-family rental construction was also affected, causing rent to go up an average of $67 for a new apartment (NAHB Now). Additionally, home renovation projects also became significantly more expensive. Other high-ticket items include steel products, copper and plastic piping, drywall, concrete and asphalt, and laminated veneered lumber.
Materials shortage: From port congestion to semi-conductor shortfalls to labor shortages, a series of supply chain disruptions caused by Covid-19 has hit industries the world over. The Wall Street Journal notes that 90% of builders cited shortages from appliances to lumber to doors and windows causing months long delays in delivering finished homes or completing renovations (O’Neal 2021).
Skilled Labor Shortages: During the great recession many trades left the building industry for good with more than one million workers losing their jobs (Hadi 2014). At the start of the pandemic, the construction industry shut down and the sector lost more than 1 million workers. The industry has since recouped nearly 80% of its workforce but is still down 238,000 workers from pre-pandemic levels (Kromei 2021). Construction businesses will need to hire 430,000 workers this year and 2 million more over the next two years in order to keep up with demand (HBI 2021). Yet, builders and contractors are struggling to find qualified candidates. Seventy-two percent of firms say available candidates are not qualified to work in the industry due to a lack of skills, failure to pass a drug test, etc. And 58 percent of respondents report that unemployment insurance supplements are keeping workers away. (AGC 2021)
“Construction Workforce Shortages Reach Pre-Pandemic Levels Even as Coronavirus Continues to Impact Projects & Disrupt Supply Chains.” Construction Workforce Shortages Reach Pre-Pandemic Levels Even as Coronavirus Continues to Impact Projects & Disrupt Supply Chains | Associated General Contractors of America, Associated General Contractors of America, 2 Sept. 2021, https://www.agc.org/news/2021/09/02/construction-workforce-shortages-reach-pre-pandemic-levels-even-coronavirus
Hadi, Adam. “Monthly Labor Review: Construction Employment Peaks Before …” Bureau of Labor Statistics, Bureau of Labor Statistics Publishing, Apr. 2011, https://www.bls.gov/opub/mlr/2011/04/art4full.pdf
Khater, Sam. “Housing Supply: A Growing Deficit.” Freddie Mac, Freddie Mac, 7 May 2021, http://www.freddiemac.com/research/insight/20210507_housing_supply.page
Kromrei, Georgia. “Construction Worker Shortage Has Reached ‘Crisis’ Levels.” HousingWire, HW Media, 4 Nov. 2021, https://www.housingwire.com/articles/construction-worker-shortage-has-reached-crisis-levels/
“Latest Wave of Rising Lumber Prices Adds More than $18,600 to the Price of a New Home.” NAHB Now | The News Blog of the National Association of Home Builders | NAHB Now | The News Blog of the National Association of Home Builders, National Association of Homebuilders, 4 Jan. 2022, https://nahbnow.com/2022/01/latest-wave-of-rising-lumber-prices-adds-more-than-18600-to-the-price-of-a-new-home/?_ga=2.79949265.794756947.1641403750-2109681639.1641403750
“National Association of Realtors – Cdn.nar.realtor.” National Association of Realtors, National Association of Realtors, 22 Dec. 2021, https://cdn.nar.realtor/sites/default/files/documents/ehs-11-2021-overview-2021-12-22.pdf
O’Neal, Lydia. “Builders Hunt for Alternatives to Materials in Short Supply.” The Wall Street Journal, Dow Jones & Company, 6 Oct. 2021, https://www.wsj.com/articles/builders-hunt-for-alternatives-to-materials-in-short-supply-11633512601
Pollock, Lynn. “Supply of Starter Homes at Lowest Point in 50 Years.” GlobeSt, Globe St., 16 Apr. 2021 www.globest.com/2021/04/16/supply-of-starter-homes-at-lowest-point-in-50-years/
“Report Labor Market Construction the HBI.” Home Builders Institute, Home Builders Institute, 2021, https://hbi.org/wp-content/uploads/HBI_Fall_Construction_Labor_Market_Report.pdf
“Skyrocketing Lumber Prices Add Nearly $36,000 to New Home Prices.” NAHB, National Association of Homebuilders, 28 Apr. 2021, https://www.nahb.org/news-and-economics/industry-news/press-releases/2021/04/skyrocketing-lumber-prices-add-nearly-36000-to-new-home-prices
Yurkevich, Vanessa. “America Desperately Needs 1 Million More Construction Workers.” CNN, Cable News Network, 11 July 2021, https://www.cnn.com/2021/07/08/economy/construction-worker-shortage/index.html