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14 West Hawaii Real Estate | June 22, 2018
Housing economists call for increase in home construction
An increase in housing supply
is crucial to the health and
sustainability of the real estate
market and the economy,
according to speakers at a session
organized by the Realtor University
Richard J. Rosenthal Center for Real
Estate Studies during the 2018 Realtors
Legislative Meetings & Trade Expo.
The session, “Outlook for Home
Prices and Residential Construction,”
focused on rapidly rising home prices,
tight home inventories and whether
or not the country is in the middle
of a bubble. All three of the panelists
agreed that more new home construction
is necessary to meet
rising demand from increasing
household formation and
curtail the affordability crisis.
“Young adults of today
are forming households at a
much lower rate than previous
generations, and high
housing costs contribute to
that,” Len Kiefer, deputy chief
economist for Freddie Mac,
said. According to Kiefer,
one-third to three quarters of
U.S. markets have an elevated
home price-to-income ratio
and many major markets,
such as Austin, Miami and
Portland, are getting close to
surpassing their 2008 ratio.
“Are we in a bubble? No,
not currently,” Kiefer said. He
outlined ways the current market is
different from the one leading to the
recession, such as no signs of over
leveraging and the very low ratios of
household income to debt. The aggregate
risk of mortgages in the U.S.
is also comparatively low. “Those
risky loans that contribute to the last
bubble have largely gone away in the
current market,” he said.
However, the panelists were quick
to point out that just because we are
not currently in a bubble does not
mean we won’t enter one. If supply
and demand continues to become
more and more out of balance, it
could trigger a fast price growth, said
NAR Chief Economist Lawrence Yun.
“A best-case scenario is largely dependent
on new home construction.
An increase in inventory will provide
some much-needed release,” he said.
Ken Simonson, chief economist
for Associated General Contractors of
America, discussed how low employment
in construction is also contributing
to the lag in new home construction,
despite high demand.
“Construction saw a 30 percent
drop in employment in
the previous decade, the largest
drop of any industry. They also
began laying people off a year
before the recession began and
did not start hiring again until
much later than other industries,”
This has led to difficulty in
bringing skilled laborers back
to the industry.
“Construction companies are
having to hire people with no
experience and spend more
time and money on training,”
Material costs have also
contributed to the low rate
of construction. The price of
diesel fuel, which is used in
earth moving vehicles and in
transporting materials, has risen
42 percent since 2017. The cost
of lumber and plywood has
also increased 11 percent, copper
and brass mill shapes have
risen 10 percent and ready-mix
concrete has risen 7 percent.