VOL 2023 ISSUE 8

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VOL 2023 ISSUE 8



Housing Supply Critical for Fed ’ s Fight on Inflation

With shelter inflation accounting for a staggering 90 % of the overall inflation rate last month , the National Association of Home Builders ( NAHB ) is calling on policymakers at all levels of government to take actions that will help boost the nation ’ s housing supply in order to ease a stubbornly high housing inflation rate that is harming the overall economy . The July Consumer Price Index ( CPI ) reading was 3.2 %, but data from the Bureau of Labor Statistics show that more than 90 % of the headline gain for the CPI was due to shelter inflation , a combination of rent and owner ’ s equivalent rent , which was up 7.7 % from a year ago . “ The Federal Reserve shouldn ’ t have to fight inflation on its own , as the central bank ’ s ability to address rising housing costs is extremely limited because shelter cost increases are driven by a lack of affordable supply and increasing development costs ,” said NAHB Chairman Alicia Huey , a custom home builder and developer from Birmingham , Ala . With shelter costs accounting for the lion ’ s share of inflation in the economy , and a nationwide shortage of 1.5 million housing units , building more homes is the only way to tame inflation , satisfy unmet demand , achieve a healthy supply-demand balance in the for-sale and rental markets and ease the nation ’ s affordability crisis .
“ Policymakers at other levels of government can help the Fed in the effort to bring inflation lower by improving the efficiency of the residential construction market ,” said Huey . “ Policy changes such as obtaining a new softwood lumber agreement with Canada , speeding up permit approval times , providing resources for skilled labor training and repealing inefficient regulatory rules will enable more construction and yield more inventory for a market that is critically undersupplied .”
Additionally , higher interest rates are restricting housing supply by making financing for acquiring and developing land more expensive , and increasing the interest rates for construction loans . The rapid increase for mortgage rates is also restricting supply in the short-run via the mortgage rate lock-in effect , which causes many home owners to hold onto their existing home to preserve their low mortgage interest rate . “ A focus on policies that will enable builders to construct more homes will help tame inflation by working to achieve a healthy supply-demand balance in the marketplace , move housing and the economy to higher ground and ease the nation ’ s housing affordability crisis ,” said Huey .
Single-Family Starts Edge Higher in July but Rising Rate Concerns Persist A lack of existing inventory and solid demand helped offset rising mortgage rates and push single-family production higher in July , even as builders continue to grapple with elevated construction and financing costs as well as a lack of skilled labor . Overall housing starts increased 3.9 % in July to a seasonally adjusted annual rate of 1.45 million units , according to a report from the U . S . Department of Housing and Urban Development and the U . S . Census Bureau . The July reading of 1.45 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months . Within this overall number , single-family starts increased 6.7 % to a 983,000 seasonally adjusted annual rate . Single-family starts are also 9.5 % higher than a year ago . The multifamily sector , which includes apartment buildings and condos , decreased 1.7 % to an annualized 469,000 pace . “ With many home owners choosing to stay in their existing home to preserve their low mortgage rate , demand for new home construction pushed up single-family starts in July even as builders continue to struggle with increased uncertainty stemming from rising rates ,” said Alicia Huey , chairman of the National Association of Home Builders ( NAHB ) and a custom home builder and developer from Birmingham , Ala . “ Builder sentiment has shown that higher mortgage rates are contributing to a decline in buyer traffic , and rates need to stabilize to prevent the housing market from slowing .” “ Total permits declined 13 % compared to a year ago , indicating that builders are slowing construction activity as housing costs rise ,” said Danushka Nanayakkara- Skillington , NAHB ’ s assistant vice president for forecasting and analysis . “ In fact , multifamily permits are at their lowest threemonth moving average since December 2020 , another sign that the market is cooling . In order to bring down shelter inflation , which accounted for 90 % of the overall inflation rate last month , we need to enact policies that will allow builders to boost the nation ’ s housing supply .” The number of single-family units under construction is down 16.9 % compared to a year ago at 678,000 . Meanwhile , the number of apartments under construction increased to 1 million , the highest total on record . On a regional and year-to-date basis , combined single-family and multifamily starts are 17.6 % lower in the Northeast , 13.8 % lower in the Midwest , 9.4 % lower in the South and 16.7 % lower in the West . Overall permits increased 0.1 % to a 1.44 million unit annualized rate in July . Singlefamily permits increased 0.6 % to a 930,000 unit rate . Single-family permits are also up 1.3 % compared to a year ago . Multifamily permits decreased 1 % to an annualized 512,000 pace , the lowest level since October 2020 . Looking at regional permit data on a yearto-date basis , permits are 24.2 % lower in the Northeast , 20.3 % lower in the Midwest , 15.4 % lower in the South and 21.6 % lower in the West .