Home Building: The Decade in Review
NAHB did an in-depth analysis of housing activity over the past decade.
The Great Recession drove many home builders out of business and drove many construction workers out of the industry. The construction sector suffered a net loss of 1.5 million jobs between 2005 and 2010, and hit a low point in 2011. Since then, employment in the industry has gradually increased with nearly 940,000 net new jobs being created.
As the recovery got underway, production was unable to meet demand, creating a housing shortage and inflating prices. Between 2010 and the end of 2019, there were a total of 6.8 million single-family housing starts. That total included 1.53 million single-family detached homes, 827,000 townhouses and 300,000 single-family homes built to be rented.
The South and West accounted for nearly three-quarters of all single-family starts, with 54% occurring in the South and 23% occurring in the West. The Midwest and Northeast accounted for 15% and 8% of starts, respectively.
Housing starts were fairly steady from the 1960s through the 2000s, hovering between about 42,000 and 48,000, with the exception of the 1970s, when starts averaged 53,138, measured in terms of starts per million population and averaged over the decade. In the 2010s, a decade which saw the US population grow by more than 20 million people, starts fell by nearly 50%, to an average of 21,288.
Remodeling activity expanded during the decade, although it slowed recently due to the decline in existing home sales. About 150 million remodeling projects occurred over the decade and total spending on existing, owner-occupied homes was more than $1.5 trillion.
The homeownership rate fell during the first half of the 2010s, dropping from 67.1% to a post-recession low of 62.9% in 2016. But ownership rebounded during the second half, and stood at 64.8% by the third quarter of 2019.
There was some speculation that members of younger generations didn’t aspire to own their own home, but surveys continue to show that is not the case; rather student debt has delayed independence for many and slowed household formation.
For much of the past decade, low mortgage rates have supported home buyers. While there have been some increases, rates have not crested 5% in more than a decade. The Fed abandoned plans to raise rates in 2019 and instead cut rates three times and is now widely considered to be on hold until circumstances dictate otherwise.
There is now a critical supply-side shortage, due to years of population and household formation growth and reduced levels of home building. Home inventory fell to just a 3.6-month supply in November 2019, compared to the 6-month supply that has always been considered the benchmark.
NAHB refers to this complex set of limiting factors as the Five Ls: lack of labor, lots/land, lumber/materials, lending for builders and laws/regulatory burdens that add costs.
Entry level single-family detached homes are in short supply. In 2010, 91% of new single-family homes were less than 2,400 square feet. In 2018 just 74% of homes being built were less than 2,400 square feet. So the supply of entry-level single-family homes fell by 17% in less than a decade.
NAHB says there are no quick fixes. The industry’s infrastructure needs to be rebuilt, including labor force and reliable sources of lending and building materials. Policy changes are needed as well. Communities need to reduce the cost of construction by fighting increases in fees and building with higher density where market demand supports it.
Operational solutions such as modular and panelized construction, single-family built for rent and tear-down construction that makes room for new homes all offer promises, but represent very small percentages of the overall market
Who will buy new homes? NAHB estimates that about half of newly-built homes in the 2020s will be built for the generally overlooked latchkey kids of GenX, who will reach their peak earning years. The 65.8 million members of GenX were born between 1965 and 1981.
Construction Industry Boosts Salaries
Base salaries for construction jobs are jumping. A new compensation analysis by FMI shows that while the average base salary in construction has increased by 21% across the nation’s top 10 metro areas over the past year, some markets have seen compensation for critical operations skills, such as project manager and superintendent, jump as much as 50%, according to a recent story in ENR. FMI says that there is a real war for talent going on, driven by the exit of so many workers during the Great Recession and complicated by the ongoing wave of Baby Boomers who are now retiring. The proliferation of larger and more complex projects in many markets is also playing a role, as these projects demand people who are more skilled, better trained and usually more technologically savvy. Recruiters say that it’s going to be a seller’s market for the foreseeable future, so companies need to make themselves attractive and competitive. It’s not all about money; other incentives may help gain or retain staff without putting the salary structure out of whack. Appealing benefits range from flexible schedules work from home days and advanced training to company contributions towards repaying student loans in lieu of a retirement fund or oversized salary.
America’s Most Trusted Brands
The most trusted brand in America isn’t Amazon, it’s the United States Postal Service, according to rankings compiled by Morning Consult. They interviewed thousands of people about 2,000 different brands to come up with their list of the brands consumers believe will “do the right thing.” Amazon was number two, followed by Google, PayPal and the Weather Channel. No retailers made it into the top ten.
World’s Most Influential Brands
Google beat out Amazon to top the 2019 list of the World’s 500 Most Influential Brands. Amazon dropped to the number two spot, and Microsoft came in third. This is the 16th consecutive year the rankings have been compiled. The list includes brands from 29 countries, with the US representing 208 out of the top 500, making it the brand superpower. World Brand Lab has tracked more than 80,000 major brands in 60 countries since 2013 and is chaired by 1999 Nobel laureate Professor Robert Mundell.
Slowest Population Growth in a Century
The US added 1.5 million people between 2018 and 2019, a population growth rate of about one-half percent, leaving the population at 328 million. That’s the lowest growth rate in the US since 1917 to 1918, when the nation was involved in World War I. For the first time in decades the number of births minus the number of deaths was less than 1 million in the US. International migration to the US dropped from as many as 1 million immigrants in 2016 to 595,000 people from 2018 to 2019. Immigration restrictions combined with the perception that there are fewer opportunities in the US than there used to be contributed to the decline. Regionally, the South saw the greatest growth, increasing 0.8% due to both natural increase and people moving from other parts of the country. Population in the Northeast declined for the first time in ten years, dropping 0.1%, due primarily to people moving away. The upcoming census is expected to affect the number of seats many states have in the House of Representatives, with California, Alabama, Illinois, Michigan, Minnesota, New York, Ohio, Pennsylvania, Rhode Island and West Virginia expected to each lose a seat, and states including Texas, Florida, Arizona, Colorado, Montana, North Carolina and Oregon likely to gain at least one seat.
The Value of Physical Stores
The pendulum is swinging back from “digital is the future” to recognize that physical stores offer many advantages that an online storefront cannot match, according to a feature story in Chain Store Age (CSA), reporting from the January National Retail Federation 2020 Vision Conference. The cost of distribution and fulfillment is much lower in-store than online, thanks to bulk shipments and the fact that customers take their purchases with them. Well-trained associates can offer customers much more than the most powerful AI-powered robot: advice, ideas and personal interaction and involvement. For many people, nothing compares to actually seeing and touching products for themselves; CSA says that purchases made in store have a much lower return rate.
According to CSA, “the most successful retailers operate physical stores in tandem with their digital offerings. Brick-and-mortar stores can serve as cost-lowering pickup or fulfillment hubs for online orders. Associates equipped with customers’ digital browsing and order history can offer personalization beyond any previously attainable level. And as a branding and promotional tool, physical stores offer enormous qualitative benefits beyond hard ROI figures.”
Some retailers are betting on their physical stores alone. Big Box giant Costco enjoyed robust sales throughout the holiday season without an order online, pick up in store (BOPIS) option. In fact, Costco has actually reduced their spending on ecommerce and instead is encouraging shoppers to come into the stores. According to Costco, they study what others are doing, but have no plans to introduce BOPIS any time soon.
Target says it is very important to integrate digital and in-store experiences, that’s why they are investing heavily in both their store assets and in the experience their team provides customers, referred to as “guests” by Target.
© Robert Bosch Tool Corporation. All rights reserved, no copying or reproducing is permitted without prior written approval.