The 2024 Outlook by LandVest is a series of analysis and insights on the investment land and luxury residential markets. The perspectives outlined in this series are informed by performance in our investment land, residential, and fiduciary consulting business units and in consultation with over 70 real estate professionals from brokers to appraisers and fiduciaries serving New England families. By Joseph Taggart, President
The U.S. has underbuilt the housing market by 8.5 million units. As I often tell anyone who will listen; we don’t build houses for what is happening today, we build them for what happened 30 years ago. Presently, we are trying to accommodate what I call “America’s Largest Generation,” who were born 30 years ago, between 1991 and 2001. This cohort (which is larger than the Baby Boomers) began to enter the housing market in 2020, at the doorstep of the pandemic. The combined pressure of their arrival, and the Covid-induced real estate diaspora, put unbelievable pressure on the housing market.
according to the National Association of Realtors.
At the LandVest quarterly meeting in March of 2021, I presented my estimate that the housing market was underbuilt by 4.6 million units. A few months later, in July of 2021, the Wall Street Journal reported that the market was 5.5 million units short. Although we overbuilt the market by 1.6 million units from 1998-2008, the great recession put undue pressures on home construction, limiting the availability of builder financing. This led to The Lost Decade, from 2009-2019, where home construction failed to keep pace with new entrants to the market.
The graphic below depicts the results. In this figure, blue bars represent annual housing starts, and the orange bars show the net population increase from 30 years ago (roughly the average age of first-time home buyers), divided by 1.45 (the average number of adult residents in a first-time home purchase). The graph clearly shows the 1.6 million surplus units built from 1998-2008. Equally as obvious is the shortfall of new housing starts coming out of the great recession from 2009-2019.
When The Largest Generation entered the market in 2020, construction costs and supply-chain issues limited builder ability to respond to the increased demand. Coming out of the pandemic, inflation and higher interest rates have put pressure on new construction, further widening the gap.
The results are alarming. By my calculation, at the end of 2024, we will have underbuilt the housing market by a net 8.5 million units, since 1998. Further concerning is the fact that the trend is just getting started. We are only three years into a decade-long wave of The Largest Generation. Without a meaningful increase in new housing construction, we will limit mobility of homeowners and continue to see extreme pricing pressures in residential markets for the next seven years.
The 2024 Outlook by LandVest
The 2024 Outlook by LandVest is a series of analyses and insights on the investment land and luxury residential markets. The Outlook is informed by performance in our land, residential, and fiduciary consulting business units. Next in the series, Vice President & Managing Director Slater Anderson shares insights on listing inventory, home values, and results from our monthly buyer and seller surveys to gauge market sentiment.
