The Robust Housing Construction Market

By at 17 June, 2021, 2:45 pm


Is housing taking a breather after being so hot for so many months? Not really.

The latest report from the U.S. Census Bureau noted that building permits for privately-owned housing units – a measure of future construction – was down by 3.0 percent (on a seasonally adjusted annual rate) in May 2021 compared to the previous month.

Meanwhile, housing starts were up by 3.6 percent in May compared to April. As noted in the following charts, both building permits and housing starts have roared back nicely after the big pandemic hits that came in March and April of last year. At the same time, there seems to have been a bit of cooling over the last 2-5 months. Well, “cooling” overstates matters, as it looks like strong growth in housing construction will continue.

Source: Federal Reserve Bank of St. Louis, FRED

Source: Federal Reserve Bank of St. Louis, FRED

Compared to pre-pandemic levels, the latest numbers indicate that housing growth that stepped up in mid-2019 has only accelerated post-pandemic, and the permits numbers point to this higher level of housing construction continuing. As the economy continues to work toward something more normal, supply chain issues that have challenged housing should dissipate. Still, labor shortages could persist, which endanger “a robust economic recovery,” according the Home Builder’s Institute’s (HBI’s) Ed Brady in the most recent HBI Construction Labor Market Report.

In terms of the positive outlook for housing and trends, economists Brian Westbury and Robert Stein at First Trust Advisors have pointed out:

“Permits for future construction have now outpaced new construction for fifteen consecutive months. This has resulted in a backlog of projects that have been authorized but not yet started, which stands at the highest reading since the series began back in 1999.  There has been a long running deficit in new home construction in the US, which needs roughly 1.5 million housing starts per year based on population growth and scrappage (voluntary knockdowns, natural disasters, etc.).  However, we haven’t built that many new homes in any calendar year since 2006.  Now, with plenty of future building activity in the pipeline and builders looking to boost the inventory of homes as well as meet consumer demand, it looks likely construction in 2021 will surpass the 1.5 million unit benchmark.”

This is good news for the economy in general, and for the small businesses that dominate the housing industry, for example, with 97.5 percent of employer firms in residential building construction having fewer than 20 employees.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.


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