What Does The Future Hold For Residential Construction?

May 3, 2016

The dust caused by the housing crash has finally almost completely settled and cleared, allowing us to get the clearest picture in quite some time (free of all the boom and bust ramifications) of where residential construction will be heading in the near future.

As Construction Dive reports, Len Kiefer, Deputy Chief Economist at Freddie Mac, Robert Dietz, NAHB Chief Economist, and Robert Denk, NAHB Senior Economist, recently spoke about and offered predictions for the future of residential construction. Kiefer went so far as to say he expects 2016 to be the best year for the housing market in a decade.

The three economists said they expect single-family construction to lead the way in 2016, being the first year since the housing crash that single-family construction will outpace multifamily construction. Dietz’s prediction is that it will increase 14 percent in 2016 and another 19 percent in 2017. It is thought that 2017 will see strong growth due to the increased availability of workers and more lots to build on. Additionally, the housing market is expected to be flooded with new buyers in the coming months as Millennials begin to make the jump into homeownership.

As single-family building is expected to grow, multifamily building is expected to finally begin a slowdown. As Millennials begin to make the move from renting to buying and older buyers begin to reenter the housing market, as well, multifamily building is expected to drop 4 percent in 2016 and experience a relatively minuscule increase of 6 percent in 2017.

While it is expected to improve, the shortage of labor, lots, and lending is still having a large effect on both residential and nonresidential builders. The labor shortage is not expected to resolve itself anytime soon and, as it was the top business challenge in 2015, it is also expected to be the top challenge in 2016. Additionally, builders are having trouble securing acquisition, development, and construction loans and finding available lots for building has also become quite a challenge. Lots have been causing so much trouble that Dietz thinks they may even challenge the labor shortage as the biggest business challenge for 2016.

Tight inventory is also expected to remain a concern. Regulations continue to pile up for builders and can add as much as 25 percent to the cost of building a new home, making it difficult to make a profit on building inexpensive entry-level homes, the exact type of homes that are needed most right now.

Despite all of these challenges, there is still a great amount of optimism for where the housing market will be headed in the coming months and years.

To see the full report with accompanying graphs and charts, click the link below.

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