In 2023, the real estate landscape faced a significant challenge: household formations outpaced single-family home construction by a staggering 7.2 million homes, according to Realtor.com's latest analysis. This gap highlights the ongoing housing supply crisis that has been brewing over the past decade.
From 2012 to 2023, while there were 17.2 million new households formed, the construction industry only started 14.7 million housing units, and completed even fewer, at 13.4 million. This discrepancy has led to a cumulative shortage, particularly in single-family homes, which saw a shortfall of 7.2 million units by the end of 2023. However, when including multi-family home construction, this gap narrows to 2.5 million homes.
Construction activity in 2023 further deepened the divide. There were 947,200 single-family homes started, a 5.8% decrease from the previous year. The gap between single-family housing starts and household formations widened from 6.5 million to 7.2 million homes. On the other hand, multi-family home starts also declined, settling at 472,700 starts, a 13.6% drop compared to 2022.
Despite these challenges, there were some positive developments. A total of 1.5 million housing units were completed in 2023, marking the highest completion rates since 2007 for all homes and since 1987 for multi-family units. This included 1 million single-family units and 450,100 multi-family units.
Sunbelt metros like Deltona-Daytona Beach-Ormond Beach, FL, and San Antonio-New Braunfels, TX, experienced rapid household growth, outpacing permitting activity. This trend underscores the urgent need for increased construction in these fast-growing regions.
However, builder sentiment remained relatively low throughout 2023, with the index reaching 34 in November, indicating continued challenges in the construction sector. Despite this, there was a shift towards more affordable housing, with 43% of new homes sold for less than $400,000, and the median size of single-family homes started decreasing.
The loss of housing stock, with an annual loss of approximately 0.9% between 2017 and 2019, further exacerbated the supply gap. Looking ahead to 2024, the expectation is that the existing home supply will remain low, with builder activity playing a crucial role in providing options and alleviating price pressure. Renters may find some relief as multi-family completions increase, but the overarching issue of housing supply shortage is likely to persist.
Addressing this supply gap requires a concerted effort from builders, policymakers, and communities to ramp up construction, particularly in high-demand areas, and to find innovative solutions to make homeownership more accessible and affordable for all.