Supply Chain Disruptions and Housing Inventory

Last week I noted that currently there were the most housing units under construction since 1973. I’ve been wondering if the supply chain issues are impacting existing home inventory (and also rental vacancy rates).

This graph shows housing starts under construction, Seasonally Adjusted (SA).

Red is single family units. Currently there are 752 thousand single family units under construction (SA). This is the highest level since March 2007.

Blue is for 2+ units. Currently there are 734 thousand multi-family units under construction.  This is the highest level since July 1974! For multi-family, construction delays are probably also a factor.

Combined, there are 1.486 million units under construction. This is the most since 1973.

Supply Chain Impact

An interesting question: Is how many of these units under construction are due to supply chain constraints. Census will release data next year on the length of time from start to completion, and that will probably show long delays in 2021. In 2020, it took an average of 6.8 months from start to completion for single family homes, and 15.4 months for buildings with 2 or more units.

For single family homes, starts have been at about the same level for over a year, so - in normal times - we’d expect completions to be at about the same level as starts. With some simple calculations, it seems that supply chain issues have delayed the completion of somewhere between 70,000 and 150,000 single family homes that would have normally been completed by November.

Most of the 752,000 single-family homes under construction have already been sold, so this isn’t a huge supply of new single-family homes about to hit the market. But almost all of these buyers live in a different home that they will sell, or they are currently renting. This is normal for new home purchases, but the extra 70,000 and 150,000 single family homes under construction is excess inventory that will need to be absorbed.

The situation is different for multi-family. In 2020, starts of multi-family housing units dipped at the beginning of the pandemic, and then picked up in 2021. Since, in normal times, it takes an average of 15 month from start to completion for buildings with 2 or more units, it is no surprise that completions are lagging (we wouldn’t expect starts in 2021 to be completed until sometime in 2022 or 2023). The 734,000 housing multi-family housing units currently under construction is about what we’d expect given normal lead times (so the number under construction will probably increase further).

The NAR reported that there were 1.25 million housing units for sale in October. An increase of 70,000 to 150,000 would have little impact on overall inventory (and some new home buyers are probably renters). I think this a factor in near record low existing home inventory, but not a huge factor.