Key Takeaways:
- Total housing starts increased nearly 16 percent in 2021;
- Multifamily housing starts rose nearly 11 percent in December;
- The number of homes in construction in December was the highest in nearly 50 years.
By Manuel Gutierrez, Consulting Economist to NKBA
The year ended on a positive note with housing starts rising 1.4 percent in December to a 1.7- million-unit annual rate (Figure 1, left panel.) This is the second highest monthly pace for housing starts last year, exceeded only by March’s 1.725 million annualized figure.
Housing permits were even stronger in December, jumping 9.1 percent to a 1.87-million-unit annual rate. Permits have exceeded starts in each of the last four months, suggesting stronger construction activity for the near future.
On an annual basis, builders started construction of 1.595 million houses last year, up a robust 15.6 percent from 2020. This is the greatest number of houses started in any year since 2006, although the right panel of Figure 1 shows only data since 2010. Since 2009, housing starts have exceeded the prior year’s volume every year.
Builders started 1.6 million houses last year, the highest total since 2006.
It is unlikely that this year’s starts will exceed last year’s total. Despite relatively strong demand for housing, rising prices and higher mortgage rates may hinder more growth in housing construction. House prices were up 19 percent in December and the 30-year fixed mortgage rate has been rising so far this year. It reached 3.56 percent the week of January 20th, a rise of ¾ of a percent in six months. Furthermore, it is expected that the Federal Reserve Bank will raise interest rates in the first quarter. Even a small increase in mortgage rates prevents many consumers from buying a house.
Last year’s robust numbers were driven primarily by the multifamily sector. Total multifamily starts rose 10.6 percent in December to a 530,000 unit annual rate (Figure 2). This is the highest monthly number of multifamily units built in any year since the 1980s, when tax code changes made investment in rental housing more attractive.
In contrast, single family housing starts fell by 2.3 percent to a 1.17 million unit annual rate.
For the full year, both single and multifamily construction contributed to the overall 15.6 percent increase in total starts.
Single family rose 13 percent to 1.12 million homes started, while multi family was up a much stronger 21 percent to 472,000 units.
Housing’s strong performance in 2021 occurred despite strong headwinds from shortages of both materials and labor. Builders have been unable to complete houses as fast as has been customary in the past.
In December, there were 1.5 million houses under construction, this is the highest number of “work-in-process” in nearly fifty years. For instance, in 2005-2008, builders had fewer than 1.4 million houses under construction, even though they were starting construction of 25 percent more houses than last year.
Regionally, the two smallest sectors enjoyed substantial gains in starts in December. Housing construction in the Midwest ballooned by 36 percent to a 288,00-unit annual rate, and the Northeast rose by 20 percent to 137,000 units. Despite these large percentage gains, they were not sufficient to compensate for the losses in the other two regions. Starts in the South dropped by just 2 percent to a 915,000-unit rate, but the West was off by a significant 14 percent, with the annual rate falling to 362,000 (Figure 3.)
