Can New-Home Starts Maintain 2021 Highs?

Construction worker holding wooden beam.

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Builders ramped up construction on new homes last year as buyers eagerly sought more housing options. Single-family housing starts jumped 13.4% in 2021 compared to 2020, the Commerce Department reported Wednesday. But builders say supply-side challenges pose challenges to keeping that pace in 2022.

In December, builders pointed to supply challenges as the main culprit behind a 2.3% month-to-month decrease in single-family construction.

“The price and availability of building materials, and the supply chain in general, remains the most pressing, immediate challenge for builders as they seek to add housing supply,” says Chuck Fowke, chairman of the National Association of Home Builders. “Policymakers must focus on easing production bottlenecks and eliminating tariffs on Canadian lumber to help address the issues builders are currently facing.”

A shortage of homes for sale among the existing-home market is prompting more consumers to consider new-home construction. Builders say buyer demand has soared over the past year.

“The double-digit gain for single-family starts in 2021 was a continuation of the rebound and expansion of home building that took place in the wake of the pandemic,” says Robert Dietz, NAHB’s chief economist. “However, as mortgage interest rates are rising and construction costs increase, affordability headwinds are steepening. NAHB’s outlook for 2022 calls for relatively flat conditions for single-family construction, with additional gains for multifamily and remodeling.”

The multifamily sector, which includes apartment buildings and condos, rose 10.6% in December 2021 compared to November 2021. Demand for rentals has soared as some buyers get priced out of the housing market. Starts in the multifamily sector climbed 22.1% in 2021 compared to the previous year.

On a regional and year-to-date basis (January through December of 2021 compared to a year earlier), combined single-family and multifamily housing starts rose by the highest amount in the Northeast, up 22.2%, followed by a 16.9% jump in the West, a 15.3% increase in the South, and a 10.9% rise in the Midwest.

Permits for both single-family homes and multifamily homes—viewed as a gauge of future home buying—rose 9.1% in December on an annual basis. Single-family permits were up 2% and multifamily permits jumped nearly 22%.