Homebuilders are building, but not quick enough.
While 2023 saw roughly 30 percent of all housing inventory comprising new construction in a historic year for the market, the average age of owner-occupied homes is 40 years old, according to data from the 2022 American Community Survey, meaning that most Americans live in homes built in 1984.
The survey, a comprehensive five-year estimate from 2018 to 2022, and issued by the U.S. Census Bureau, offers insights into the evolving landscape of American living conditions, uncovering a trend that has seen little reversal in recent years.
Residential construction has struggled to keep pace with demand since the Great Recession, leading to a situation where the average age of owner-occupied homes is 40 years old, an increase from 27 years old in 1991.
Just 9 percent of owner-occupied homes in the U.S. were built between 2010 and 2019, while homes constructed from 2000 to 2009 account for 15 percent of the housing stock, according to the report. The bulk of the owner-occupied homes, around 60 percent, were constructed before 1980, with about 35 percent of those homes dating back to before 1970.
That distribution shows that a significant portion of available housing stock predates modern construction standards and may necessitate updates or renovations, leading to a burgeoning remodeling market aimed at updating the aging infrastructure.
The National Association of Home Builders (NAHB)/Westlake Royal Remodeling Market Index showed positive sentiment among professional remodelers, reaching 67 in the fourth quarter, a 2-point increase from the previous quarter. The index, which ranges from 0 to 100, reflects the majority view of conditions as favorable when above 50, indicating a strong remodeling market.
Homeowners, spurred by rising property values, are increasingly investing in home improvements, according to the report. However, the trend signals a deeper issue within the housing supply chain. The dominance of older homes in the market points to a systemic shortfall in new construction, a sector that has only contributed 2 percent to the owner-occupied housing stock from 2020 to 2022, according to Na Zhao, a principal economist at the NAHB.
Newsweek has reached out to the National Association of Home Builders by email for comment on Tuesday.
The challenges facing new construction vary widely. Rising material costs, labor shortages, and elevated interest rates have all played a part in stifling the growth of new home builds, according to Zhao.
More than that, regulatory and zoning hurdles complicate the landscape, with excessive single-family zoning and the traditional property tax system discouraging the development and renovation of residential properties, according to Rick Rybeck, Director at Just Economics, a firm that specializes in aligning public policy with economic incentives for affordable housing and job creation.
"Both new construction and remodeling are hampered by the upside-down incentives of the traditional property tax that penalize owners with higher taxes for constructing or improving buildings while rewarding owners who allow buildings to deteriorate," Rybeck said in a reply to the NAHB report.
"One of the problems with the housing supply is the deterioration of older homes when maintenance and remodeling become too expensive," Rybeck said, adding that "new construction is also hampered by high land prices. And land prices are higher than they should be because owners of vacant lots are often not motivated to sell."
Rybeck highlighted the discrepancy in taxation between vacant lot owners and those with developed properties, pointing to the equal costs communities bear for infrastructure regardless of development status.
He noted that some communities are addressing zoning over-restrictions by allowing more diverse housing types and adjusting property tax rates to favor building improvements over land speculation, aiming to correct the imbalanced incentives that currently deter development and renovation.
The forecast for homebuilding in 2024 offers a mix of optimism and caution. While the industry has enjoyed a boom in recent years, experts anticipate a leveling off of new-home sales as a share of the housing market.
The pipeline for new single-family homes, though improving, remains insufficient to meet the growing demand, which points to the continued struggle to bridge the gap in the U.S. housing supply.
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
About the writer
Aj Fabino is a Newsweek reporter based in Chicago. His focus is reporting on Economy & Finance. Aj joined Newsweek ... Read more
