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Wednesday, October 18, 2017

Graph of the Day: Wed 18 Oct

Mike Smitka

Today saw the latest release on residential construction. The default graph on FRED is the total number, of course with multiple series for new starts versus permits versus under construction, and by region. But between 1960 and today the US population rose 80%, from 180 million to an estimated 325 million. Everything else being equal – and it's not, we know that the baby boomers are retiring and downsizing – we would expect the desired amount of housing to reflect the size of our population. So my graph makes that adjustment, dividing by population. As you can see, the current level of housing under construction has doubled since its December 2012 trough, but remains significantly lower than at any time prior to the Great Recession.

One factor is that we clearly built a lot of housing in the years leading up to 2007, when prices suggested demand was insatiable. Housing lasts a long while – these structures will still be around in 2050. Adding to the challenge is that what's going up are multifamily dwellings. That will keep the squeeze on the construction of single family dwellings, which casual observation suggest tend to be larger and in general cost more to build, that is, create more jobs. We'll see what happens, but my sense is that it is not a good time to be an architect, and will remain that way for a decade or more to come. If housing is your passion, then go for renovations. I just wish I had the rights to This Old House!


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