Hurricanes Drive Renovation Demand at the Expense of New Homes-What does it mean for the Housing Supply Shortage?
Today’s Census Bureau report for September sends a note of caution to the housing market. Permits declined 4.3 percent and starts increased 6.1 percent respectively compared to a year ago. The decreased pace of permits, a leading indicator of starts is a concern for further increases in starts in the coming year. The 4.6 percent decline in single-family housing starts, 829,000 (SAAR), is likely due to the impact of hurricane damage.
In the employment situation, released earlier this month, it was clear that hurricanes demolished the job creation numbers with a decline of 33,000 non-farm payroll jobs created. Hurricane Harvey significantly damaged or destroyed more than 30,000 homes and Irma similarly damaged over 4,000 homes. Residential construction employment, the primary category of labor that build new homes, declined by 3,900, while specialty trade contractors (the plumbers, electricians and other specialized labor that is often involved in renovation and rehabilitation projects) increased by almost 9,000.
The decline in residential construction jobs and increase in specialty trade contractors highlights the strong demand, particularly in Texas, for construction workers to renovate and rehabilitate hurricane impacted houses. The challenge of finding skilled labor to build new homes is now being exacerbated by the demand for that same skilled labor to renovate damaged homes.
In September, the pace of total residential (single and multi-family) housing starts, at 1,127,000 units, was a 4.7 percent drop from the month before. Based on the less volatile three-month moving average, total residential housing starts is down 29,000 units compared to a month ago and 1.4 percent below a year ago.
This months’ news of renovation demand competing for labor resources followed by today’s announcement of a month-over-month decline in total residential housing starts indicates that there are short-run headwinds to increasing the pace of new home construction that is necessary to alleviate the supply shortages in today’s housing market.