Before most Americans had even heard of the new coronavirus or COVID-19, the nation was suffering from a severe housing shortage. Builders couldn’t put homes up fast enough to satisfy the hordes of eager buyers and renters. But the global pandemic and ensuing financial crisis have put home construction on ice, setting the stage for an even worse housing shortage when the economy recovers.
Construction is not considered an essential business in at least five states, including hard-hit New York and Washington. That means job sites have been forced to close as state orders supersede the U.S. Department of Homeland Security’s guidance designating residential construction as an “essential infrastructure business.”
Even in places where builders are allowed to carry on as normal, buyer demand for new homes is waning. That’s likely to lead builders to put up fewer homes, at least until the crisis subsides. When you consider that more sellers are pulling their properties off the market due to health concerns or fears their homes won’t fetch top dollar, there’s little doubt the housing shortage will be exacerbated.
The pandemic “is likely to slow housing construction, reducing supply,” says Robert Dietz, chief economist of the National Association of Home Builders. “Fortunately, many state governments have deemed home building and remodeling as an essential service, thus allowing many of the currently 500,000 or so single-family homes that are under construction to move forward.”
Housing starts, which count homes that have begun construction but are not completed, were expected to reach 1.3 million units this year, NAHB had predicted in January. While that was to be a 2% increase from the previous year, it was still well shy of the 1.5 million average starts that were typical of the years before the housing crash and the Great Recession. But these predictions were made well before COVID-19 exploded into a worldwide crisis, and now there are likely to be far fewer.
Even in states where construction is permitted, it’s not business as usual.
Residential construction is “likely to decline due to concerns of falling demand and delays in obtaining permit approval due to local government shutdowns,” says Dietz. “How large this impact will be is difficult to estimate.”
Builders in much of the nation are now encountering new problems in getting permit and engineering approvals as local government offices are closing down or going remote. Plus, it’s getting harder to get materials.
Which parts of the country will be hardest-hit by the coronavirus?
Some parts of the country, particularly experiencing the most cases and deaths, will likely be more affected than others. Five states—New York, Washington, Michigan, Vermont, and Pennsylvania—have prohibited construction, according to NAHB.
In New York, the nation’s epicenter of COVID-19, Gov. Andrew Cuomo ordered most construction, including the majority of residential buildings, be halted last week. The exceptions include affordable housing, emergency repairs, hospitals, and infrastructure.
“We have members who are two-thirds of the way [done] on a project that we have to shut down,” says Lewis Dubuque, executive vice president of the New York State Builders Association. “If this goes on for an extended period of time, many of these construction companies will go out of business.
“That will exacerbate the housing crisis that we’re having right now,” he says.
And it could lead to big problems in the future, if recent history is to serve as a guide.
After the housing crash in the mid-2000s, there were suddenly many more newly built homes than buyers. Without demand, building seemingly stopped overnight. Construction companies went out of business, laying off scores of workers. Many of those businesses and workers never returned to the industry. So when the economy bounced back, and there were buyers again, the construction industry couldn’t ramp up the production of new homes fast enough.
One of the main obstacles is the shortage of construction workers and skilled tradespeople.
“Getting quality people to come to work has been really difficult,” says Dubuque. The industry has invested in creating a pipeline of new workers by creating trade and other construction-related programs in high schools, community colleges, and four-year universities. But if these folks can’t find jobs after they graduate, “all of that work is just going to go up in smoke.”
In Michigan, where putting up new homes has not been deemed essential during the pandemic, “it’s ground new residential construction to a halt,” says Michael Stoskopf, CEO of the Home Builders Association of Southeast Michigan, which encompasses the Detroit metropolitan area.
He’s worried that it will be harder to ramp construction back up again once the restrictions are lifted and the nation attempts to settle into a new normal. Some builders are already laying off workers, while others are trying to hold on until they can get back to building again.
Dubuque, of the New York association, believes the pause in construction could make the affordable housing crunch even more dire.
“If there’s less people building homes and there’s less homes on the market, then the prices are just going to skyrocket,” says Dubuque.
Builders in other parts of the country are starting to feel the strain
Meanwhile, other areas are just beginning to feel the impact of the pandemic.
In Wichita, KS, builders are still allowed to erect new homes.
“We’re just carrying on with the projects we have on hand,” says Tim Shigley, who owns a custom homebuilding and remodeling business in Wichita. They put up about three new homes and do about seven home remodels a year. But he expects business could slow in the months ahead.
“My expectation is to see demand drop off a little,” he says.
He doesn’t expect Wichita to be hurt as much as the bigger cities on the coasts, such as New York City, Seattle, and San Francisco, where there are many more COVID-19 cases. And he believes the under-building in his market will help to protect the local industry. In 2006, builders completed 2,600 single-family homes. Last year, they finished only around 1,400. That lack of supply coupled with high demand could give local builders some cover.
“We just need to get through this event,” says Shigley. “This is more of a temporary issue than a long-term [one].”
And it’s not all doom and gloom for new home construction—at least not yet.
Buyers who’ve gone under contract for a new home aren’t canceling those deals, says Jay McKenzie, a spokesman for BDX, a national builders group.
“We are seeing closings proceed, in some cases virtually or remotely,” McKenzie says.