Robert Dietz, Senior Vice President and Chief Economist for the National Association of Home Builders: With housing demand solid and existing home inventory too low, home construction should continue at a strong pace in 2022, according to NAHB forecasts. Single-family builder confidence at the end of 2021 is high, registering a level of 83 on the NAHB/Wells Fargo Housing Market Index. We expect a slower growth rate for home building in 2022, but the level of single-family housing starts will be about 25% higher than it was in 2019, pre-Covid.
Nonetheless, supply-side headwinds are limiting the pace of construction and increasing costs. In particular, ongoing supply chain challenges, insufficient lumber production, higher lumber tariffs and delays for deliveries of just about all types of building materials have frustrated builders and buyers. Construction costs are up 19% year-over-year. In 2022, some of these supply chain issues will ease, but the skilled labor shortage will grow worse. The construction industry needs to add 740,000 workers a year to account for industry growth and yearly retirements from the sector per a new NAHB estimate for the Home Builders Institute.
Higher construction costs and an expectation of rising interest rates, as the Federal Reserve tightens monetary policy on inflation concerns, will result in additional declines for housing affordability. Policymakers should act to reduce the cost of land development and home construction. Communities that successfully do so will win the competition for population growth and business expansion.
Additionally, multifamily construction should continue to expand, given ongoing growth in rents. Suburban apartment construction in 2020 and much of 2021 made up for some weakness in urban core areas, but now most geographies are seeing gains for multifamily development. In addition, the single-family built-for-rent segment should continue to expand after experiencing the best quarter on record during the third quarter of 2021. And given wealth gains for homeowners due to rising home values, the remodeling sector will realize strong growth in 2022 as homeowners seek to add space, improve energy efficiency and increase resiliency of an aging existing housing stock.