Key facts
- Ivy Zelman warns of potential overbuilding due to slower household growth.
- Current housing starts pace of 1.4 million per year may exceed demand.
- Demographic shifts include falling birth rates, rising deaths, and slowed immigration.
- Household formation projected to average 1 million annually in H2 2020s, down from 1.8 million in H1.
- Zelman disputes claims of a national housing shortage, citing an 8% vacancy rate.
- Renting has become more affordable relative to owning, with a nearly $900 monthly gap.
Housing market analyst Ivy Zelman has warned that the industry may be planning for more household growth than the U.S. can sustain, potentially leading to overbuilding. At her 19th annual housing conference in Boston, Zelman stated that if building continues at the current pace of roughly 1.4 million housing starts per year, the country will face an oversupply.
Zelman attributed this outlook to demographic shifts, including falling birth rates, rising deaths as the population ages, and a slowdown in immigration. Her team projects that household formation will average about 1 million annually in the second half of this decade, a significant decrease from the roughly 1.8 million rate seen in the first half.
She also disputes the notion of a widespread housing shortage, arguing that the current vacancy rate of approximately 8% indicates a more balanced market. Zelman suggested that a million more homes coming onto the market today would not necessarily be readily absorbed at current prices, challenging conventional estimates of housing deficits.
The analysis suggests that developers, investors, and manufacturers need to re-evaluate land commitments, production plans, pricing strategies, and capital allocation in light of these demographic trends. Zelman highlighted that renting has become more affordable relative to owning, with a nearly $900 monthly gap, and expects renter households to grow faster than owner households.