Earlier this year, Principia reported observing a downward trend in total housing starts and per capita housing starts observed over 60 years of available historical data. Following the analysis of the causes and consequences of this downward trend, the focus shifted to analyzing existing housing stock in the United States to understand the relative influence repair and remodeling has on building product demand.
Over the past 20 years, existing housing stock has generally grown at the same rate as the U.S. population, resulting in existing stock per capita holding nearly constant. Looking at the steady existing stock per capita in combination with the long-term decline in starts per capita, new construction’s share of the housing supply has fallen from greater than 2% throughout much of the 1970s to less than 1% in recent years. This decline means that the repair and remodel share of building product demand will continue to increase.
Figure 1: Housing Stock versus Population, 1971–2017
Three Takeaways from Figure 1
- The existing housing stock outpaced U.S. population in terms of year-over-year growth every year between 1970 and 1989, leading to steady growth in the housing stock per capita from 0.335 (2.99 persons per home) in 1970 to 0.428 in 1989 (2.34 persons per home). This level has not been reached again since 1989.
- After a brief decline between 1989 and 1991, the housing stock’s rate of change varied closely around population growth, which has been below 1% and decelerating since 2000. As a result, the existing stock per capita has held nearly constant at an average of 0.419 (2.39 persons per home) since 1989. See Figure 1 and top chart of Figure 2.
- Housing stock per capita has a statistically significant positive relationship with time before and after the peak in 1989, as well as over the entire period shown in Figure 1 and 2. However, the rate of increase has declined sharply; the trend rate of change leading up to 1989 (0.0048/year) is over 10 times greater than the following years (.0004/year).
Figure 2: Housing Stock per Capita and Starts, 1970–2017
As shown in the bottom graph of Figure 2, the trend in new construction’s share of the housing supply parallels the trend in declining new housing starts per capita: falling over time at a declining rate. Housing starts as a percent of the existing stock have dropped from an average of 1.9% in the period from 1970–1989 to 1.1% in 1989–2017. This decline represents a statistically significant negative correlation with time across all periods measured, however the trend rate of change (-0.02%/year) is more moderate from 1989 onwards than (-0.06%/year) from 1989 and before. It is noteworthy given the cyclicality of new construction that the last few years of data have been above all three calculated trend lines.
Implications for Industry Participants
One possible explanation for both trends is that the U.S. housing supply is approaching a steady state at which new construction is just enough to offset population growth and the existing stock retired from use. Whatever the cause, there seems to be one clear implication for manufacturers and distributors of building materials: new construction’s share of the overall housing supply has declined over the long term, and if population trends continue, housing starts may not return to its former prominence over the foreseeable future. With this knowledge in hand, most building materials suppliers and dealers should consider focusing more on the repair and remodel market to drive revenues in the current upcycle as well as when the housing market eventually turns down.