Decades of underinvestment and underbuilding have created a shortage of housing in America that is more dire than previously expected and will require a concerted, long-term nationwide commitment to overcome. Housing is Critical Infrastructure: Social and Economic Benefits of Building More Housing outlines causes and offers numerous potential solutions for both federal and local-level policymakers to consider, but warns that immediate action must be taken across all levels of government, no matter the approach. “The state of America’s housing stock… is dire, with a chronic shortage of affordable and available homes [needed to support] the nation’s population,” the report asserts. “A severe lack of new construction and prolonged underinvestment [have led] to an acute shortage of available housing… to the detriment of the health of the public and the economy. The scale of underbuilding and the existing demand-supply gap is enormous… and will require a major national commitment to build more housing of all types.”

More coverage in WSJ: U.S. Housing Market Needs 5.5 Million More Units

U.S. home construction rose 3.6% in May as builders battled a surge in lumber prices that have made homes more expensive. The May increase left construction at a seasonally adjusted annual rate of 1.57 million units, the Commerce Department reported Wednesday. Applications for building permits, looked to for indications of activity ahead, fell 3% in May to a seasonally adjusted annual rate of 1.68 million units. …Many economists believe that the surge in home building and sales over the past year may begin to slow, especially for single-family homes. “We expect starts to mostly move sideways over the balance of 2021,” said Nancy Vanden Houten, lead economist for Oxford Economics. “Strong demand, a need for inventory and homebuilder optimism will keep a floor under activity, but builders continue to face supply constraints that may hamper or at least postpone construction.”

The price of lumber has fallen more than 40% since its peak in May and other commodities have followed suit, suggesting that some of the price surges that have alarmed lawmakers and investors this spring may fade with time as the economy returns to normalcy. …And lumber isn’t the only commodity whose rally has stalled: Copper, corn and soybean prices have also begun to fall. …The Federal Reserve concludes its two-day meeting on Wednesday, and investors will be watching closely for any clues that the central bank plans to tighten policy and begin withdrawing some of its support for the economy. Many experts expect the Fed to continue to hold the line on interest rates, which have been at near-zero levels since the onset of the pandemic.

The historic climb for lumber prices, combined with delays and higher costs for other building materials, is a significant limiting factor for home building in 2021. Despite a historically diminished level of overall housing inventory and solid demand due to low mortgage interest rates and demographics, new construction has been limited in its ability to add needed supply to the market, resulting in unsustainable gains for home prices. …Despite the decline in workers, sawmill output was flat over the course of 2020, albeit along a choppy trend. …The 2020 output levels were insufficient to keep up with the demand from residential construction. …The growing gap between the two measures, particularly in 2020 when single-family starts expanded by 12%, is a reason for the dramatic increase in lumber prices.

Rising material prices and supply-chain shortages resulted in builder confidence dipping to its lowest level since August 2020. The latest NAHB/Wells Fargo Housing Market Index (HMI) shows that builder confidence in the market for newly built single-family homes fell two points to 81 in June. Despite the monthly decline, the reading above 80 is still a signal of strong demand in a housing market lacking inventory. Higher costs and declining availability for softwood lumber and other building materials pushed down builder sentiment in June. These higher costs have have moved some new homes beyond the budgets of prospective buyers, which has slowed the strong pace of home building.