Sluggish: Housing Starts and the Global Economy
In early 2018, the world was poised for continued economic expansion. Even as late as October 2018, the International Monetary Fund (IMF) noted that a steady expansion would continue, “with global growth for 2018-19 projected to remain at its 2017 level.” While the organization did acknowledge that expansion might not be less balanced, it was confident that the international economies would continue chugging along.
Close to six months later, UCLA economist David Shulman isn’t confident, at all, about any kind of global expansion. He was, in fact, focused on a global economic slowdown, and how housing will play into it. In the article “How Housing and Interest Rates Figure in the Coming Global Slowdown,” Shulman noted that, the global economy is sputtering, due to both protectionist policies from the Trump administration and uncertainties associated with Brexit.
Overall, Shulman indicated the following:
- The U.S. economy is part of the slowdown. Following a 3.1% quarter-over-quarter growth rate in Q4 2018, “growth will slow to 1.7% in 2019, and to a near-recession pace in 2020,” he wrote.
- The unemployment rate will be 3.6% later in 2019, then gradually rise to 4.2% in early 2021.
- Housing continues to lag, as it has for the past decade.
It’s been written, extensively, that housing starts continue to be “stuck below demand,” as Shulman put it. While demand hovers around 1.4 million-1.5 million units a year, “we have yet to achieve that level for over a decade,” Shulman said. The reasons for the decline have also been extensively written about: Continued after-effects from the Great Recession, high levels of student loan debt, aging-in-place baby boomers who are keeping housing units off the market.
Other causes? Job-growth concentration in high-cost metropolitan areas, combined with environmental and zoning restrictions that are putting a damper on supply. Wrote Shulman: “We believe the main culprit is the last factor.”
It will likely not be until late 2021 that supply will catch up with demand.
The multifamily sector will have a somewhat stronger showing, however, with starts forecasted at 380,000 units in 2019 (similar to 2018 starts), 365,000 units in 2020 and returning to 380,000 units in 2021. However, if employment growth stalls in 2020, “both vacancy rates and rents will come under pressure,” Shulman said.
In his summary, Shulman wrote that, in the coming years, the fiscal stimulus from tax cuts and spending increases will continue waning, while “the failure of housing activity to provide a propellant for the expansion has been a distinct negative.” With global economic issues, combined with uncertainties, Shulman said “there is a very real risk of recession in late 2020.”
For comments, questions or concerns, please contact Amy Sorter
- ◦Economy
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