Will Tear-Downs Increase in Market Share?

With builders nationwide continuing to report lot shortages, there has been speculation that tear-downs will command a growing share of the new-home market. As yet, the jury is out. NAHB tabulations for 2015, 2016 and 2017 do not show any distinct trend in construction of new homes on lots where previous structures once stood. They do, however,...

With builders nationwide continuing to report lot shortages, there has been speculation that tear-downs will command a growing share of the new-home market.

As yet, the jury is out.

NAHB tabulations for 2015, 2016 and 2017 do not show any distinct trend in construction of new homes on lots where previous structures once stood. They do, however, indicate that tear-downs are only a small part of the new-homes market.

In 2015, about 7.7% of single-family starts, or 55,200 units, were tear-downs, according to information collected in conjunction with the NAHB/Wells Fargo Housing Market Index (HMI).

Tear-down starts surged in 2016, accounting for 10.2% of new single-family home construction, or 79,300 units, primarily due to a spike in the western U.S., according to NAHB economists.

Last year, tear-downs dropped to about 6.8% of total single-family starts, or 58,600 units, according to the HMI survey tabulation.

share of builder starts

Although the Census Bureau compiles detailed records relating to new home construction, it does not collect information about homes constructed where another house has been torn down. To bridge this data gap, NAHB started polling builders about tear-down construction three years ago through special questions added to its HMI survey.

The 2017 results were derived from special questions added to the February 2018 HMI survey. The builders’ responses were then applied to the Census Bureau’s preliminary estimate of single-family housing starts for the year to produce the estimate of 58,600 tear-down starts in 2017.

Regionally, the 58,600 tear-down starts in 2017 break down as shown below:

That total is considerably lower than the 79,300 reported in 2016, even though single-family starts overall increased by 8.5% last year.

Between 2016 and 2017, the number of single-family tear-down starts remained relatively constant in the Midwest and South Census regions. They nearly doubled in the Northeast, and declined by almost 75% in the West after increasing by more than 200% there in 2016.

The estimate of 58,600 tear-down starts in 2017 was somewhat higher than the 55,200 estimated for 2015, a difference that is consistent with the general growth in single-family production.

Moreover, the number of tear-down starts in the West was similar in 2015 and 2017, making 2016 appear to be an anomalous spike — to the extent it is possible to detect an anomaly in an annual series only three years long.

Read more in this Eye on Housing post.

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Source: nahbnow.com