Latest Posts:
Tag

policy research

Browsing
In Research & Trends

Price Growth for Inputs to Residential Construction Slows in August

No Comments


Prices for inputs to new residential construction, excluding capital investment, labor and imports decreased 0.1% in August according to the most recent Producer Price Index (PPI) report published by the U.S. Bureau of Labor Statistics. Compared to a year ago, this index was up 0.8% in August after a 1.8% increase in July. The inputs to new residential construction price index can be broken into two components­—one for goods and another for services. The goods component increased 0.2% over the year, while services increased 1.9%. For comparison, the total final demand index increased 1.7% over the year in August, with final demand goods flat and final demand services up 2.6% over the year.

Input Goods

The goods component has a larger importance to the total residential inputs price index, around at 60%. The price of inputs to residential construction, goods, remained flat in August after increasing 0.1% in July. The input goods to residential construction index can be further broken down into two separate components, one measuring energy inputs with the other measuring goods less foods and energy inputs. The latter of these two components simply represents building materials used in residential construction, which makes up around 93% of the goods index. Prices for inputs to residential construction, goods less food and energy, were up 1.6% in August compared to a year ago. This year-over-year growth has come down since April, when it was at 2.5% and remains well below the growth in August of 2022, when it was at 14.7%.

The graph below focuses on the data since the start of 2023 for residential goods inputs. Energy prices have retreated over the past year, with only two periods of growth in 2024.

Input Services

Prices of inputs to residential construction, services, fell 0.2% in August after remaining flat in July. The price index for service inputs to residential construction can be broken out into three separate components, a trade services component, a transportation and warehousing services component, and a services less trade, transportation and warehousing component. The most vital component is trade services (around 60%), followed by services less trade, transportation and warehousing (around 29%), and finally transportation and warehousing services (around 11%).

Discover more from Eye On Housing

Subscribe to get the latest posts sent to your email.



This article was originally published by a eyeonhousing.org . Read the Original article here. .

Read More
By
In Research & Trends

New Review Spotlights the Unintended Consequences of Rent Control

No Comments


Although rent control policies do, in fact, produce lower rents in the controlled units as intended, these policies also have a number of unintended and undesirable consequences, according to a recently published review of the academic literature. Among the unintended consequences are a reduced supply of housing, higher rents in uncontrolled units, reduced quality in the controlled units, and reduced residential mobility.

The review is titled “Rent Control Effects Through the Lens of Empirical Research: An Almost Complete Review of the Literature,” authored by Konstantin Kholodilin and  published in the March 2024 issue of the peer-reviewed Journal of Housing Economics. The review covers 112 empirical rent control studies based on a wide range of data sources and published between 1963 and 2023. The table below summarizes the theoretic rent control effects analyzed in more than six of the studies.

In addition, there were thirteen studies that all find that rent control resulted in misallocations of resources of various types.

Policymakers should be particularly concerned with the findings that rent control results in a reduced supply of housing and higher rents in the uncontrolled units. Builders, of course, are likely to focus on the depressing effect rent control has on new construction, which is consistent with research NAHB undertook jointly with the National Multifamily Housing Council (NMHC) in 2022. In that research, NAHB and NMHC asked multifamily developers if they avoid building in jurisdictions with rent control. Over 85% said yes.

Kholodilin’s review concludes that rent control leads to a wide range of adverse effects, and that policymakers should take these effects into account when trying to design an optimal policy. Readers interested in the full review can obtain it from sciencedirect.com.

Discover more from Eye On Housing

Subscribe to get the latest posts sent to your email.



This article was originally published by a eyeonhousing.org . Read the Original article here. .

Read More
By
In Research & Trends

Post-Pandemic Square Foot Price Hikes End in 2023

No Comments


Median square foot prices (excluding record-high improved lot values) for new single-family detached (SFD) homes started in 2023 remained largely stable, according to NAHB’s analysis of the latest Survey of Construction data. For custom, or contractor-built, homes, the median price was $162 per square foot of floor space, not significantly different from $156 in 2022. For spec starts, after excluding lot values, the median was $150 per square foot of floor area. There remains a significant regional variation in square foot prices. In the spec market, after excluding lot values, median prices ranged from $262 per square foot in New England to $133 in the East South Central division.

Contract prices of custom homes do not include the value of an improved lot as these homes are built on the owner’s land (with either the owner or a contractor acting as a general contractor). Consequently, contract prices are typically reported as lower than the sale prices of spec homes. To make the comparison more meaningful, the cost of lot development is excluded from sale prices in this analysis.

The recent modest square foot price changes marked a sharp decline from the double-digit price hikes that characterized home building in the post-pandemic environment. Just a year prior, in 2022, increases for square foot prices in new SFD homes were approaching 20%, more than doubling the historically high U.S. inflation rate of 8%. The deceleration for median square foot prices reflects relatively stable building material prices and slower growth in home building wages in 2023. The shifts towards cost-effective methods, such as building homes on slabs rather than with full or partial basements, also contributed to decelerating median square foot prices.

In the for-sale market, the New England division registered the highest and fastest rising median square foot prices. Half of new for-sale SFD homes started here in 2023 were sold at prices exceeding $262 per square foot of floor area, paid on top of the most expensive lot values in the nation. After showing slower appreciation in 2022-2023, the Pacific division came in second, with median prices of $216 per square foot.

The most economical SFD spec homes were started in the South region, where the median sale prices per square foot were below the national median of $150. The East South Central division is home to the least expensive for-sale homes. Half of all for-sale SFD homes started here in 2023 registered square foot prices of $133 or lower, paid on top of the most economical lot values in the country. The other two divisions in the South – West South Central and South Atlantic –registered median prices of $144 per square foot, the second lowest in the nation.

Because square foot prices in this analysis exclude the cost of developed lot, highly variant land values cannot explain the regional differences in square foot prices. However, overly restrictive zoning practices, more stringent construction codes and higher other regulatory costs undoubtedly contribute to higher per square foot prices. Regional differences in the types of homes, prevalent features and materials used in construction also contribute to price differences. In the South, for example, lower square foot prices partially reflect less frequent regional occurrence of costly new home features such as basements.

In the custom home market, new contractor-built SFD homes in New England are by far the most expensive to build. Half of custom SFD homes started in New England in 2023 registered prices greater than $233 per square foot of floor area. The East North Central division came in second with the median of $199 per square foot of floor space. The median custom square foot price in the neighboring Mid Atlantic division was $183 per square foot.

The Mountain division had similarly high custom square foot prices. Half of custom SFD started here in 2023 had prices of $184 per square foot or higher. The corresponding median price in the neighboring Pacific was $167 per square foot.

The West South Central and South Atlantic divisions are where the most economical custom homes were started in 2023 with half of new custom homes registering prices at or below $136 and $138 per square foot of floor space, respectively. The remaining division in the South – East South Central – recorded slightly higher median square foot contract prices of $145 – still below the national median of $162.

Typically, contractor-built custom homes are more expensive per square foot than for-sale homes after excluding improved lot values. Over the last two decades, this custom home premium averaged slightly above 9%, suggesting that new custom home buyers are not only willing to wait longer to move into a new home, but also pay extra for pricier features and materials.

However, these custom home premiums (see the chart below) largely disappeared in the post-pandemic environment characterized by supply chain disruptions, skyrocketing building materials costs and home prices setting new records monthly. In 2023, the custom home premium averaged 8%, close to its historic norm, suggesting that this recent trend reversed, and once again custom home buyers are likely to pay more for pricier features and materials.

The NAHB estimates in this post are based on the Survey of Construction (SOC) data. The survey information comes from interviews of builders and owners of the selected new houses. The reported prices are medians, meaning that half of all builders reported higher per square foot prices and the other half reported prices lower than the median. While the reported median prices cannot reflect the price variability within a division, and even less so within a metro area, they, nevertheless, highlight the regional differences in square foot prices.

For the square footage statistics, the SOC uses all completely finished floor space, including space in basements and attics with finished walls, floors, and ceilings. This does not include a garage, carport, porch, unfinished attic or utility room, or any unfinished area of the basement.

Discover more from Eye On Housing

Subscribe to get the latest posts sent to your email.



This article was originally published by a eyeonhousing.org . Read the Original article here. .

Read More
By
In Research & Trends

The Rise of White-Collar Jobs in Construction

No Comments


Analysis of the history of data from the American Community Survey (ACS) reveals dramatic shifts in the makeup of the construction labor force over the last two decades. While the overall count of workers in the industry now approaches the historic highs of the housing boom of 2005-2006, the share of tradesmen declined from 71% in 2005 to under 61% in 2022. At the same time, the share of computer, engineering, and science occupations doubled, and the share of management and business occupations increased 60%.

The results are noteworthy, particularly given a recent focus on relatively flat productivity growth in the construction sector. A growing count of engineering/tech workers would, on its face, suggest a boost to productivity. However, a decline for the share of workers associated with the trades could suggest declining productivity. Indeed, more workers in management and business occupations could be another impact of the rising regulatory burden associated with building. These findings and possible impacts deserve additional research attention given the need to supply more attainable housing to the market.

As of 2022, the construction labor force exceeds 11.7 million, just slightly below the housing boom peak of 12 million. Construction trades (such as carpenters, electricians, painters, plumbers, laborers, as well as first-line supervisors) account for 7.1 million workers in the industry, or 60.7%. In contrast, there were 8.5 million construction tradesmen during the peak employment of 2006. The disappearance of more than a million craftsmen helps explain the persistent labor shortages reported by the NAHB/Wells Fargo Housing Market Index Survey.

Over the same period, the construction industry absorbed a rising number of white-collar workers. The management ranks expanded from 1.2 million to 1.9 million workers, and their share increased from 10% to 16%. Business and financial occupations grew at similar rates. The number of engineers, architects and other science occupations doubled; they now account for close to 2.7% of the industry workforce. In contrast, the share of computer, engineering and science occupations was just 1.3% in 2005.

Even though the prevalence of white-collar jobs in construction remains less common than in the US economy overall, their numbers and shares have been rising faster in construction since 2005. For example, while the share of computer, engineering, and science occupations doubled in construction, it increased only 40% in the overall US workforce. Similarly, whereas the management ranks increased 60% in construction, they grew at a slower rate for the US labor force and registered gains of 45% since 2005.

The rising presence of white-collar workers in construction undoubtedly reflects evolving production technologies, an enhanced regulatory environment and more stringent building codes. The changing makeup of the construction workforce also coincides with the declining rates of self-employment in the industry and may reflect a shift towards larger construction firms. Larger building enterprises are better equipped to invest into new technologies and absorb higher overhead costs.

The labor force statistics reported in the post are tabulated using the historic ACS Public Use Microdata Sample (PUMS). The ACS statistics are most comprehensive as they include payroll workers, as well as self-employed. As the common practice dictates, the labor force estimates count employed and those unemployed workers who look for jobs.

Discover more from Eye On Housing

Subscribe to get the latest posts sent to your email.



This article was originally published by a eyeonhousing.org . Read the Original article here. .

Read More
By
In Research & Trends

Building Material Price Growth Tracking Closely to 2023

No Comments


Inputs to residential construction, goods less foods and energy, decreased 0.04% over July according to the most recent Producer Price Index (PPI) report published by the U.S. Bureau of Labor Statistics (BLS). The index for inputs to residential construction, goods less food and energy, represents building materials used in residential construction. Compared to a year ago, the index is up 2.01% in July, marking the sixth straight month of above 2% growth.

Just past the midpoint of 2024, the year-to-date (YTD) increase in the index is at 0.47%. This is slightly higher yet similar to the YTD growth rate for 2023, which was 0.44%.

The seasonally adjusted PPI for final demand goods increased 0.62% in July, after decreasing a revised 0.36% in June. In July, the PPI for final demand energy increased 1.90%, final demand food also rose 0.61% and final demand goods, less food and energy, rose 0.24%. The BLS producer price indices measure the average change in selling prices that domestic producers receive for their output.

The seasonally adjusted PPI for softwood lumber fell 1.04% in July after rising 3.29% in June. Softwood lumber prices were 13.12% lower than July 2023.

The non-seasonally adjusted PPI for gypsum building materials increased 0.08% in July after no increase in June. Compared to last year, the index was up 4.25%, the highest yearly increase since April 2023 when the index was up 12.14%.

The seasonally adjusted PPI for ready-mix concrete rose 0.03% in July after falling 0.15% in June. Monthly growth in prices for read-mix concrete has been relatively flat for four consecutive months after prices peaked in March. Over the year, ready-mix concrete prices were 5.05% higher than July 2023.

The non-seasonally adjusted PPI for steel mill products fell for the second straight month, down 3.29% in July. Steel mill product prices are 13.99% lower than last year. Overall, steel mill product prices have fallen 36.99% since peaking back December of 2021.

The non-seasonally adjusted special commodity grouping PPI for copper rose 0.56% in July after falling 2.79% in June. Over the year, the index was up 14.26%. This special commodity grouping of copper includes the following commodities: copper and nickel ores, copper cathode and refined copper, copper base scrap, secondary copper (alloyed and unalloyed), copper and brass mill shapes, copper wire and cable, and copper base castings (excluding die-castings).

Discover more from Eye On Housing

Subscribe to get the latest posts sent to your email.



This article was originally published by a eyeonhousing.org . Read the Original article here. .

Read More
By
In Research & Trends

Federal Tax Return Itemization and the Mortgage Interest Deduction

No Comments


Since the passage of the Tax Cuts and Jobs Act (TCJA) in 2017, tax returns that itemize Schedule A deductions, such as the mortgage interest deduction (MID) , have fallen significantly with only 9.6% of all returns using an itemized deduction in tax year 2021. In 2017, the share of returns claiming an itemized deduction was 30.9%. Taxpayers who do not itemize their tax returns claim the standard deduction instead, and thus do not directly benefit from deductions such as the MID.

Looking across different adjusted gross income — or AGI, which is a measure of total income minus adjustments, such as deductions — levels , the prevalence of itemizing has fallen for all AGI levels. In 2017, five AGI levels had over half of tax returns claiming an itemized deduction. In contrast, in 2021 (the latest published IRS Statistics of Income data) only the two highest AGI levels had over half of returns claiming an itemize deduction.

The TCJA significantly increased the standard deduction and placed a limit of $10,000 on the state and local income tax (SALT) deduction . These two factors contributed to the trend of fewer itemized returns since 2017. Moreover, these changes explain why the use of the mortgage interest deduction has grown less progressive since 2017. Namely, the mortgage interest deduction can only be claimed through itemizing. So fewer itemizing taxpayers has led to fewer home owners utilizing the mortgage interest deduction, particularly at lower AGI levels.

Standard Deduction vs. Itemized Deduction

The total number of returns filed in 2021 was 159.5 million, while the number of returns with itemized deductions stood at just 14.8 million returns. These returns totaled an estimated $659.7 billion in itemized deductions. The total amount of the standard deduction claimed stood at an estimated $2.5 trillion in 2021 — well above the itemization amount, as significantly more taxpayers utilized the standard deduction.

Depicted in the graph above, there is a distinctive difference between the share of returns in a particular AGI level and its proportion of the total adjusted gross income. Levels below $100,000 constitute 77.2% of all returns, but only make up 30.9% of the total adjusted gross income. Levels above $100,000 constitute 22.8% of all returns while making up 69.1% of the total adjusted gross income.

Among returns that utilized the itemized deduction, most fell in the $100,000-$200,000 AGI class, with 30.4% claiming itemized returns. Despite this, the $1 million AGI level make up 29.6% of the total itemization deduction amount — the highest level of deduction amounts — but only constituted 4.1% of itemized returns.

In contrast to the itemized tax returns, most tax returns claiming the standard deductions were in the lower AGI range between $1-100,000 (75.3%). This AGI range also received the highest share of the total standard deduction amount (75.4%). The standard deduction return distribution follows more closely to that of all returns when compared to itemized returns as far fewer taxpayers utilize itemized deductions and those who do tend to be in higher income groups.

Mortgage Interest Deduction

After the passage of the 16th amendment, the first income tax code written by Congress allowed for the deduction of interest paid on many debts ranging from business to personal debts, including mortgages. The mortgage interest deduction notably expanded following World War II. Homeownership became an important wealth building tool for a vast majority of Americans during this period.

The current principal limit of the mortgage interest deduction stands at $750,000 ($375,000 if married filing separately), meaning taxpayers can deduct interest on the first $750,000 of debt secured by the taxpayer’s main home or second home . Interest on home equity loans and lines of credit are deductible only if the funds are used to buy, build or substantially improve a taxpayer’s home up to a $100,000 limit.

After the expiration of the 2017 tax rules in 2025, the mortgage interest deduction will return to prior law, in which the principal limit was $1 million, and home owners will be allowed to deduct interest on the first $100,000 of home equity debt regardless of the purpose of the debt. (However, AMT rules complicate this general rule somewhat.) It is important to note that the current principal limit is not indexed for inflation, which is a policy shortcoming given the post-COVID rise in home prices.

Among tax returns that were itemized in 2021, 11.5 million (76.6%) claimed the mortgage interest deduction. The total amount of mortgage interest deducted was $143.5 billion, which includes points. (If debt predates 2017, deduction is allowed for points) According to the Bureau of Economic Analysis, total mortgage interest paid in 2021 — deducted and non-deducted together — was $458.2 billion , which amounts to around 31.3% of total mortgage interest payments claimed as a tax deduction in 2021.

Across income groups, the group with the highest mortgage interest deduction  amount was for incomes between $100,000-$200,000 at a 28.9% share of the total. The $200,000-$500,000 income group deducted the second largest share at 27.9%. Nonetheless, the vast majority (84.9%) of mortgage interest deducted was from itemizers with incomes under $500,000.

Given that it is much more likely for itemizers to be from higher income groups, specifically AGI levels greater than $500,000, it is perhaps surprising that most of the mortgage interest deduction claimed accrued to individuals making less than $500,000 as these taxpayers typically use itemized deductions less frequently.

Proposal to Expand the Mortgage Tax Benefit: A Tax Credit

In 2021, there were an estimated 83.4 million owner-occupied housing units with 51.1 million holding a mortgage. A housing tax credit would allow vastly more households to receive a tax benefit from owning a home than, as only approximately 11 million currently do by deducting mortgage interest on their tax returns.

With fewer taxpayers itemizing, what was once an effective and broadly claimed tax incentive no longer serves its original purpose to make homeownership more affordable for the middle-class. NAHB believes the mortgage interest deduction should be updated to reflect today’s tax code and better serve the segment of prospective home owners who face unprecedented affordability challenges. A well-structured housing tax incentive, such as a mortgage interest credit, would help achieve this policy goal.

NAHB supports converting the mortgage interest deduction into a targeted, ongoing homeownership tax credit, which could be claimed against mortgage interest and property taxes paid. A tax credit that is properly targeted would increase progressivity in the tax code and promote housing opportunity by providing a tax incentive more accessible to lower and middle-class households, as well minority and first-generation home buyers. Such a credit would provide a benefit to all home owners who pay mortgage interest and have income tax liability to offset. Such a proposal should be considered today and given serious consideration during the 2025 tax debate.

Discover more from Eye On Housing

Subscribe to get the latest posts sent to your email.



This article was originally published by a eyeonhousing.org . Read the Original article here. .

Read More
By
Pin It