Washington’s Housing Supply Shortage  

A look at supply shortages by county   

Introduction

Many estimates exist to quantify the housing supply shortage in Washington state as a whole; whether the state’s shortage is 140,000 or 1 million housing units, one thing is true: Washington needs more homes for its residents.

Utilizing the same methodology as FreddieMac, BIAW has discovered the state needs at least 251,894 new housing units to meet demand for housing. Interestingly, in 2022 only 49,033 building permits authorizing new housing units were processed. When one considers the attrition rate from permits to starts to completions, BIAW estimates only 45,846 of those units were built. At its current rate of permit activity, it will take five and a half years to catch up to demand, assuming all other variables are held constant (such as migration).

 

Methodology  

BIAW utilized the same methodology for estimating housing unit shortage as FreddieMac. The formula is listed below and includes the following data points:

  • Number of Households
  • Forecasted Number of Households
  • Vacancy Rate
  • Target Vacancy Rate (for a balanced market, total housing units should sit at 13%, according to FreddieMac)
  • Housing Stock
  • Target Housing Stock (relative to the number of households)

We then employed the following formula to replicate the study:

 

K: Target Housing Stock
HH: Target Households
V: Target Vacancy Rate

 

For background information regarding further calculations in relation to each variable, please refer to the Sources section and locate the “The Housing Supply Shortage: State of the States” publication.

The results of our findings will be discussed below.

 

Results

Some policymakers improperly attribute the number of building permits with actual housing construction. Factors that affect housing starts and completions of permitted projects include:

  • Abandoned projects – Construction is sometimes abandoned after issuance of permits either before or after commencement of construction. Abandon rates fluctuate over time due to economic conditions such as the Great Recession time period of December 2007 – 2009.
  • Misclassification – Permitting agencies sometimes incorrectly classify permits as new residential construction when the permits are actually for smaller home improvement projects, non-residential structures, or mobile home authorization.
  • Design changes – Builders can make design changes after the original issuance of permits. This typically occurs with apartment buildings where the number of housing units authorized by permits can fluctuate, resulting in more or less units constructed.
  • Change in inventories between time periods – The number of units that are authorized but not yet started affects the relationship between permits, starts, and the number of completed housing units. If construction is stalled for a significant period of time, a housing unit won’t hit the market until it’s deemed complete.

For single-family units, the U.S. Census Bureau has found common trends that affect the relationship between permits, starts, and completions. For example, single-family construction starts are typically 2.5% greater than permits issued, and completions are generally 3.5% less than starts in the same year.

 

County Data Table

Policy Considerations  

When homes are in short supply, families pay more or are pushed out of the communities in which they grew up. Policymakers can utilize the following strategies to help spur more residential development in their communities:

  • Reform project approval processes. Stakeholder and community engagement are important but it should be balanced with the need to build more housing units. Allowing citizen activists to stop housing projects on the basis of ‘Not in my Backyard’ arguments should be balanced with the community’s need to provide housing for all.
  • Accelerate the permit process. Expediting new housing construction permits should be considered by Planning Departments. Whether that is creating a separate permitting process for some housing types (like the ‘missing middle’ structures) or investing in automated software to reduce time spent passing papers between hands, any innovations that help streamline the process would help increase housing starts and completions.
  • Re-assess effectiveness of impact fees. Reasonable impact fees are important for offsetting the cost of the infrastructure it takes to support more citizens. However, these fees can vary between jurisdictions and can impact the decision of a housing developer to build housing in jurisdictions with moderate to high impact fees. Impact fee deferrals or decreases in fees should be considered to increase housing construction.
  • Design standards and building codes. Design standards and building codes that go above and beyond protecting the health and safety of occupants should be scaled back until the housing supply imbalance is improved. Dictating the materials and appliances that must be used in the construction of housing only increases the cost paid by the developer and the end-buyer and works to price-out families from the right to shelter themselves.

There is no silver bullet to the housing shortage. However, if utilized, these strategies can help combat the massive shortage of homes available for Washingtonians.

 

Sources

Khater, Sam, Kiefer, Len and Venkataramana Yanamandra. (2021). “Housing Supply: A Growing Deficit.” FreddieMac: Economic & Housing Research. Retrieved from https://www.freddiemac.com/research/insight/20210507-housing-supply

Khater, Sam, Kiefer, Len and Venkataramana Yanamandra. (2020).  “The Housing Supply Shortage: State of the States.” FreddieMac: Economic & Housing Research. Retrieved from https://www.freddiemac.com/research/insight/20200227-the-housing-supply-shortage

Urban Institute. (n.d.). “Forecasting State and National Trends in Household Formation and Homeownership.” The Urban Institute: Housing Finance Policy Center. Retrieved from https://www.urban.org/policy-centers/housing-finance-policy-center/projects/forecasting-state-and-national-trends-household-formation-and-homeownership/washington

U.S. Census Bureau. (n.d.). “Building Permits Survey – Permits for Washington State, 1990-2020.” [Data Set]. Retrieved from https://www.census.gov/construction/bps/data_visualizations/

U.S. Census Bureau. (n.d.). “Housing Vacancies and Homeownership.” CPS/HVS. [Data Set]. Retrieved from https://www.census.gov/housing/hvs/data/histtabs.html

U.S. Census Bureau. (n.d.) “Data Relationships between Permits, Starts, and Completions.” New Residential Construction. Retrieved from https://www.census.gov/construction/nrc/nrcdatarelationships.html

U.S. Census Bureau. (n.d.). “Resident Population in Washington.” FRED Economic Data, St. Louis FED. [Data Set]. Retrieved from https://fred.stlouisfed.org/series/WAPOP

Washington Office of Financial Management. (2023). “GMA Population Projections.” Retrieved from https://ofm.wa.gov/sites/default/files/public/dataresearch/pop/GMA/projections17/gma_2017_update_report.pdfhttps://ofm.wa.gov/sites/default/files/public/dataresearch/pop/GMA/projections17/gma_2017_update_report.pdf

 

 

Date of First Publication: June 19, 2023
Prepared by Andrea Smith, MPA
Washington Housing Research Center

Copyright Building Industry Association of Washington 2023. All Rights Reserved.
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