New home construction in Wisconsin picked up last year, but more is needed

New home construction in Wisconsin picked up last year after two years of declines, but there’s still a long way to go to address the state’s housing shortage.

The Wisconsin Builders Association collected new home permit data submitted to municipalities across the state, and found 11,657 permits were pulled in 2023. That’s 331 more permits than in 2022, representing a roughly 3 percent increase. 

The final three months of the 2023 fiscal year were among the strongest of the year with 2,608 permits pulled, a 22 percent increase from the prior three-month period, the builders association said.

But a 2023 report from Forward Analytics, the research arm of the Wisconsin Counties Association, found the state needs to build at least 140,000 housing units by 2030 to keep pace with current demand, and 227,000 units if it wants to grow its working-age population.

Home sales were down 17 percent last year compared to 2022 as the median home price rose by 7.5 percent over the same period, according to Wisconsin Realtors Association data.

Brad Boycks, executive director of the Wisconsin Builders Association, said the state needs all types of units from workforce housing to single-family homes. But he said the permit data is limited to new one- and two-family dwellings.

He attributed the increase in construction to interest rates stabilizing after the last rate increase in July 2023, efforts to raise awareness for the housing shortage and a package of bills that became law last year aimed at addressing the issue.

“We’ve seen attention and focus on both sides of the aisle paying attention to housing more than we’ve ever seen before,” Boycks said. “We think that is (a) recognition that there is an issue: we’re not building enough housing.”

Boycks said the Wisconsin Housing and Economic Development Authority is set to begin rolling out loan programs aimed at incentivizing housing development later this year. He hopes the start of those programs help build off some of last year’s momentum.

“We’re hopeful that the passage and execution of those bills will get things jumpstarted a little bit more in 2024,” Boycks said. “Because we need to build more houses, we need to build more workforce housing (and) we need to build really across the line.”

Housing data from the builders association shows that new construction slowed to a crawl after the Great Recession of 2008. The state had more than 17,000 housing starts in 2006. That number fell to 5,362 by 2011, and only climbed gradually during that decade. In 2020, housing starts jumped to 12,291 from 8,719 the previous year. But they declined to 11,711 in 2021 and 11,326 in 2022. 

Boycks said it’s unlikely new home construction will ever reach the levels seen in the years leading up the 2008 recession.

“Getting to a number of consecutive years of high single or maybe even low double digit growth, I think obviously would go a long way to hopefully provide more options for Wisconsin families,” he said. “And we think that that’s where we’re headed.”

How does new housing construction help address shortage?

David Clark, Marquette University professor emeritus of economics and a consultant for the Wisconsin Realtors Association, said new construction represented about 18 percent of the level of existing home sales. He said growth in the new home inventory helps “soften the market” and improve housing supply.

But Clark said the typical buyer of a newly constructed home is someone looking to upgrade and sell their existing home, rather than first-time buyers who are typically Millennials.

“The upshot is that certainly seeing an improvement of nearly 3 percent on a new construction is a good sign,” he said. “Will it help those at the lowest levels of the price range — that is, first time buyers who are just getting into the market? It will help a little bit.”

He added that the hope is that a combination of increased supply from new construction and existing homes will help bring the state closer to a “balanced market,” defined as having six months of supply. 

“If we can get ongoing growth in existing home listings and we can combine that with an improvement in new housing starts, that will help us move closer to that six months of supply,” Clark said.

From the end of 2022 to December 2023, available supply increased by 25 percent, realtors association data shows. But it continued to be a seller’s market with just two and a half months of supply in December.

As baby boomers continue to age out of the owner-occupied housing market in the coming years, it should free up more existing housing supply for first-time buyers, Clark said. 

“We’ll start seeing more and more existing homes finding their way onto the market,” he said. “Long-term, (over the) next several years, we do think that we will move closer to a balanced market.”