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CHARLOTTE, North Carolina (ICIS)–Demographics will weigh heavily on the long-term outlook for the US housing sector as a much smaller Gen Z population reaches prime home-buying age in the first half of the 2030s, according to an ICIS analysis.

Housing is an important end-use market for plastics and other chemistries in the form of paints, wire insulation, house-wrap, sealants, roofing materials, resilient flooring, vinyl siding and more.

New housing also generates sales of appliances, furniture, carpet, fixtures and window treatments. All of these generate demand for chemistry as well. In total, each housing start engenders on average over $13,000 worth of chemistry.

Forecasting housing activity focuses on house prices and mortgage interest rates, both of which affect affordability. Rises in both during 2022 eroded affordability, pushing many potential buyers out of the market.

Economists also consider the inventory of homes for sale, over- or under-building in recent years, consumer confidence, mortgage credit availability, homebuilder confidence, the pool of first-time buyers, government policy and other factors in making their forecasts. During 2021 and 2022, forecasters had to consider shortages of materials, equipment and construction labour.

But what about long-term housing demand? Business leaders in the chemical industry make investment decisions based on the economic viability of a production facility which has a long operating life, often 30 years or so.

Many economic and technical factors impact capital investment decisions, but long-term demand expectations are paramount. And if your product largely goes into building and construction, then long-term housing demand is critical.

ASSESSING LONG-TERM DEMAND
Assessing long-term demand for housing largely focuses on the underlying demographics. About four-fifths of houses built are for new dwelling units (single-family homes, apartments). Underlying physical requirements are of two types – 1) net additions to the housing stock, and 2) replacement of units withdrawn from that stock.

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Most of the factors determining this are generally slow-moving variables. Demography along with need for vacancies and second homes are what drive housing demand over extended time periods.

Because a household is defined as an occupied dwelling unit, housing construction in any given year equals net household formation, plus withdrawals from the housing stocks, plus conversion of single large units into smaller units, less combinations from conversions of smaller units into one, plus the change in the number of vacancies.

 

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