The Importance of Having a House
We can all agree that a house is something that everybody needs. You need a roof over your head, four walls to keep out the wind and the rain, a place to lay down and sleep, and hopefully a place to cook some meals. There are people that live in everything from a tent to hotel rooms to apartments to condominiums to homes to large mansions. Everybody needs some kind of a house. We can all debate about how much of a house somebody should be able to have and what’s fair or not fair, but everybody needs to have some kind of a house.

The Problem: Not Enough Housing
There is a problem, though: there’s not enough to go around. This means some people don’t have a house and are living outside, or they may have a house, but it’s not really sufficient for their lifestyle. They may be living in a rundown apartment when they need something more substantial. The quick answer seems like, “Well, let’s just build more.” If you don’t have enough, build more. Obviously, there are businesses and companies whose entire existence is about making more houses: homebuilders, developers, contractors.

Why Not Build More Houses?
So why not just build more houses? You might think it’s because they are too greedy, not making enough money, or only building big houses. There’s some of that, but there’s a big difference between building a house and making something like a cell phone, furniture, or a car. All of those require materials, parts, some kind of factory, and a production facility. Real estate development is a little different.

The Complex Process of Real Estate Development
First of all, you need the land, and believe it or not, there’s actually a decent amount of land out there. But even if you have the land, the development process starts with approvals, permits, zoning, and development plans for that municipality, town, or city. All of those take time and money. The problem is, as a developer or builder, you don’t have certainty.

Challenges in Scaling Real Estate Development
If I wanted to build cell phones, I could line up contractors for all the parts and plan to build 1,000 cell phones. With real estate, you’re planning out one, two, or three years in advance, and you don’t know if your project’s going to get approved. There are a lot of variables in that time. A lot of things can happen with the market. Your sales cycle isn’t just a few months like selling a mobile device; you have to plan out years in advance.

Financial Risks in Home Construction
There is a financial calculation that goes into it. If interest rates go up or insurance rates are not affordable, you’re now stuck with that house. It’s not a liquid item. If you have too many cell phones, you can sell them on eBay or through a liquidation company. You can’t do that with a house.

Staffing and Geographic Challenges
Building houses requires contractors, laborers, and people who know how to build. Those are in short supply. Unlike a factory where all construction happens in one place, home building happens in subdivisions scattered around the state, county, or country. Laborers can’t move every six months for a new subdivision 100 miles away.

Market Challenges and Builder Hesitance
Builders face a murky landscape. In 2021 and 2022, when housing prices went up, builders sold homes for more money. But when interest rates went up, the economy slowed down, and inflation rose, builders became hesitant. Spending 8 to 12 months building a house with $200,000 to $300,000 tied up in it—and then not being able to sell—creates financial problems.

The Inelastic Nature of Home Construction
Construction for single-family homes is not an elastic or scalable process. Apartments pose fewer problems but don’t offer long-term benefits to residents who may need to move due to job changes, rent increases, or family growth. The uphill battle in single-family home construction has no easy solution, especially as the population grows.

The Lack of a Quick Fix
Even if zoning and permitting laws were changed tomorrow to make development easier, it would take five to six years for the changes to work through the market.

Conclusion: Challenges in the Housing Market
The housing market is fraught with challenges, and building homes cannot be scaled up quickly.