The REAL Reason For Housing Shortages

  • December 20, 2023
  • 2 min read

The home building industry faces a critical issue with building costs—materials and labor expenses have soared, creating what Newsweek describes as a “death spiral.” This escalating trend impacts the industry’s viability.

Record Highs: San Jose’s Housing Predicament
In San Jose, California, home building costs have surged to unprecedented levels. Economic pressures, including increased interest rates, material costs, and labor expenses, have created significant challenges for builders. Astonishingly, constructing a single unit of affordable housing in San Jose can cost anywhere from three-quarters of a million to almost a million dollars, an alarming figure for housing meant to be affordable.

Viability Challenges: Pricing and Market Accessibility
The exorbitant costs of construction raise critical questions about the affordability of these homes. Selling or renting them at viable prices becomes increasingly challenging. If construction costs exceed a million dollars, the selling or renting price must be substantially higher to make the project financially feasible. The inability to find a market willing to pay such high prices stifles construction efforts.

Community Opposition: “Not In My Backyard” Syndrome
In affluent neighborhoods like San Francisco, opposition to new construction arises from residents who resist having new homes or apartments nearby. However, this isn’t solely about reluctance; it’s also about builders facing insurmountable obstacles in finalizing deals and projects.

Permit Delays: Stifling Progress
Lengthy permit delays exacerbate the problem. Projects facing delays, sometimes spanning years due to objections or court battles, become financially unviable by the time they’re approved. Delays in constructing new units conflict with state laws mandating affordable housing, leading to potential legal consequences for the cities and further delays in addressing housing shortages.

Nationwide Implications: Beyond California
The issues plaguing the housing market in California aren’t isolated—they’re gradually spreading to other regions. The combination of regulations, laws, and escalating costs is becoming a national concern. The housing deficit persists, and new construction remains the primary source for closing this gap. However, if building homes becomes economically unfeasible due to these challenges, the housing crisis will only worsen.

Impact on Affordability and Future Prospects
With an ongoing shortage of homes and escalating prices, affordability becomes a significant concern. Higher interest rates exacerbate this issue, making homeownership increasingly unattainable for many. Without addressing these challenges, the dream of owning a home could become out of reach for a significant portion of the population.

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