The U.S. Housing Shortage
By some measures, the U.S. housing market is short by many millions of homes in order to fulfill the demand from new home and resale home markets. So what is the solution to this? What is the reason for it? Well, this is a really good article from Investopedia that talks about three factors that have gone into creating the shortage of homes over the last decade.
Impact of the 2008 Financial Crisis
The first factor started out in 2010 when the housing market crashed after the financial crisis. Many home builders got out of the market. They stopped being a business. They basically went bankrupt or they closed because nobody was buying new houses. Many builders had put money into investments of homes that failed, so they were basically bankrupt. It took many, many years for builders to come back into the marketplace. Some people who were skilled tradespeople and skilled craftsmen stopped working in the construction industry. They retired and went to do something else. Then when the demand started to come back five to six years later, in 2016-2017, they were already moved on to something else.
Skilled Labor Shortage and Increased Demand
The backlog of skilled tradespeople and construction companies was thinned out by then, so it took a while to get it ramped up. Then what happened is in 2019, there was a huge wave of demand from people because of the pandemic. People wanted to buy a different house and move to a different area, move to the suburbs. Prices went up dramatically. Prices went up from an average price of about $220,000 to about $450,000. At the same time, interest rates went from 2% to 7%.
Rising Mortgage Costs
Now all of a sudden, in 2020, instead of a mortgage payment on an average house being about $1,100, it’s about $3,500—three times more. What that did was it made it so that new home construction again was slowed down because builders didn’t want to take the risk of building these houses and not being able to sell them.
Supply Chain Issues and Inflation
Then you had a pipeline problem, a supply line problem where the supply chain for things like lumber, paint, materials, building supplies, and nails—everything was backed up again. This was because of the pandemic but also because of inflation. It was tough to get inventory of these items. Plus, the lumber prices went through the roof. At one point, lumber prices were $400 to $500 per thousand board feet. Then they were at one point $1,500 per thousand board feet. That created a problem.
Permitting and Labor Shortages
The last thing that happened was you started to have permitting problems and labor shortage problems. There’s never been a good catch-up of home building for the last 15, almost 20 years, and that’s created the shortage of homes.
Challenges in Fixing the Shortage
How can that be fixed? Well, it’s not an overnight fix. Building a house is not like building a pen that you want to sell more of or even building a car. You can build a car in a week or so at a factory. Houses take months and months of planning, zoning, laying out lot lines, permitting, surveys, getting construction materials, getting equipment. Then building the house can take three or four months. It could be a year from start to finish, so it doesn’t happen overnight. During that year, if anything bad happens with the economy, the builders pull back.
The Housing Shortage is Here to Stay
This is why there’s a shortage of homes. There’s not an easy fix to it. A lot of people say, “Well, change the zoning so you don’t have to have only single-family zoning.” That’s not going to change all the other problems. So this housing shortage is kind of here to stay, and it’s making home ownership a lot more difficult because of how much more cost and the limit of available inventory.
