The United States is experiencing a shortage of housing that has not been seen since 2008. Recent structural changes in the country, such as the workforce’s shift to remote work and reliance on predominantly online services, have caused wide wealth inequality and a shortage in affordable housing. It’s important that the average American can buy a single-family property, but it looks as if that’s becoming less realistic – how can we fix this issue? Here are a few reasons why this is occurring, and some solutions that could tackle this existing problem.
Lack of Housing Development
There is not enough current construction being undertaken or planned to equate the amount of Americans looking to buy a home. Following the Great Recession, new home construction rapidly declined, with fewer homes built in the ten years following 2008 than any other decade since the 1960s. The types of homes being built shifted as well—the Great Recession played a role in this shift of what types of homes were being prioritized. While the 1980s saw just slightly below 40% of new home builds built below 1,400 square feet, the year 2020 saw 10% of all homes built being under 1,400 square feet. Family households never cease to be formed each year, yet America cannot keep up the supply of adequate housing to give to potential home-owners. The result? Less single family homeowners and higher amounts of renters.
Declining buyer demand and less builder confidence similarly caused a drop in new property construction, trends largely introduced during the pandemic-era as a result of rising federal interest rates. As the economy continues to be in a state of lock, mortgage rates will continue to stay high, further reducing buyer demand. A combination of these factors will keep housing expensive to buy and to build, which will exacerbate the ongoing shortage of affordable housing we have here in the United States.
The Rising Cost of Labor & Materials
With the recent effects of the pandemic, shortage of materials and labor made the strides towards new home construction even harder. When the world shut down (due to COVID-19), production and deliveries ceased to continue, enabling issues in supply chains that persist today. Building material prices alone rose 19.4% in the year 2021, and with inflation affecting every sector of consumerism today, that number is likely to be higher today.
The cost of wages has also had to increase, a liability that typically falls onto the consumer of the product. The more expensive it is to hire labor for construction, the higher the home price. The construction industry has also experienced their own labor shortage, as the Bureau of Labor Statistics reports a higher number of 380,000 openings within the construction sector. There is no doubt that a combination of all these factors caused a steep increase in housing pricing, giving way to the shortage Americans have been experiencing.
Older Generations Occupy Majority of Real Estate
Baby boomers, born within years 1946-1964, reportedly occupied 44% of real estate wealth in the year 2021, while Gen X’ers, who were born in the years 1965-1980, hold a staggering 31%. Instead of selling off this property, the older generation is deciding to stay put, going against the typical trend of downsizing their home or moving to a living facility. The pandemic only made matters worse, with a rise of senior citizens concerned for their wellbeing with COVID-19 being as prevalent as it is. Homes cannot be sold to the younger generations of newer family units as long as the older generations take up most of the real estate space in the U.S.
Increase of Short-Term Rentals
Because of the introduction of platforms such as Airbnb and VRBO, individuals with the financial resources can make a passive stream of income through having a rental property. A typical host of an Airbnb made upwards of $13,800 a year in income in 2021. Prior to their popularity, most individuals faced challenges affording more than one home mortgage. These platforms essentially offer a hack on the housing market; you can make back your mortgage of your home, and some change.
While these people hold onto these properties and utilize them for secondary income, other people attempting to buy a home are left with more limiting options. The short term rental space revolutionized the way people look at property, as well as the way people vacation, but it didn’t come with a lack of societal consequences.
Solutions?
Despite the trends offered in this article that have led to our housing shortage, there are a few upsides that could be coming in the next few years to help the problem.
Patience in Letting Interest Rates Hike
As inflation persists and interest rates stay at higher levels, the market will eventually acclimate and adjust to a new normal. People won’t be as frantic to out-bid others for every new house on the market, meaning demand decreases, then inventory will steadily rise. Once this supply steadily increases, buyers have more flexibility and options on the market.
Look for the "Missing Middle"
There could be homes in less-suspecting areas of the U.S. metro areas you’re seeking out. Allowing two units on 10% of single-family lots in these popular areas could make the world of a difference, and could successfully boost the housing supply in a transformative way. This could help slow down the housing price across the board in a way that creates genuine change.
Trends point towards favorability in “modest densification,” which supports the growth of duplexes, triplexes, accessory dwelling units, and smaller apartment buildings often referred to as cottage or garden apartments. Increases of these property types could quickly allow more affordable units on the market, allowing families of smaller size a chance to find success in this turbulent housing market.
Strategizing your Network & Staying Ahead
Agents may typically use a strategy called “circle prospecting,” which exemplifies when real estate agents know where a client desires to live, and calls homeowners in the area seeing if they’re interested in selling. Occasionally, showing initial interest on a home even when it’s not on the market can yield additional homes in which a buyer can choose from.
The housing shortage may not be resolved too quickly for Americans, but understanding why it’s occurring and taking steps to control your stake in the market are both significant. Housing may be a difficult market to time or get into—taking meaningful action can increase your chances of success greatly.
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