Why Is There A Housing Shortage?
Investor · Miami, FL · Member since 2015 · 355 posts · 268 votes
We've all accepted that there's a shortage of housing all across the US. But why?
We have declining birthrates. Sure there's been mass migration the past few years, but nowhere near the levels to move the needle nationwide in a meaningful way. The shortage/high prices seem to be everywhere - urban/rural. It's not just sales but rentals too.
On the supply side, it's not like old houses are crumbling to the ground, conversely there's been a ton of redevelopment and new development activity since the pandemic started.
So why does there seem to be such a huge imbalance between supply and demand? How did we go from having sufficient housing 5-10 years ago to suddenly having a serious shortage?
We've all accepted that there's a shortage of housing all across the US. But why?
We have declining birthrates. Sure there's been mass migration the past few years, but nowhere near the levels to move the needle nationwide in a meaningful way. The shortage/high prices seem to be everywhere - urban/rural. It's not just sales but rentals too.
On the supply side, it's not like old houses are crumbling to the ground, conversely there's been a ton of redevelopment and new development activity since the pandemic started.
So why does there seem to be such a huge imbalance between supply and demand? How did we go from having sufficient housing 5-10 years ago to suddenly having a serious shortage?
We've all accepted that there's a shortage of housing all across the US. But why?
We have declining birthrates. Sure there's been mass migration the past few years, but nowhere near the levels to move the needle nationwide in a meaningful way. The shortage/high prices seem to be everywhere - urban/rural. It's not just sales but rentals too.
On the supply side, it's not like old houses are crumbling to the ground, conversely there's been a ton of redevelopment and new development activity since the pandemic started.
So why does there seem to be such a huge imbalance between supply and demand? How did we go from having sufficient housing 5-10 years ago to suddenly having a serious shortage?
@Bruce Woodruff Thank you for the thorough explanation. Apologies if it has been discussed in the past - I live over at the multifamily forum where it hasn't come up so thought I would branch out.
For points 2 and 3, how come this hasn't caused a severe price drop in these places further outside downtown? Maybe it has and I'm looking in the wrong places. Just feels like none of the explanations I hear completely add up - wondering if there's something bigger at play.
We've all accepted that there's a shortage of housing all across the US. But why?
We have declining birthrates. Sure there's been mass migration the past few years, but nowhere near the levels to move the needle nationwide in a meaningful way. The shortage/high prices seem to be everywhere - urban/rural. It's not just sales but rentals too.
On the supply side, it's not like old houses are crumbling to the ground, conversely there's been a ton of redevelopment and new development activity since the pandemic started.
So why does there seem to be such a huge imbalance between supply and demand? How did we go from having sufficient housing 5-10 years ago to suddenly having a serious shortage?
3rd point is very true. I see premium suburbs/areas get multiple offers everything else not so much. The nice suburbs/areas only have a certain amount of starter homes. The new build ones are not going to be starter homes. Unrealistic to expect every area to be affordable for everyone and have enough for new people to be moving in
Do we have a shortage? Or changes in lifestyle? 50,60,70 years ago extended families lived together. Now Grandparents , Parents, and Adult Children all have their own place. The adult children don't want to live together so they all have their own place. This leads to the number of households created. It does not have a lot to do with birth rate, it is the number of house holds. I believe this is why I believe many immigrant families continue to move to the US and do well. They live together in one house. Imagine how quickly the "typical' U.S. family could own a home with no debt if three generations lived together and paid one home off instead of renting three?
I also question how many new units we need. Lifestyle creep has led us to build very large homes. New homes in my area are often 2,500 to 3,000 sq ft and they are for a family of 3 or 4. Eventually these children will move out and there will be only one or two adults in the home. We def have some McMansions that could be remodeled to add a second unit and this would save infrastructure costs.
After World War 2, houses were built at about 800 sq feet. When families had enough money they remodeled the attic or basement. I think a lot of folks would be better off if there were more homes litke this being built today. Maybe smaller homes with an ADU.
@Christie Gahan That's a very good point I had not considered. The second part of my question which I excluded was that where I'm originally from, Australia, there is also a similar housing shortage despite no population growth rate - and the same with other Western countries such as Canada and England. It could all be coincidence but I figured there is something larger at play. The number of households theory could be the answer.
We've all accepted that there's a shortage of housing all across the US. But why?
We have declining birthrates. Sure there's been mass migration the past few years, but nowhere near the levels to move the needle nationwide in a meaningful way. The shortage/high prices seem to be everywhere - urban/rural. It's not just sales but rentals too.
On the supply side, it's not like old houses are crumbling to the ground, conversely there's been a ton of redevelopment and new development activity since the pandemic started.
So why does there seem to be such a huge imbalance between supply and demand? How did we go from having sufficient housing 5-10 years ago to suddenly having a serious shortage?
NIMBY is a big one.
@Christie Gahan That's a very good point I had not considered. The second part of my question which I excluded was that where I'm originally from, Australia, there is also a similar housing shortage despite no population growth rate - and the same with other Western countries such as Canada and England. It could all be coincidence but I figured there is something larger at play. The number of households theory could be the answer.
A second piece, that you have prob heard, is that the 2009 crisis wiped out a great number of builders financially. Most of them never came back. We were overbuilt in 2009 and new builds went down dramatically. The current shortage took 10 to 15 years. Somehow, it seemed to blow up as an issue during Covid. Nobody cared in 2019. By 2021 it was front page news. Do you know if builders in other countries got beat up as well ?
@Robert Rixer
Housing shortage is a broad topic but as far as shortage of homes for sale goes... the Fed holding rates so low for so long resulted in 3% mortgages... which 3 quarters of homeowners have right now... and then when the fed ricocheted in the opposite direction and mortgages hit 6 and 7% nobody wanted to sell to give up the 3% mortgage. Nothing for sale = limited supply = high demand = high prices = less people can buy = more demand for rentals = higher rent prices.
There may be some truth to there being a shortage of properties compared to the population but the lack of inventory for sale I think is the major problem right now
There's a shortage of desirable houses, and houses close to the peak of the work action.
That's for many reasons-- lack of building post GR due to housing issues, people migrating to America and able to occupy these areas. Birth rates don't mean as much if net population growth is still afloat due to immigration.
Right now, the shortage of inventory is rate driven. The rate lock is going to be a longer than expected freeze on housing inventory.
We've all accepted that there's a shortage of housing all across the US. But why?
We have declining birthrates. Sure there's been mass migration the past few years, but nowhere near the levels to move the needle nationwide in a meaningful way. The shortage/high prices seem to be everywhere - urban/rural. It's not just sales but rentals too.
On the supply side, it's not like old houses are crumbling to the ground, conversely there's been a ton of redevelopment and new development activity since the pandemic started.
So why does there seem to be such a huge imbalance between supply and demand? How did we go from having sufficient housing 5-10 years ago to suddenly having a serious shortage?
I bring up new paradigm here :
it's because of too much expansion of money.
What I mean by that is because we have lot of money increasing floating around with downpayment as little as 5-20% can already purchase a house with 30 year fixed debt, the number of potential purchasers are increased by a lot, while supply is diminishing, the amount of liquid hard money is increasing, and liquid money is always going to hard asset like residential.
if you cut 30 year fixed program and gov no longer print money, the buying power would reduce.
We've all accepted that there's a shortage of housing all across the US. But why?
We have declining birthrates. Sure there's been mass migration the past few years, but nowhere near the levels to move the needle nationwide in a meaningful way. The shortage/high prices seem to be everywhere - urban/rural. It's not just sales but rentals too.
On the supply side, it's not like old houses are crumbling to the ground, conversely there's been a ton of redevelopment and new development activity since the pandemic started.
So why does there seem to be such a huge imbalance between supply and demand? How did we go from having sufficient housing 5-10 years ago to suddenly having a serious shortage?
All of the comments are components of the "housing shortage ". Another component is the amount of builders/contractors that went BK during the GFC. As a contractor my, and many others lives were permanently changed.
@Carlos Ptriawan Well put. I often like to think of extremes to put it in perspective - if 100% financing was available, everyone and their brother would be buying up property and the prices would be astronomical. People who have no business being homeowners have the ability to buy homes.
There is a balance between making home ownership attainable but not so attainable that it inadvertently brings way too many buyers in to play. My feel is that balance point is 20% down @ 5-8% interest rates.