America Has a Stunning Housing Shortage — Here's Why
WHY YOU SHOULD CARE
Because the rent is too damn high.
By Daniel Malloy
Maybe you’ve felt the nation’s housing squeeze in a rising rent check, an eye-popping property tax bill or a bidding war for your dream home. The problem lies, in part, with Economics 101.
New housing supply fell 330,000 units short of new demand last year.
The analysis from the Urban Institute, a think tank, paints a grim picture for those struggling with high housing costs. It’s partially an overcorrection from when the housing bubble burst in 2008. Then, the furious pace of building juiced by easy credit outpaced demand, putting a damper on prices. But the housing comeback has fully flowered: The market as a whole has surpassed precrash levels, according to a recent gold standard Harvard University study. But building hasn’t kept up.
The problem is at least getting better: For 2015, Urban Institute’s calculation of the demand-supply gap was 460,000. That number is reached by taking data on new home construction (1.14 million units in 2016) and then subtracting the number of homes going out of commission as they become obsolete for various reasons — converting into commercial space, falling into disrepair, etc. The number is then compared with the estimated number of newly formed households based on census data. And Laurie Goodman, co-director of the Urban Institute’s Housing Finance Policy Center, tells OZY her calculations could undersell the problem. She assumes .31 percent of the housing stock becomes obsolete each year. That adds up to a 300-year life span for a house — a figure that’s probably too generous. The real number is higher, she suspects, particularly considering the lack of available credit for homeowners to remodel. “The housing stock is aging really, really rapidly,” Goodman says.
There are plenty of winners here, such as homeowners who hung on through the crash or bought low.
So why aren’t builders keeping up? A May report by the National Association of Homebuilders found that home prices are 50 percent higher than the “normal” level, while single-family home building permits are 47 percent lower. “Single-family permits have inched up slowly as builders continue to face supply-side headwinds such as ongoing price hikes in building materials, a lack of buildable lots and labor shortages,” NAHB chief economist Robert Dietz said in a statement.
Of course, there is no national housing market, and the picture is different in pricey San Francisco or Washington, D.C., than in Las Vegas (still reeling from the popped bubble) or Detroit (what bubble?). But one theme across the country is that new home construction is clustered at the high end of the market, and the stock of affordable housing is frighteningly low. The National Low Income Housing Coalition found that for every 100 renters at the poverty level, just 35 had available housing they could afford.
There are plenty of winners here, such as homeowners who hung on through the crash or bought low. Overall, according to the Harvard study, rental vacancy rates are at 6.9 percent — the lowest in 30-plus years. While good for landlords, the resulting higher rents mean more than 11 million renters now spend at least half their incomes on housing. That can lead to uncomfortable arrangements: In 2015, a whopping 35.6 percent of 18- to 34-year-olds lived with their parents or grandparents, the highest figure ever recorded by the census’ American Community Survey. Without a pickup in home construction, the mom’s basement conundrum will carry on.