Housing supply

The state of housing supply: “Not enough housing for everyone”

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Economic uncertainty, inflation and rising mortgage rates cloud the picture of the US real estate market, which also faces a structural deficit of homes for sale and rental homes. During the “Getting Serious About Housing Supply: The State of the US Housing Market” webinar hosted by the Bipartisan Policy CenterJeff Tucker, senior economic research economist at Zillowand Caitlin Sugrue Walter, Vice President of Research at National Multifamily Housing Council (NMHC)shared the current conditions and challenges facing the home buying and renting industries respectively.

In the market for single-family homes for sale, Tucker said the past two years of rising home prices have pushed unaffordability to a “crisis stage.” Rising affordability concerns have discouraged potential buyers, leading to lower sales volumes and increased inventory in the market.

“When we try to bring all this competing information together, demand backs off in the face of accessibility issues [and] stocks are increasing but not skyrocketing; what our model says is that prices may decline seasonally for the rest of the year and then rebound in the spring [of 2023]. It will look a bit like a seasonal plateau, flat, but with some seasonal growth, Tucker said.

Tucker said inventory, “the barometer of the housing industry,” has recovered slightly from its spring 2022 record highs due to weaker demand in the summer. However, inventory levels are still at nearly half the volume of 2019 levels.

“We are looking for a new balance [of inventory], but it’s not a crazy train heading towards more affordable homes,” Tucker said. “Some people are hoping for a dramatic drop in prices based on media headlines, and our model suggests that’s not expected because basically there aren’t enough houses for all the people who want to buy them. a.”

Walter said lack of supply is also a current problem facing the rental side of the housing market. Research suggests that 600,000 units are currently needed at various price points to meet supply shortages and an additional 3.7 million units will be needed by 2035, according to Walter. While the data suggests nearly 900,000 units are under construction, lengthened construction times and delays inflate the numbers, suggesting the market is not at risk of overbuilding, she explained. Regulatory costs are among the major contributors to rising construction costs and delays in construction schedules in the multifamily market.

“Local jurisdictions should really look at what they require of developers at the local level, what the developer will have to meet at the state level and at the national level. If there are ways to help alleviate these issues, it will help reduce costs,” Walter said.

In addition to supply issues, the sector has seen double-digit rental growth since the second quarter of 2021, which, coupled with migration trends, has meant that some markets that were traditionally more affordable have become less so for tenants.

“I like to think of the accessibility crisis as a bunch of puzzle pieces, where we have to put the pieces of the puzzle back together in order to solve the problem,” Walter said. “Right now we have a bunch of puzzle pieces that just don’t work properly. It’s expensive and time-consuming to build, we’re not building where we need to, and that shows in the growth in rents.

Both Walter and Tucker said a low-hanging fruit to help tackle housing shortages is to reduce some regulatory burdens faced by builders and developers.

“Single family zoning and, even within it, minimum lot size [requirements where] you can’t have a house unless it comes with a quarter acre of land. This is going to ensure that you have less house on the land that is buildable,” Tucker said. “I think the first step is to get away from the builders.”

Walter said another policy solution that would help many rent-overloaded households would be to fully fund the Housing Choice Voucher program and “make the necessary changes to it to make it useful to more landlords.”

Due to the structurally underbuilt housing market, there are fewer household formations among individuals in the 30-50 year old cohort. Tucker said there should be between 4 and 6 million more households than currently exist based on current demographics. The absence of household formation is transmitted by individuals who “double” in multi-family properties or who return home with their parents.

“Americans are still stuck and unable to achieve their American dream of having their own home, whether owned or rented. Everyone is stuck in less space, and I think the deficit of where people want to be has gotten worse during the pandemic,” Tucker said. “A lot of people need a place of their own with a room, it whets the appetite [for space], which means we’re actually further from an equilibrium level where everyone has the amount of space they need and can afford. I think that’s the story of why prices have skyrocketed so much over the past two years.