A Remedy For U.S. Housing Shortage?
Q: Gerald, we are in the market for a home but it seems like every home we’re interested in goes under contract before we can even make an appointment to see it. Is this just my imagination or is there a real housing shortage? What can be done about it? Olivia, Hazlet, NJ
A: Housing inventory in the US is at a 20 year low. There is no one cause – there are several causes. The main cause being that builders just aren’t building enough inventory. Other factors include: 1) high land prices 2) archaic and stifling zoning ordinances in some places 3) tight lending environment, particularly for 1st time home buyers 4) lenders reluctant to lend on condo purchases which in turn reduces construction for condos and entry level homes 5) investors and foreigners buying up residential property in record numbers.
If there was a time where stimulus from the federal government would be timely and appropriate it’s now–a stimulus specifically targeted at filling in the hole in local housing markets created by lack of supply that is artificially inflating prices. A specifically targeted stimulus would create supply to fulfill demand that we know is there and it would create jobs and increase incomes.
This was was actually done the last time there was a housing inventory shortage after WWII. Most people are aware of the baby boom that occurred after the second world war, many however are not familiar with the housing boom that accompanied the baby boom. Home construction after the 2nd world war increased more than 5X the levels that occurred before the war. GDP and the all important personal incomes of americans ended up rising during the period which really is what’s necessary to maintain housing prices over the long term.
Lots of mistakes were made during the credit bubble, but mortgage defaults are at record lows now–it’s a different time with a different set of needs. Housing inventory is way too low to satisfy current demand which is why prices are rising so rapidly in so many local real estate markets. These price increases are distorted by the lack of inventory. More construction provides needed jobs as well as inventory for first-time home buyers and others who are locked out of many markets by artificially high prices that are also distorted by investors and foreign buyers.
Thanks for your question, Olivia.
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