The housing shortage and what it means for you

What does the housing shortage mean for real estate professionals? Home prices are growing due to increased demand and unmatched supply. A crowded, competitive market can make your life much more difficult. Ultimately, success during a housing shortage begins with fully understanding the dynamics of the problem.

What is the current state of the real estate market?

The current housing shortage cannot be attributed to one single cause—it’s the culmination of multiple factors that have produced a stratified, competitive housing market. Some of the key factors include:

• Regulations. Markets such as San Francisco, Boston, and New York have been criticized for having strict building codes, preventing developers from building to meet demand. These tight restrictions, combined with an influx of recently-graduated young urban professionals has ultimately lead to highly inflated home prices. One consequence of these regulations is a lack of affordable land to develop on in the first place. The problem is much bigger—in virtually all metropolitan and suburban areas, regulation has caused building costs to balloon to the point that developers don’t really see the point until there is a major legislative overhaul.
• Dearth of workers. As immigration rates slow down, there has been a drop in unskilled workers. This is combined with the fact that construction workers in their 50s and 60s are beginning to retire while fewer and fewer people are entering that particular line of work.

Additionally, home prices are rising at faster rate than incomes are increasing, which means that many millennials are in danger of being priced out of the market. After all, it’s not that there’s a shortage across the board. Market dynamics vary on a local level and, more importantly, by price point. For instance, there is a glut of luxury housing in America, but a shortage of affordable homes for Americans with median or below-average annual incomes. According to The National Association of Home Builders, builders are projected to begin building about 900,000 new properties this year. This is notably less than the approximately 1.3 million homes necessary to keep up with population growth.

When will it get better?

When it comes to housing, it’s not all doom and gloom. According to TheRealDeal.com, homeownership went up for the first time in 2017 since 2004. It is important to remember that all housing markets are local, and some cities are doing better at meeting demand than others—most notably, Chicago, Houston, and Baltimore are performing at normal or near-normal levels, as described by Laura Kusisto in the Wall Street Journal. 

That said, there’s not a lot of good news. Suburban and metropolitan areas are feeling the strain worse than rural areas, so homeowners considering going off the grid would be able to sell their home for a high price and could potentially get a deal in a more remote location. A silver lining is that prices can’t keep going up forever—eventually, people will sniff out a peak and therefore will be incentivized to sell. When that might happen is anybody’s guess. Until then, this shortage will continue to be a major source of frustration for an entire generation that desperately wants to graduate into homeownership.