eli5: Would making house’s cheaper fix the housing issue?

Question

eli5: Would making house’s cheaper fix the housing issue?

In: 3

Answer 1

What do you mean by “making houses cheaper”? Costs of materials and labor to build new houses and repair old ones have skyrocketed over the last 2 years. Those costs continue to increase.

In the U.S. and probably most of the world communities have minimum building standards that create a base cost to be able to meet those standards. Standards requiring a certain level of materials and construction practices so that a house that will last and not collapse on the inhabitants, or melt in the rain, and so on.

**The true reason for the rising cost of houses is that there are not enough houses for sale to meet the current demand. In other words, there are a lot more buyers than there are houses to buy. They are getting into bidding wars.** That could change.

Eventually when (if) demand falls off, prices will drop at least slightly and houses will be easier to obtain. Right now there is no reliable forecast for when that will happen.

Currently the most knowledgeable analysts are predicting that the supply will continue to be less than demand for the next couple of years at least. Maybe longer.

But even if that cycle dip happens, it is unlikely that housing will be “cheaper” than it is today because prices will already be higher, and the increased cost of labor and materials will probably not have decreased. Prices will just dip a bit from whatever the high is then. New build houses will slow down as demand drops. Then the market will correct and prices will continue rising. This has always been the pattern in the U.S. – dips are temporary, inflation and housing cost are always on the rise over periods of 2-10 years.

As for the more rapid price increase that is happening right now, many millennials who had started their adult lives in apartments and more dense urban housing are now moving out to the suburbs for more space and a yard for the kids and pets. The covid lockdown seems to have spurred this trend. This has added a lot of demand that wasn’t there before. Among other factors moving prices upward.