Ive heard repeatedly when trying to learn about our housing situation that we don’t have enough homes. I don’t understand how that’s the case or if it’s even true. Who or what is stopping more homes from being built exactly? If the demand is so high and the supply is so low then the suppliers would obviously ramp up production, right?
In: Economics
> Who or what is stopping more homes from being built exactly? If the demand is so high and the supply is so low then the suppliers would obviously ramp up production, right?
First off, it’s not quick or cheap to build more houses. Land needs to be acquired, financing needs to be secured, planned need to be drawn up, plans need to be approved and permit acquired, then the construction takes time, construction required large quantities of materials and labor. And ups and downs of the economy, changes in interest rates, pandemics, etc. can all delay this.
And there have been severe limitations on materials and labor in recent years, driving up costs and increasing time necessary to build. Even if builders are ready to build their subdivision, 7x spikes in lumber costs, backorders on appliances due to chip shortages, overall lack of skill tradespeople to build homes have all caused costs to jump and delays to get to completion and sale.
Another big issue is cost to build vs. ability to afford. The high costs for land, for materials, for labor mean houses cost a LOT of money, and new homes are just not affordable for a large portion of those who want/need a house. And higher interest rates make this an even bigger affordability issue. There’s a problem if homes cost $500k to build and buyers can only afford $350k.
What often happens is that higher end buyers are drawn to newer, nicer construction while their older, smaller homes are then more affordable for buyers of lesser means. But the spike in interest rates mean upgrading skyrockets the expense to move, so owners are staying put unless they absolutely need to move. Even if one might like to upgrade, a home that costs 50% more than current home might mean a mortgage that’s double or triple their current one, and not many potential buyers are willing to take that on.
But another issue we need to address is people’s “need” for space… there is such limited land within an hour of a metro area’s center, and way more people who want to live there than there is space for everybody to have their 3000 sq ft home on 1/3 acre lot. We need more people to be willing to live in 1800 sq ft townhouses, more people to consider condos, etc. to create more density, which will help reduce housing costs.
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