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
There are a lot of things in the housing market that might interfere with the simple supply and demand story:
1) Houses take a long time to build. If developers anticipate that economic conditions will be different in a few years (perhaps more baby boomers downsize into apartments), they don’t want to start a project now and have to sell in that market 5 years later. This also works the other way. If something was stopping developers from building a few years ago, like a global pandemic, that hurts supply today.
2) You can’t build a house in the same place twice. Often when people are saying “there aren’t enough houses,” what they mean is “there aren’t enough houses in the location I want to live in.” We’ve already built on all the land in the city center, 15 minutes from the city center, 30 minutes from the city center, etc. We can just keep building farther and farther out, but not everyone wants to buy a house that comes with a 90 minute commute (or even if they work remotely, a 90 minute drive to anything interesting to do). That’s a fundamental physical constraint, though it can be partially solved with density and with building up newish cities.
3) Housing construction is tightly regulated. Maybe developers do want to build on an attractive piece of land, but there are zoning regulations that prevent it (or make it too expensive, or force lower-than-optimal density, etc.) In many places, housing is in a sort of death grip where local laws make it hard to build new houses, which keeps property values of current residents high, and those current residents are the people who make the local laws.
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