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
North America has a general housing shortage, particularly in high demand areas like cities. We are not building housing anywhere near as fast to keep up with demand.
This drives up the cost of housing because people are have to pay more to get a house to compete against every other potential buyer.
Other factors like increasing immigration, corporate ownership of houses for rental properties, and the rise of AirBnBs further reduces the number of available houses. Yet all of this is secondary to the root problem which is we just aren’t building enough housing.
As for why we just don’t build more houses?
– The housing market is tightly regulated. There’s a lot of permits and zoning laws in the way that limits what housing companies can build.
– Land in major cities is expensive and in high demand
– low-income housing is in high demand, but isn’t profitable to build
– Housing contractors focus on luxury condos and upper middle class homes because they are more profitable.
– Less apartment complexes are being built because of a focus on short term profits.
– The US builds and maintains a fraction of the amount of government subsidized housing that Canada or the UK builds.
– The NIMBY crowd (Not In My Back Yard) in suburbs in particular fights against building low-income housing and apartment complexes because it is seen as negatively impacting the neighborhood and housing values.
– Housing in North America is seen as an investment instead of just a home. Saving money is very difficult in this era so home ownership is more important than ever to save money for retirement.
The Japanese by comparison don’t have these problems. Tokyo is the largest metropolitan city in the world but they don’t have a housing shortage.
Why?
Housing quality is generally lower, zoning laws and permitting is easier, individual units are smaller, and the construction industry is much bigger and more efficient than here.
In my neighborhood, there are new houses being built. The city has the infrastructure (roads, water, electricity, etc) and space to accommodate new housing. Every single house is being sold before ground is even broken. No discounts, minimal customization, just “we’re going to be making this house, it’ll be done in 6 months or so, and costs this much. Do you want it?” And every single one has someone saying yes within a week of posting. And there are 6 builders that each finish like 2-3 houses a week. When one of those houses finishes before they get a buyer lined up, that’s when there’s enough housing.
Meanwhile, in Seattle, there isn’t any more room to build more houses. Every lot that can have a house already does have a house. So you have a tiny old house that’s probably worth $200k anywhere else going for $1m, simply because it’s in Seattle.
When twenty people put bids in on one house then the person who offers the most money will win the house. This drives the price up. If only one person bids on a house they are not competing with anyone, so they can offer around the value of the house or even less.
You cannot build housing if there is no spare land to build it on. In places with high demand the demand is high because the area is already built up. If a developer buys two $1 million houses to demolish and build four units on, and has to pay $1.5 million to build them then at the very least they need to charge $1 million each to make a profit. So yeah, they have increased the housing supply by 2, but prices have only increased because now the half as big houses with less yard are selling for what a single house used to.
In a nutshell, it actually is supply and demand. Population continues to rise, more people are living on their own vs with partner or family.
The nuance in 2024, is that there ARE plenty of homes available, but there aren’t enough homes that aren’t owned by landlords for rent. Rent is so high because property values and interest rates are high right now.
We saw the price of homes take a massive leap in 2019-2021, when interest rates were at record lows, real estate investors took full advantage and bought as much property as possible for rental purposes. Which took many homes off the market and increased the cost of the remaining supply.
>If the demand is so high and the supply is so low then the suppliers would obviously ramp up production, right?
That’s a misunderstanding of supply and demand.
Economically speaking, demand is not a single fixed number. Neither is supply. They are *curves*.
You seem to be imagining that there’s a demand for, say, 1000 houses and a supply of 800 houses, and you’re expecting the suppliers to increase their production to increase that supply number.
But what actually happens is that there’s a demand curve matching a number of houses to a price, and a supply curve matching a number of houses to a price, and they go in opposite directions.
So, for example: let’s imagine there are 1000 people that might possibly want a house.
You might have a demand curve that looks like: 600 houses if a house costs $100, 700 houses if a house costs $90, 800 at $80, 900 at $70, 1000 at $60.
And you might have a supply curve that looks like: 1000 houses if a house costs $100, 900 at $90, 800 at $80, 700 at $70, 600 at $60.
The equilibrium of supply and demand says that, over time, the point where those curves meet is where the stable price and quantity will be. Here, the curves intersect at 800 houses at $80.
But that leaves 200 people without a house. And this is economically *stable* – with no other changes to the system, the suppliers will *never* build more houses.
The issue is the difference between the common-parlance term “demand” and the economic term “demand” – and the same thing for “supply”. Basically, the issue is that it’s not *profitable* to build those last 200 houses.
In order to change this, what needs to happen is not just moving along the existing demand or supply curves – that’s not economically stable. What needs to happen is shifting the *entire curve*, which changes the equilibrium intersection point. This happens for a lot of different reasons, but the “easiest” one (from an external perspective) is often government intervention. Governments can raise or lower the demand curve by giving or taking money on the purchase side of things – e.g. subsidies or taxes on home buyers. Governments can raise or lower the supply curve by incentivizing or restricting construction – e.g. construction subsidies or construction regulations and taxes.
Regulation has been noted here as a limiting factor in a few comments, which is only somewhat true. There *are* a bunch of regulations and laws that act to lower the supply curve (though they *can* have other important benefits – e.g. it’s cheaper to build things without a fire code, but having a fire code saves lives). However, even if there were no housing regulations whatsoever, there would still be a mismatch between “how many people theoretically want a house” and “what is the actual economic equilibrium point”. And there are also regulations that act to *raise* the supply curve – e.g. incentives for building low-income housing. The “net effect” of the regulations is complicated to calculate and varies by jurisdiction. Certainly there are locations in the US where the net effect is a “negative” (the changed supply and demand curves result in a lower-total-houses point), but it’s unlikely that this is always true, and it’s plausible that there are locations and contexts where the net effect is “positive” (particularly where there is significant investment in low-income housing & housing subsidies).
Even this is a simplified view, of course, because all housing isn’t identical, so there are actually multiple markets that affect each other (apartment vs standalone house, large living area vs small living area, etc), but this is the “core” of the problem.
[https://fortune.com/2024/06/26/housing-market-surplus-affordability-real-estate/](https://fortune.com/2024/06/26/housing-market-surplus-affordability-real-estate/)
There isn’t.
There is a housing surplus, just, as the article here says, not for people who can’t afford houses.
Anecdote: I just bought a house. I make a little over $75k and could only qualify for a $90-$125k mortgage. Houses in my area that aren’t dilapidated start around $300k. Ultimately I got into one at $350k but only because I was super lucky and privileged (my dad sold some land and loaned me the money). If he hadn’t then i would have needed $225k to put down.
Perspective: My Dad bought my childhood home in 1974 for $39k while making $12k a year. That’s almost 2.5 times his salary and he made almost no down payment. So, not only are houses much more expensive, but the math for mortgages has changed and lenders won’t lend you 2-3 times you yearly income anymore (it’s 90-150% MAX)
Like 90% of the land in every US city is zoned exclusively for detached single-family homes. This is the least dense, most land-expensive type of housing that exists, and there’s frequently no new land left to build on. These cities lack the middle-density flats, duplexes/triplexes/quads, townhouses etc. that are smaller, use less land, and cost far less to live in.
It’s bullshit. Homeless people aren’t homeless because lack of housing. And poor people are forced to rent. There’s still houses to rent. If you’re looking for a house, there’s always houses on the market.
Meaning the problem is the government who has allowed a system where you can buy a house as an investment. Get people to rent it and make money off it. That’s the whole issue.
This is why. [https://fred.stlouisfed.org/series/HOUST](https://fred.stlouisfed.org/series/HOUST)
You have to go back to the GFC to see when this problem started.
A lot of the answers suggest that it is zoning. I would disagree with that. I build apartments and homes.
My biggest reasons that I don’t build more:
1) I can’t find enough laborers to build more
2) I can’t find open buildable land in places where people want to buy a house. In my town of 34k people, suburban area, there are literally no open lots for building.
3) I can build in a less desirable area but the profit would not justify it at current interest rates. I’m better off deploying my capital elsewhere.
4) Instead of building homes for sale, I’m building luxury apartment buildings. 100 to 200 units each development. We lease before construction is complete.
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