I’m new to this sub. Why is there a housing shortage when the birth rate has been declining considerably? The national news just said we need 5 million more homes to satisfy the current need. I’m genuinely curious. Thanks!
In: Economics
Corporations and Chinese investors are buying up all of the homes, paying cash in hand above list price, mostly for short-term rentals (i.e. AirBNB). Simple as that.
Mostly because governments make it harder to build homes with zoning, fees, regulations, etc. if you get rid of all that it is surprisingly inexpensive to build a house.
Next is labor which is driven up by the requirements of licenses, unions and people needing to be paid more so they can afford homes too.
Then there is the issue that people want larger than necessary houses which massively raises the cost. Build small.
Add to that the fancy features like air conditioning, electronics, looks and such.
I built my house for $7,000. No zoning. No permits. I provided all the labor, engineering, architecture, plumbing, wiring, etc. it is small, super high thermal mass and highly insulated so it naturally stays cool in the summer and warm in the winter with burning only 0.75 cord of firewood. Ultra low maintenance.
1. Birth rate is still positive, and population is still increasing. Old people are still dying at a lower rate than new people coming into the housing market right now. It’s about a 20 year lag between people being born and people needing housing, and birth rate 20 years ago was higher then.
2. Immigration into the US is consistently strong, also contributing to population growth.
3. Landlord corporations and Equity Funds are buying massive amounts of housing and renting them out, and turnover leads to a lower efficiency of housing occupation (if people move in/out every 2 years, and it takes 1 month to clean and find a new tenant, that’s where the home is only occupied 96% of the time. Put in other words, if there are 100 million homes, 4 million of them are unoccupied at any time due to the cyclic of tenants).
4. In order to maintain a steady supply/demand curve, supply needs to be created at a 1:1 ratio of demand. This has not been done since 2008, so for 16 years we have had a large increase in demand without the accompanying increase in supply. This has been especially true in California. One example: Between 2011 and 2019, the city of Cupertino added just 17 new housing units, while Apple (headquartered in Cupertino) added nearly 11,000 jobs there.
Birthrate doesn’t matter, population does. [Population continues to grow.](https://fred.stlouisfed.org/series/POPTOTUSA647NWDB)
In addition, as people get richer, they want more space to live in ([houses have gotten significantly bigger](https://www.newser.com/story/225645/average-size-of-us-homes-decade-by-decade.html)), and they want more space to themselves ([number of people per household is going down over time)](https://www.statista.com/statistics/183648/average-size-of-households-in-the-us/). Both of which means the same amount of housing houses fewer people.
Couple those demographic trends with changes in the laws around homebuilding, which have made it harder and more expensive to build lots of new homes (zoning and building codes really took off in the latter half of the 20th century), means that demand has skyrocketed while supply has not been able to keep up.
Hence, the housing crisis.
Well, in the United States, there actually isn’t a housing shortage. There are [15.1 million vacant homes](https://usafacts.org/articles/how-many-vacant-homes-are-there-in-the-us/) in the United States, and [less than a million](https://en.wikipedia.org/wiki/Homelessness_in_the_United_States) homeless people on any given night.
However, there is a huge mismatch in the housing market between the types of homes that people want to buy, and the number actually available. Most of the homes available are not actually houses, they are rental units. The lack of desirable homes creates competition, raising prices; that’s the inflation everybody keeps talking about.
Ordinarily, raised prices are supposed to be matched by increased wages. If wages had increased, home construction would have been more profitable, and more of them would have been built. However, nobody actually forces companies to raise wages in a way that matches inflation, so they haven’t.
The resulting decades of wage neglect by US companies removed the economic incentive to build more houses for people to buy, and this is why the US didn’t build enough houses.
There are several different reasons.
1. The 2008 crash is still fresh on home builders minds so they build very cautiously. This constrains new supply and prices rise
2. Cities pass laws saying houses and apartments can only be built in certain areas and only to a certain height. All the land available for building houses on is already built out. Since there is no land to build new houses, supply is constrained and prices rise
3. Covid caused people to want more space driving demand in certain areas. Covid also caused people to not sell since if you owned a house you wanted to limit risk during an economic crisis. This increased demand and decreased supply which caused prices to rise.
4. Interest rates are much higher so people who may have been looking to sell and get a bigger place aren’t because they have such a low interest rate on their current home they can’t get a bigger house for the same monthly payment after rolling their equity to a larger down payment. This has constrained supply causing prices to rise.
Then you have other factors increasing demand to buy.
Air BnB (and other short term rentals) in some areas have increased demand. More demand same supply, higher prices.
Corporate landlords are looking for new properties they can rent. More demand, higher prices.
Real estate is seen as a solid investment and generally it’s been true but there have been down turns. Foreign investors who have nothing better to do with their money like the “safety” of owing property and buy houses (sometimes to rent) increasing demand.
Any one of these may not be bad but when you pile all of them on, it leads to high demand, high prices, and the income level needed to qualify for a house keeps rising faster than average wages.
With normal products, if there is a shortage, that will lead to increased production of whatever there is a shortage of. For example, once the COVID pandemic started, there was a shortage of masks, but manufacturers quickly ramped up production.
With housing, it is far more difficult to increase production. Someone trying to build new housing has to spend a lot of time searching for available land to build on, designing the new housing, and then dealing with a government red tape to get approval for the project (the extent of this can vary a lot by location). And that is all before any construction has started. This process can potentially take years, and if developers don’t think that they are going to get a good profit at the end, they aren’t going to bother going through all of that. This has also contributed to why so much of the new housing built is expensive “luxury” housing.
Declining birthrate does not mean shrinking population unless the birth rate declines too low and the population size is not sustained some other way (immigration, somehow lower the death rate / increase life expectancy, etc.)
Beyond that, a lot of this is demographics. Right now you’ve got large numbers of baby boomers who had kids and have become empty-nesters. They own homes that were large enough for them to raise their families in, but now that the kids have moved out (and need their own housing) you’ve got lots of large homes not being used to their full capacity. In a lot of the country, fiscal/tax policy encourages this.
Another problem is that demand for housing is artificially high and the supply is artificially low. What I mean by that is you’ve got people and corporations buying houses who don’t intend to actually live in them. More and more homes are being repurposed as vacation rentals, vacation homes, etc. So they aren’t being used as someone’s permanent residence.
It’s the boomers screwing over the millennials. They are using the wildly increased value of their houses to fund their retirements. It’s a generational wealth transfer in progress.
The rate of corporate ownership of housing has never been higher. Not hard to connect the dots once you’ve been outbid on “starter home” after “starter home” by an out of state LLC that flips it and tries to sell it for 2.5x the price or rents it out for exorbitant sums
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