5 Reasons Why There ISN’T a Housing Shortage

July 7, 2022

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5 min read

Housing is a basic human need. But a lack of affordable housing to buy or rent is fueling a housing crisis here in the States. Research claims that the US needed 3.8 million homes in 2019, which grew to 5.2 million homes in 2021.

Introduction

The construction industry is facing intense pressure to build homes faster, cheaper, and in larger quantities, but are we truly facing a housing shortage crisis? The media bombards us with articles about housing crises and inventory shortages, blaming the construction industry for the problem. However, a closer analysis of real housing and population data reveals a different story. In this article, we’ll explore five reasons why there isn’t a housing shortage in the United States.

1. Declining Population Growth

The Mystery of the Declining U.S. Birth Rate

Up until the Great Recession of 2008, the US birth rate hovered between 65 and 70 births per 1,000 women. However, after 2008, the birth rate never recovered. As of 2020, the U.S. birth rate was 55.8 births per 1,000 women, a decline of almost 20 percent from 2007. At the same time, the number of deaths has spiked considerably. In 2005, the US saw 2.4 million deaths per year. That number is now around 3.1 million. It is unfortunately expected to increase as the Baby Boomer generation ages.

The MYTH of the US Housing Shortage

Permits for single-family homes declined from a peak of 1.7 million in 2005 all the way down to 400k in 2010, a massive 70% drop. Even in 2020, the number of permits issued was only 1 million, far lower than 2005. However, overlaying this graph with the population growth graph tells a very different story.

The ratio of population growth to new housing permits should be around 1.5, 1.5, meaning 1.5 people added for every 1 permit. In the mid-2000s, right before the last housing crash, the Population / Permitting Ratio dipped below 1.5. 15 years later, we’re back in the same danger zone. 0.8 people were added in 2020 for every 1 permit. For the first time in US history, more units were permitted than the population grew. This means that we’re heading towards oversupply, NOT a shortage.

2. Number of People per Unit

When times get tough and there’s a true housing shortage, people turn to shared housing to help make ends meet. If we were truly facing a housing crisis, the number of people per unit in the States would be extremely high, between 5 and 8 people per house. This is evident in several African and Asian countries. However, the number of people per US household is one of the lowest in the entire world. This graph shows that we are at a historic low of just 2.49 people per household.

3. The Number of Rental Units

According to Redfin, investors purchased a record $64 billion worth of homes in 2021, the most in at least two decades. That’s an average of 15% of homes sold in many metropolitan areas. Here’s where things get very suspicious. Coverage of investors buying rental units is very biased and skewed. This VOX article from June 2021, claims that Wall Street, private equity firms and institutional investors are not to blame for pushing prices upwards. Comcast owns VOX and NBC. The second largest shareholder of Comcast is Black Rock, who also owns Time Warner, Disney and News Corp. They collectively control more than 90% of the US media landscape.

4. Low Interest Rates

Over the last 30 years, low interest rates have driven up home prices. From 2008, up until 2021, the 30 year fixed rate mortgage was below 6%, a historic low. No money down, ultra-low interest rates, and easy qualification gave individuals the ability to buy much more home for their money. An increase in the supply of homes isn’t going to fix a housing shortage if interest rates stay low. Investors will continue to buy up property and second homes because there is a profit to be made. As we know, the Fed has been hiking up interest rates to stabilize inflation, which has increased the 30 year fixed rate mortgage to over 5.5%. This will logically increase the supply in homes, as we have seen in the past.

5. Mismatch of Housing Types and Locations

Trendy markets like Miami, Denver, Atlanta and Austin have an out of control demand for housing, while other places like Detroit still have plenty of vacant houses. The work from home revolution over the past 2 years has exacerbated the problem. Companies are slowly catching on to this phenomenon and realizing that they can pay remote workers 30-40% less than local workers. Big names in tech like Google, Facebook, Twitter and Microsoft have indicated that they will adjust employees’ pay based on where they live.

Conclusion

Shortage of all housing isn’t the issue, but the lack of affordable housing is. Millions of homes are tied up as investment property. Others have mortgages that are in forbearance or delinquent. Many cities still have eviction moratoriums in place from 2 years ago. While the numbers show that there isn’t an inventory shortage, I am glad to see the construction industry innovate, automate and try to increase productivity. Construction is highly reliant on manual labor so it isn’t an attractive field for young people. Skilled workers are aging out and retiring, leaving a huge gap in the labor market

Unfortunately, this insane pressure to build, build and build more has created fraudulent and deceitful companies that claim to be the solution to homelessness and lack of affordable housing. They have raised millions of dollars on an idea, not a viable product. As much as I hope we don’t have a crippling recession, we need some sort of reset button to weed out all these phony companies.