Rebounding from Record Low Housing

Blog posted On December 15, 2017

One of the most persistent problems in the housing industry is lack of availability. At the recent congressional hearing with US House Committee on Financial Services Subcommittee on Financial Institutions and Consumer Credit, Representative Dennis Heck stated that although 2017 had been the strongest year for construction in over a decade, it was still only at the level of 1994.  Over a decade after the housing boom, the homebuilding industry is a third smaller than it was in 2005, while new household formation continues to outpace supply.  Supply constrictions are driving home prices up, and pricing more and more potential home buyers out of the market. 

One of the big issues facing home builders is the lack of skilled laborers.  The construction industry has failed to replenish the workforce it employed before the housing market crash.  Another issue is the increased cost of actually building, due to an increase in state statutes.  From Chris George’s testimony, he stated, “it’s hard to break ground on a piece of property and make a decent return on that given the oversight and regulatory burden that happens locally.” These combined construction issues have left the housing market with a shortage of inventory and a demand outpacing supply.

Watch Chris George on the State of the Industry and Hurdles to Overcome

The first-time home buyer bracket is hit especially hard by inventory shortage, as home price appreciation outpaces the ability to save for a down payment.  With the cost of down payments going up and construction stagnated, would-be first-time home buyers are stuck in shared living situations with roommates and parents, and homelessness increases as well. For the first time in seven years, the national number of homeless people increased to a level of 553,742, up 3,814 since 2016.  High-cost metros are especially vulnerable.  Matthew Doherty, executive director of the U.S. Interagency Council on Homelessness, stated, “High cost and low vacancy rates are putting more people at risk of entering homelessness, and they’re making it harder and harder for people to find housing as they strive to exit homelessness.”

According to data from the Department of Housing and Urban Development and the Federal Housing Finance Agency, out of the four states with the highest increase in homelessness had average annual home price appreciation above the national average of 6.2%.

The housing industry has struggled to find solutions to these problems because of one of the most fundamental issues it faces, stifled innovation.  Regulatory restriction has left the housing industry with the same hurdles year-after-year.  Housing trends are changing more quickly than the industry can adapt.  With a change in legislation, housing professionals have a chance to brainstorm creative solutions and increase the homeownership rate, helping people build equity and stimulating the economy.

Sources: CityLab, Congress.gov, Congress.gov, FHFA, Forbes, HUD, YouTube