Shortage of Space Hurts Downtown Housing

Blog posted On May 30, 2017

Housing inventory shortage has remained a consistent problem in the housing industry for the past decade.  Among the causes of constrained housing inventory are labor shortages, building material price appreciation, and land availability.  As more Americans move closer to city centers, builders are restricted to vacant lots in urban neighborhoods. 

Historically, cities tend to sprawl outwards as they grow.  Builders expand beyond city boundaries and develop suburban neighborhoods.  This strategy has worked well in cities like Austin and Nashville.  In more expensive cities along the coasts, the population prefers to infill.  For example, new construction in New York City has been tightly concentrated in downtown zones with high-density construction permits. 

Builders offset the cost of land by building more densely, or building up.  This style of multi-family housing often becomes high-end apartments.  Cities like New York City and San Francisco are suffering from an oversupply of high-end apartments and are forced to drop prices. 

Zoning decisions will also impact housing trends.  Lawmakers in favor of single-family, neighborhood style homes can influence construction trends.  As long as the trend toward city living persists, builders are going to have build up, since space constrictions prevent sprawling out.

Sources: Bloomberg