US Needs More Housing to Meet Demand and Costs

Anne Lowrey at The Atlantic recognizes a shortage of housing overall and mostly in the cities. “The U.S. Needs More Housing Than Almost Anyone Can Imagine.” Just how many houses, what is the number?

How many homes must the expensive coastal cities in the US build to become affordable for middle-class and the working-poor families? Over the past few weeks, Anne asks a number of housing experts that question. Anne expected a straightforward response: If you build X units, you reduce rents by Y percent—which means that Washington, D.C., needs to build Z units to become broadly affordable again.

She did not get such a simple answer. Jenny Schuetz of the Brookings Institution.

“That’s a difficult question with a lot of moving parts,”

David Garcia, the policy director at the Terner Center for Housing Innovation at UC Berkeley.

“Are we assuming that all of these homes drop out of the sky today?”

There is always someone who will answer a question with a question, which is no answer. A smart a** answer only frustrates.

Chris Herbert, the managing director of the Harvard Joint Center for Housing Studies, gave a long response involving land prices, rental affordability, household formation, and building trends.

Still, all agreed the number is, enormous. Garcia finally answered.

“All the numbers we have that address this question are huge. They’re massive. And they’re all a massive undercount.”

The Problem(s)

No one appears to have an answer as to how to make housing in our most productive cites affordable. Places like San Francisco, Boston, New York City, etc. are pricing the young, the families, and the elderly out of their borders. In turn, businesses experience labor shortages as people relocate to less costly areas.

Several years ago, we went down to Phoenix to look at housing. We walked away knowing we could do it. A bit more than a year ago, we returned having sold our home and with cash in hand. We would bid ten or twenty thousand dollars over the asking price and still were out bid. Same and similar homes, older and new, and restrictions met.

We won the right to buy a home at a set price in a lottery. That worked for us in a way as we never saw the physical model and just a floor plan. The Construction Manager telling us, we bought what the model looked like fell flat. We never saw the model and we had two days to accept the house.

Anne Lowrey . . .

“High rents and sale prices in major cities are a policy choice, one that puts gates around many of our most wonderful places and taxes the folks lucky enough to live there.”

Shutting people out due to high prices impact an economy as people’s income can not keep up with the prices. If they do buy at a higher price, they have trouble affording the basics. A United States with more abundant housing in its big cities would have a more productive, vibrant, and dynamic economy too. There would be alternatives.

How much are people paying for housing?

Nationwide, the share of renters who are considered “burdened” are spending more than 30 percent of their income on rent and utilities. It has climbed to 47%.  One in four renters or approximately 11 million spend more than half their income on shelter. Renters today spend about 10% more of their earnings more on housing than they did in the 1970s

I can not add a complete transcript of a lecture Prof. Elizabeth Warren gave almost two decades ago. Here is a brief marker of what she was saying in 2003.

The growing lines at the bankruptcy courts are not the only signs of financial distress.

A family with children is now seventy-five percent more likely to be late on credit card payments than a family with no children. The number of car repossessions has doubled in just five years. Home mortgage foreclosures have more than tripled in less than twenty-five years. Families with children are now more likely than anyone else to lose the roof over their heads. Economists estimate that for every family officially declaring bankruptcy, there are seven more whose debt loads suggest they should file for bankruptcy.

If only they were more savvy about financial matters.

Families with children are more likely to be worried about whether they can survive economically and evidently for good reason. It is particularly startling that so many families are failing at a time when more mothers are in the workplace.

With more mothers in the workforce, families should be getting by more readily. Instead, it has only worsened since 2003, especially in the coastal cities with limited housing. Garcia, of the Terner Center.

“The reason California has the affordability problems we have now is because we did not build. In the 1960s, 1970s, even into the 1980s. We built between 200,000 and 300,000 homes per year. In our most recent economic boom, we were building 100,000 a year.” He added:

“That is the start and the end of the story when it comes to California.”

It is just as bad on the east coast even when homes are built on small-size city lots. New York City issued fewer new housing permits in the 2010s than it did in the 2000s or in the 1960s. NYC year over year, created more jobs than homes. Nationally, “household growth and new construction have been essentially coincident for the last seven or eight years. “Typically, housing construction exceeds household formation by about 20 percent, because we’re always removing housing that has outlived its useful life. We haven’t been doing that for a long time. Just by that very simple measure, we’re not building enough.”

Why would they if the prices keep increasing. Our home jumped $60,000 after we moved into it and in one year. It went up $10,000 one week later. There would have been a discussion about the price increase if applied as we had committed with earnest money down.

How bad is the situation?

– Looking at the number of American households and the number of vacant housing units, Freddie Mac, the government-sponsored purchaser of mortgage-backed securities, estimates a current supply shortage of 3.8 million units, driven by a 40-year collapse in the construction of homes smaller than 1,400 square feet.

– The group Up for Growth also arrived at an estimate of 3.8 million, using data on the total demand for housing and the overall supply of habitable, available units.

– The National Association of Realtors compared the issuance of housing permits with the number of jobs created in 174 different metro areas. It found that only 38 metro regions are permitting enough new homes to keep up with job growth; in more than a dozen areas, including New York, the Bay Area, Boston, Los Angeles, Honolulu, Miami, and Chicago, just one new home is getting built for every 20-plus jobs created. The NAR estimates an “under-building gap” of as many as 7 million unit.

Left out of the vacancy rates, household-formation trends, and building trends is what Anne Lowrey labels as the affordability gap. The differences between the housing we have and the housing we would need in order to ensure that working-class people could once again live in our big coastal cities for a reasonable cost.

Freddie Mac or The National Association of Realtors are not claiming affordability, accessibility, or a walk to work. However having more available housing can (if there is no collusion) reduces rents and sale prices in nearby blocks, as well as in nearby neighborhoods. Conversely, restricting construction drives prices up

There is a happy medium in-home building, somewhere. I just do not know where.

The industry is taking advantage of buyers.

Our new home came with 15 initial issues which resulted in a battle for two months with the Construction Manager. It is amazing, if I go to a Closing and can not Close, I can be fined $200/day. Yet a builder can deliver an incomplete house at Closing and not be penalized. Three weeks after Close the Construction Manager called to tell me he signed the Work Order to repair the sidewalk. A sidewalk, mostly minus the slabs after they had cracked it numerous times by allowing the dumpster company to drop a dumpster on it. The 15 issues were very obvious. I also had to explain the Uniform Commercial Code to him and Reasonable Man expectations. This came after he brought up attorneys.

Even when he committed in writing to fix the defects, three months passed before completion. He said he was busy building out other homes. I ended up explaining one can not inspect quality into a house. A builder must build quality into their homes.

The scary part of a home-building binge?

There is a part of home building which needs to be reconciled. I am not the only person who has had issues with builder. Being the son of a bricklayer/tuckpointer, I learned his trade by working with him. I also learned how to house frame, draw my own plans, etc. in high school. With some knowledge of business law and the fundamentals of home building, I could push back.

Most people can not or will not push back. One buyer plopped down $100,000 on a home that has been under construction for a year. Getting the ever-hopeful homeowner to document conversations and dates is a bridge too far for them. Laws do not seem to work as businesses take it to the brink of noncompliance.

Are we ready to turn over manufacture of homes to willfully noncompliant builders? The points are well taken by Anne Lowrey even after I added to them. I do wonder about the profit motivated industry and a government having trouble governing.

Global Housing Price Slump and Other Economic Issues Early 2023,” Angry Bear, angry bear blog