Anyone who’s house-shopped recently knows that a historic shortage of inventory is driving the housing market to extremes — rapid-fire sales, soaring prices .
But a new report released this week by the National Association of Realtors put the dearth of homes in even starker terms.
The state of the country’s housing stock is “dire,” “with a severe lack of new construction and prolonged underinvestment leading to an acute shortage of available housing” and “an ever-worsening affordability crisis,” it reads. The gap between the demand and supply of homes is between 5.5 million and 6.8 million units because of a dramatic slowdown in new construction, according to the report. It was authored by Rosen Consulting Group, a real estate consulting firm based in New York and Berkeley, Calif., for the Realtors’ association.
The U.S. housing stock grew at an average rate of 1.7 percent per year from 1968 to 2000, but slowed to an average rate of 1 percent annually in the last 20 years, and even further to .7 percent in the last decade, the report says.
Meanwhile, from 1999 to 2019, the median home price in the U.S. increased by nearly 30 percent, yet the median household income rose by less than 11 percent, according to the report. Those gains don’t account for the even quicker price climbs since last year.
The findings didn’t come as a surprise to Chris Lai, a Tampa Realtor with People’s Choice Realty, who said where he lives in Westchase, there’s typically been 10 or fewer single-family homes on the market at any given time for the entire zip code.
In order to compete, buyers are offering tens of thousands of dollars above the asking price and are striking clauses from their contracts that would allow them to back out if the house doesn’t appraise for the sale amount or issues come up during inspection, he said.
But those options aren’t practical for many first-time buyers in low- or middle- income brackets.
“You’re competing with a lot of out-of-town buyers coming from the North or the West, and they’re paying cash. And then you’re dealing with a lot of institutional buyers that are buying up homes,” such as large hedge funds, Lai said. “It’s a very serious problem.”
The inventory shortage doesn’t only affect buyers, the report noted. Renters also have to shell out more when there is a lack of supply.
Lai, who’s been a Realtor in the Tampa Bay area for more than 15 years, said that he’s seen some renters paying their entire year’s rent up front in order to get selected for a housing unit.
“I’ve never seen that before,” he said.
To relieve the strain, the report’s authors call for a “once-in-a-generation response” that requires a dramatic uptick in the pace of construction, supported by governmental action. Examples include expanding resources for affordable housing programs, approving zoning changes to allow for greater density and reducing trade restrictions to ease the rising prices of lumber and other building materials.
The report’s title, “Housing is Critical Infrastructure: Social and Economic Benefits of Building More Housing,” suggests that its intended audience is Congress, which is currently debating a massive package of infrastructure spending.
“Even if building were to continue at the current pace — the most rapid pace in more than a decade — it would still take more than 20 years to close the 5.5-million-unit housing gap,” it reads. In order to build enough housing units in the next 10 years, the pace of building would need to accelerate by about 60 percent.
Because of that long time period for things to potentially level out — and the Fed’s announcement Wednesday that it expects to hike interest rates twice by the end of 2023 — most buyers shouldn’t wait, said Carol Hasbrouck, a St. Petersburg-based Realtor with Charles Rutenberg Realty.
“Unless you can wait 3 to 5 years, waiting probably isn’t going to make a difference, other than it’s probably going to cost you more,” she said.
But during this proposed national push for more housing, there’s also a need for “community engagement” and “holistic planning” to avoid the mistakes of the highway construction boom of the 50s and 60s, which cut off some parts of cities. Separating minority residents was often the result, creating “segregated neighborhoods of concentrated poverty,” the report states.
Anne Ray, who manages the housing data clearinghouse at the University of Florida’s Shimberg Center for Housing Studies, agreed the lack of supply is “part of the puzzle” that also includes the widening delta between wages and housing costs.
When considering the affordability of new construction, policymakers need to take into account more than just price, she said.
“If you build so far out that people have to drive a long way to work, you might get more affordable home costs but it’s more expensive transportation costs,” she said. “We have to think about ... options for building more modest homes, smaller homes, things to meet people at different points in their lifestyle.”