‘Structural Deficit’ in US Housing Market
Three housing experts provided insight to the Senate committee about the root causes and what explicitly contributes to current market conditions. Lawmakers and witnesses agreed that supply is a considerable factor in affordability.The paucity of housing stocks is affecting families nationwide, Sen. Sherrod Brown (D-Ohio) said.
“Combined sky-high rents with higher home prices with rising interest rates with too few homes on the market. Homeownership looks further and further out of reach for millions of families,” the senator stated during the hearing. “And the families who have already become homeowners are feeling the squeeze to one in five homeowners pays more than they can afford.”
But it’s the federal government and local interventionist policies that have been largely to blame for the current crop of housing issues, according to Sen. Tim Scott (R-S.C.).
“For decades, Washington’s response to housing challenges has simply been more spending. We need to end this cycle and stop spinning our wheels,” he stated.
According to Robert Dietz, the chief economist at the National Association of Home Builders, the real estate market is facing a “structural deficit” that has been caused by a shortfall in what he says are the five Ls: labor, lumber, locks, lending, and legal burdens. He warned that resolving one of these issues would not be enough to facilitate an environment of more single-family homes being constructed.
“For example, the construction industry faces a persistent skilled labor shortage with currently more than 400,000 Open construction sector jobs needing to be filled. This will require the industry to recruit, train, and retain workers in the trades,” Dietz said.
“The regulatory cost burden is large and distorts the market,” he noted, adding that one-quarter of the purchase price of the typical single-family home is due to a wide range of regulatory costs.
‘Greatest Housing Challenge’
The plethora of components is not only weighing on homeownership trends throughout the United States but also affecting affordable rental housing opportunities, particularly for younger Americans and working-class families.“Nearly a third of renters were cost-burdened in 2020,” explained Dietz. “And reducing these burdens is going to require additional construction. Unfortunately, construction of new affordable rental housing is often impossible without some type of public support, such as the successful low-income housing tax credit or tax-exempt bond programs.”
Dr. Christopher Herbert, the managing director at the Harvard Joint Center for Housing Studies, recommended lower-density housing in the suburbs to make use of the land, suggesting the construction of more garden apartment-style rental housing units.
“Next door, Minneapolis did not follow ... and we saw construction permits increase by nearly 70 percent,” the senator noted.
When asked if such government policies impact households, Dietz agreed that they manufacture long-term ramifications for the broader housing industry.
“I think most economists would agree that rent control type policies basically act as a tax on supply in the long run. So, they’re counterproductive in the sense that the ultimate solution to all the challenges that we’re talking about today is adding additional supply,” Dietz replied.
The housing situation in rural America was also under the spotlight, with Lance George, the director of research and information at the Housing Assistance Council, highlighting the disadvantages ubiquitous in these communities across the country.
For prospective homeowners, rural mortgage markets are higher amid rising interest rates. For rural renters, “housing instability” is a reality for many households.
Ultimately, affordability is the “greatest housing challenge in rural America,” George purported.
It is estimated that one-quarter of rural area properties are considered housing cost-burden—families spending 30 percent or more of their income or expenditures on shelter—which has amplified in recent decades, he averred.
In the end, many of the challenges facing the national real estate market also include the age of housing stock, the pressing need for energy retrofits, and residential properties that address seniors’ mobility needs.