Where Are the Homes?
While there is no shortage of prospective home purchasers, there is a shortage of homes for sale. What happened? Why are there currently just 0.7 new housing starts per household when in 1960 there were 2.5 starts per household? And why has membership in the National Association of homebuilders declined from 240,000 in 2007 to 140,000 currently?
The various reasons integrate economics, life style changes, construction requirements and other factors. Land and construction costs have doubled since the year 2000. Many areas have a shortage of buildable land and especially close-in parcels. More stringent building codes and increased environmental regulations have contributed to this cost increase. Increased regulation in the financial industry has tightened lending standards and made loans more difficult for both builders and homeowners. Additionally, there is a shortage of construction laborers due to an aging work force, fewer immigrants and declining enrollment in trade schools.
And on top of all that, the younger generations are rejecting the notion of living on the city’s periphery and enduring long commutes to work. This is a double whammy in that it reduces demand for these suburban and rural area homes built by baby boomers, while at the same time putting increasing upward price pressure on close-in and city center housing.
Some areas are beginning to lose population due to high housing costs in the core and ridiculous commuting times from outlying areas where housing is more affordable. A good example is San Francisco. As of this writing, a glance at the U-Haul truck rental site displays the price of a large moving van from San Francisco to Las Vegas of $2,100. But it you want to move from Las Vegas to San Francisco, it’s $129. Shades of the Seattle to Phoenix rates in 1971 when Boeing basically shut down! When we moved north from Phoenix to Oregon in late 1971, the truck rental was basically free.
The home market depends on new starter homes to keep the market moving. But with land costs having risen so much it’s not economical to build a starter home on many lots. A builder can only build a much larger and more expensive home to turn a profit.
Those who purchased their starter homes 15 years ago and are ready to move up have fewer choices and may just decide to stay put. So, without new starter homes being built the first-time home buyer is out of luck. And the cycle of homeowners working their way up to more desirable homes as they age is disrupted. This leads to inventory shortages at all levels.
And that’s why there are no homes!