Housing Is All About Supply
The Urban Institute is a Washington think tank that conducts economic and social research that offers solutions.
Though it is non-partisan, it does have a liberal point of view. That is why its recent study on our national housing shortage is a bit surprising. Their takeaway is that there needs to be a market solution by simply building more housing.
According to the report and every economist, regardless of political persuasion, supply and demand is out of balance. With less supply than there is demand, prices are high for both the home ownership and rental segments. To quote from the report, “a massive supply shortage is causing high home prices and rents, and the way to fix it is to build more housing…Any factor that does not influence the housing supply or the demand for household creation is of second-order importance.”
The report states that we are in a similar position as we were at the end of WW II. Then there were substandard conditions and slums throughout the country. There was a built-up demand for new household formations because of the 1930s Depression and returning veterans who had placed their lives on hold during the war. Government policies spurred a building boom that lasted two decades.
There are four “scapegoats” cited in the report which are described in great detail. The first one is the call to have more targeted federal programs. Slightly less rigid mortgage standards or more housing vouchers may be good policy, but without new building, the cost of housing would remain high, and the shortage would continue.
The report goes into the intrinsic reasons for why people either rent or own a home or apartment. Yet that does not alter any facts about prices, which remain high due to a lack of supply. Fewer people are eligible to enter the market.
Scapegoat 2 on the list are developers. There is a belief by some that developers want to build high-cost homes and apartments, and therefore they are responsible for shortages in lower sectors. According to the report, “supply is supply, regardless of the price point, so the more we build the better. (This includes the construction of multi-family buildings with more units; higher density duplexes, triplexes, and fourplexes; more accessory dwelling units; and more manufactured housing).” According to research, affordable homes reach the segments in need faster.
The number of housing units starts of 5.0 for every 1000 people in 2022 is greater than the prior year but woefully inadequate when compared to the average of 7.8 units per 1000 between 1952 and 2006. Developers building any type of units are increasing supply. Several papers by economists have proven that the phenomena known as filtering has people moving into the newer units, leaving behind their old homes. This results in others moving into the vacated units and so on. However, this still does not provide enough units for supply to keep up with demand.
Scapegoat 3, the institutional investor, is examined in the article. These are investors who buy single-family homes or apartments and then rent them. They have no effect on supply. Whether a home is for rent or sale doesn’t increase the supply. There is no independent source of demand. They are only middlemen.
It doesn’t matter whether the investors are institutions or mom and pops. Nor does it matter if it is single-family residences or multi-family. None of this increases supply.
The 4th Scapegoat is what is characterized as the lack of local political will to change zoning laws. The report cites; “…that the federal government needs to have a housing supply policy that should try to expand the most cost-effective ways to increase supply (including offering carrots and sticks to local government to ease zoning restrictions).”
The report states that zoning is a local issue, but there is no doubt that it has become a hindrance to increasing supply. Yet the existing federal programs are not large enough to entice localities to loosen zoning regulations. There needs to be more density.
The Urban Institute wants to see a checklist for localities that encourages construction and in turn federal aid from a variety of sources including HUD, Transportation, and other federal agencies would be made available. Though it concludes that a lack of supply has been a result of local zoning, that alone isn’t the only reason.
The federal government by awarding not only housing grants but transportation, roads, public works, and other types can have an effect. Two equal applicants but one with less restricted housing policies would receive money first. Since so much of state money is federal dollars being administered, it would have a result there also.
We can no longer take the position as a nation that housing supply can be solved easily. It will take a concerted effort and long-lasting policies that don’t change from administration to administration. The real estate market is as close to a perfect one as we have. Supply and demand must stabilize…it is as simple as that.
The complete report can be found here https://www.urban.org/research/publication/place-blame-where-it-belongs
