We know we have a housing shortage, but not how to fix it. Politicos are finally beginning to take notice because of the damage that has been done—especially to working Americans who no longer can afford a home of their own.
VP Harris is the first to respond to the need, saying she has a policy to create 3 million new dwellings in her first term as President, if she is elected. In addition to the one million units already in various stages of development, she would create two million additional units with the following incentives:
- · A new tax incentive for building starter homes
- · Expanding tax incentives for businesses that build affordable rental housing
- · Double the Biden-Harris proposed innovation fund for local initiatives to solve housing issues
- · Cut red tape and streamline permitting processes to get houses up quicker
Why shouldn’t governments fix it? The primary cause of our housing shortage was the busted housing bubble when one million too many homes were built for a number of reasons that caused the housing bubble, such as those liar loans that lenders allowed to qualify buyers with no real income.
But lax government regulation was also part of the problem. There was very little oversight of the financial chicanery that caused the failure of Lehman Brothers and the Great Recession that followed.
Housing construction went from a high of 1.4 million units annually in 2005 to just 600,000 units per year in the 10 years that followed the Great Recession.
Because of its severity, builders stopped building enough homes for a population that continued to add one million new households every year. That’s a shortfall of 4 million units over 1o years(1m-600kx10=4m). Add the fact that the millennial generation was the most populous generation since the baby boomers and had nowhere to live—so many continued to live with their parents.
It will take multiple government actions, from changing zoning laws that create more density at the state and local levels to a national program such as VP Harris outlined to cure the shortfall.
The private sector has supported public sector help in the past, when cures for the 10-year construction lapse were being discussed. I wrote about it in a 2012 Huffington Post blog piece:
“Congress isn't the only reason for housing's problem. The Obama administration is still not serious about either their HAMP or HARP II loan modification programs. They had set aside some $11 billion from the ARRA legislation back in 2009 that hasn't been spent!
“The result was banks and Wall Street kept begging the Federal Reserve to provide stimulus by buying up to as much as $1 billion more of mortgage-backed securities (to keep mortgage rates low).”
There are signs of life in today’s housing market. Mortgage rates have been plunging since the Federal Reserve began to cut interest rates, and new-home construction has picked up with enough supply to lower new-home prices. The seasonally adjusted estimate of new houses for sale at the end of August was 467,000. This represents a 7.8 month supply at the current sales rate. The median sales price of a new home sold in August fell to $420,600 from $429,000 in the prior month.
Sales of new single-family houses in August 2024 were at a seasonally adjusted annual rate of 716,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.7 percent (±10.6 percent)* below the revised July rate of 751,000, but is 9.8 percent (±22.1 percent)* above the August 2023 estimate of 652,000.
It could be the beginning of an upward trend in overall sales, but the question now is not so much about mortgage rates, which will help sales and affordability, but adequate supply that matches more closely with household formation.
The dearth of supply is just one of the ways Americans have been paying for the excesses of the Great Recession and housing bubble. It can only be fixed with a national program that teams the public and private sectors to make housing affordable once again for entry-level as well as middle class American renters and buyers.
Harlan Green © 2024
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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