The Expert Podcast

Affordable housing, homelessness, and the real estate market are some of the biggest topics of conversation in the current economic environment. These issues range from people living on the streets without a home to renters struggling to pay exorbitant rents or aspiring to buy a house. Even homeowners face challenges, such as being unable to sell their current house or afford another. What’s going on with all of this?

In fact, even the global issue of inflation is related to housing costs. According to the Consumer Price Index (CPI), the biggest factor in inflation is house or residence inflation, whether it’s rent or mortgage costs. What’s going on here? The fundamental problem is that there aren’t enough homes to go around. This isn’t a recent development; it has been building up for years. There are about five million more people in need of housing than there are homes available, and it’s not just a matter of money.

While affordability is part of the issue, the bigger challenge is supply. If there were five million more homes, the cost of housing at every level would be more attainable. A few years ago, homes priced around $200,000 were common, and with interest rates between 3-4%, monthly payments were around $1,000 to $1,200—a manageable amount for many. Back then, even renters paying similar amounts for apartments could consider buying a house. However, fast forward to today, and things have dramatically changed.

By 2020 and 2021, $200,000 homes were becoming scarce but still existed. Yet, even when you could find such homes, the game had changed. Interest rates had risen to 6-7%, property taxes were higher, and property insurance costs had skyrocketed. Monthly payments for these homes now reached $2,500 to $3,000, doubling the financial burden. For many, this leap was simply unmanageable.

The reasons for this shift include a “perfect storm” of factors. First, historically low interest rates of 2-3% drove unprecedented demand for homeownership. Second, the pandemic created a nesting instinct, with people wanting to leave high-density apartments and move into single-family homes. As a result, the market exploded. Bidding wars became the norm in 2020-2021, driving home prices up dramatically. The median home price surged from around $240,000 to $420,000, nearly doubling in some areas.

This dramatic increase in prices and interest rates has created an affordability crisis. A house that once cost $250,000 now costs $450,000 or more, and mortgage payments have gone from $1,200 to $4,000 per month, including taxes and insurance. This has placed homeownership out of reach for many and left no clear solution in sight.

For example, Los Angeles knows it needs to build more housing, but the city council often prevents new construction projects. This issue is widespread in many jurisdictions, where planning, zoning, and permitting processes severely slow down housing development. Supply chain issues, high lumber prices, and labor shortages also contribute to delays, but the private sector could address these challenges if the approval process were more accessible.

Builders and developers face immense hurdles in getting projects approved. Even cities that claim to support affordable housing often create bureaucratic roadblocks. Permit fees, impact fees, and lengthy approval timelines can make projects financially unviable. The uncertainty surrounding whether a project will be approved further discourages developers from investing millions into land, architecture, and construction.

Local resistance, or the "NIMBY" (Not In My Backyard) mindset, adds another layer of difficulty. While people may support affordable housing in theory, they often oppose it when it’s proposed near their homes. Politicians and government employees fear backlash and losing their positions, which further stalls progress.

Ultimately, this stalemate frustrates builders and leaves the public in dire need of housing. The market is begging for more homes, and contractors are eager to meet this demand, yet bureaucratic obstacles prevent progress. This gridlock hurts not only individuals but also governments, which struggle to address homelessness and housing shortages.

Drop some comments below and share your thoughts on this critical issue. What do you think could be done to resolve these challenges?