Bridging the Gap: 5 Million Homes Needed to Solve the Housing Crisis
Download MP3Key Topic: Home prices are high not because of interest rates, corporate greed, or other common explanations, but because there is a shortage of homes in the U.S.
Housing Shortage:
- Millions of housing units are needed to meet demand.
- The shortage is mainly due to restrictive permitting policies in many cities.
- In some cities, permit fees and regulatory requirements can add $300,000–$400,000 to the cost of building a new home.
California's Example:
- In California, permitting issues are a major reason behind the affordability problem.
- The state failed to build enough homes during the 60s and 70s. During the last housing boom, only 100,000 homes were built, far below the demand.
The Housing Deficit:
- Estimates of the housing shortage range from 4 to 7 million homes, with some suggesting as many as 35 million homes are needed.
- The deficit continues to grow because the rate of new housing construction doesn’t match the increasing demand from population growth, college graduates, and immigration.
The Impact of the Housing Slowdown:
- The current housing slowdown and higher interest rates are causing builders to reduce the number of homes they build.
- In 2023 and 2024, fewer homes will be built in California due to the high costs of impact fees and lengthy permit approval processes.
Cost of Permitting:
- In California, permit fees for a typical single-family house range from $200,000 to $250,000 and can take 2 to 3 years to secure, adding additional carrying costs.
Conclusion:
- The high price of homes is primarily due to supply and demand—there simply aren’t enough homes to go around, creating competition and driving prices up.
- Even with higher interest rates, there are still enough buyers with the income to afford higher prices, leaving many still without homes.
