America’s housing shortage stands at 5.5 million homes, according to a new report from the National Association of Realtors, which is urging a response to close this gap.
President Biden’s infrastructure plan targets the U.S. housing deficit through a plan that seeks to remove rigidities in zoning rules in inner cities, along with a $5 billion credit program to cities that relax those restrictions.
Paradoxically, the way in which the infrastructure plan is to be financed, with a 43.5% tax on capital gains over $1 million, could cause even more pressure on the demand for low-cost housing, as the tax reform would discourage the purchase of homes valued at more than $1 million.
Regulations such as minimum lot size, along with parking space requirements, and prohibitions on the construction of multi-family homes (measures that have proliferated since the 1970s in America’s inner-cities) have contributed to the growing housing shortage in cities such as Los Angeles, Boston, San Francisco, Austin and New York.
The impact of zoning restrictions can be seen in the homelessness data in states with higher zoning rules. While California has a homeless population of around 115,000 people, Texas-with more lax residential regulation-has a homeless population of no more than 25,000 people.
Recently, the shortage of homes has been exacerbated by low mortgages offered by banks, fueled by the low-interest rates (close to 0) implemented by the Federal Reserve (FED) to stimulate demand during the pandemic.
America’s housing shortage is the largest seen in decades
On average, the United States has added about 1.225 million homes month by month from 2001 to 2020. A significant drop considering that from 1968 through 2000 this figure was about 1.5 million units per month.
According to the National Association of Realtors report, between 2010 to 2020, new housing construction fell short by more than 6.8 million units to meet the demand for new homes, older homes and homes destroyed by natural disasters.
The limited supply of new homes has naturally put upward pressure on prices and today an average American home has a market price of around $341,000, up 19% from a year earlier.
The restrictions posed by the pandemic only aggravated the shortage of homes in the United States. Although the supply has tried to increase the pace at which it builds new homes, another constraint that has worked against builders has been the limited skilled labor force for construction work and the rising costs of raw materials needed for construction, such as polished wood.
By the end of January, the number of new homes available on the market was 1.03 million units, a record low not seen since 1982. By April the number of homes available on the market was 1.16 million, a 20.5% drop from last year.
Some analysts predict that with the growing adult population and the inversion of the population pyramid (where there are fewer and fewer young people), the housing shortage will tend to decrease in the future. In the meantime, millions of Americans are waiting to buy their first home as homebuilders do their best to meet the unmet demand.