How A Low Housing Inventory Impacts Buyers
Why Is There A Housing Shortage In The US?
What’s behind the lack of available housing in the United States? Not surprisingly, several factors have contributed to this shortage.
Competition Between Home Buyers And Investors
Investors have long considered residential real estate to be a safe harbor for their dollars. This is especially true when the overall economy is shaky. Today, then, the traditional buyers of single-family homes are not only competing with other buyers but with investors big and small.
Some investors are also buying large tracts of land and developing homes for renters. Homeowners lost many of their tax advantages relative to renters once the 2017 Tax Cuts And Jobs Act went into effect. This act significantly increased the standard tax deduction, which makes the mortgage interest deduction less valuable to homeowners.
It also capped the deduction for state and local taxes at $10,000. This is a negative for home buyers, especially in high-tax states where the property tax deduction was usually worth far more than $10,000.
With these advantages gone, many people who would otherwise buy a home are choosing instead to rent. Some investors have responded to this by building rental housing instead of more single-family homes.
The National Association of Home Builders (NAHB) has said that single-family built-for-rent homes still account for a small segment of the housing industry. But the fact that some investors are bringing rental homes to market instead of traditional single-family homes is just one more strain on buyers in low-inventory markets.
Chronic Shortages Of Skilled Labor
Developers are building fewer new homes, too, because they are struggling to find enough labor. Home builders have been dealing with this labor shortage since the start of the COVID-19 pandemic.
According to the NAHB, the number of open construction sector jobs averaged between 300,000 to 400,000 each month as of late 2021. Without enough skilled labor to build homes, developers have brought fewer new homes to the market.
Rising Material Costs
Builders are also faced with rising costs on the materials they use to build new homes. Everything from steel and insulation to concrete and lumber costs more today. The NAHB in March of last year said that higher lumber prices added more than $24,000 to the price of a new home.
It’s also difficult for builders to get these materials thanks to disruptions in the supply chain that have continued throughout the pandemic. These disruptions, along with and higher prices, have delayed the amount of new home construction that the market would typically see.
Legal And Bureaucratic Obstacles
Home builders must also face zoning rules and permit requirements when they build in communities across the United States. Depending on how strict these regulations are, it can be difficult for builders to add more housing stock to certain areas.
Other municipalities have environmental, historical and community character preservation concerns, requiring builders to follow rules in how they can alter the exteriors of buildings and limiting what types of properties can be built in certain neighborhoods. Again, this can make it difficult for builders to add new homes to these communities.