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Serious Shortage

home equityHousing stock is well below the requirements of the market in the United States, according to Freddie Mac’s report on U.S. housing supply. The continued shortage in housing supply will result in a sharp rise in home prices and rents, outpacing incomes and drastically affect household formation. The research pointed out that challenges in housing supply will continue to be an issue for years to come.

The study that examined the demand side of the housing market, focused particularly on the experiences of young adults. It found that housing costs prevent young adults from forming their own households and buying a house. As a result of rising prices due to the serious mismatch between supply and demand, many young people are doubling up in shared living arrangements or living at home with their parents, the report stated.

The cost of land and regulatory costs has averaged about 23 percent of total home building expenses, the report found. However, in some markets like San Jose, Santa Ana, Oakland, and Los Angeles, land cost is projected to increase to 70 percent of the cost of building a home. Regulatory costs increased 29 percent between 2011 and 2016. Quoting the National Association of Home Builders (NAHB), the report revealed an increase in regulatory costs at 29 percent between 2011 and 2016.

The report stated that opposition to new developments near homes and communities by residents also curb housing supply. In 2017, 370,000 fewer units were built in 2017 than needed to satisfy demand. The overall shortfall ranges from a low of 0.9 million to a high of 4.0 million housing units, as of the second quarter of 2018. The report revealed the current rate of demand at 1.62 million housing units per year—370,000 units more per year than the current rate of supply.

The growth of a younger demographic, wherein 90 million residents are between 15 and 34 years old, has also added to the demand crunch. The age of the median first-time home buyer is 31 years—a group that comprises a large share of first-time home buyer population. The report also indicated the need for vacant homes in a market for sale and rent to cater to a growing population.

The estimate is that the U.S. economy is about 2.5 million housing units below what is needed to match long-term demand.

 

About Author: Donna Joseph

Donna Joseph is a Dallas-based writer who covers technology, HR best practices, and a mix of lifestyle topics. She is a seasoned PR professional with an extensive background in content creation and corporate communications. Joseph holds a B.A. in Sociology and M.A. in Mass Communication, both from the University of Bangalore, India. She is currently working on two books, both dealing with women-centric issues prevalent in oppressive as well as progressive societies. She can be reached at donna.joseph@thefivestar.com.
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