From 1950 to 2008 the USA built ~25 million homes per (edit, not year) decade. From 2008 to 2018 it was about 7 million. In recent years building rates have mostly recovered but there's still that gap in production combined with everything else the last handful of years.
This isn't to discount the shift of ownership from human persons to corporate persons, that's a factor too. But just numbers of available houses versus population plays a role.
If home prices are going up, that means that demand exceeds supply. If home prices are going up everywhere that means demand is exceeding supply everywhere.
If homes are a good monetary investment, that means home prices are going up, which means supply is not keeping pace with demand.
If home prices are going up at a rate faster than wages, then they are becoming more expensive for our children. Not in a round-a-bout way, but in a direct causal relationship way.
Homes can either be affordable or an investment, not both. If homes are to be affordable that means more need to be built.
> If homes are to be affordable that means more need to be built.
Try pricing what it would take to buy a plot of land and build a home on it. In some places there are very expensive local regulations that must be satisfied. However, just the base value of some land with utility access, physical materials, and labor to assemble the home is "unaffordable." If the difference between the cost to produce a home and the sale value of the home was larger than there would be more home builders. If reducing the cost of housing is important to you than you should focus on ways to reduce the cost of producing homes.
In 2019 I purchased land in Mt Washington, about 15mins outside downtown Los Angeles for $200k. My father is a builder back home in Australia so we know more about building that most. Even the after 3+ years, we finally received permits. The city is making us widen the road ($75k), extend a water main 12 feet ($75k), move 3 power poles (can’t get LADWP to tell us what that’s going to cost yet as they have to design it) and install a septic system. We are going to go all electric so we don’t have to run gas lines.
The amount of bureaucracy is insane. Often times we have been the go between for different departments of city that have offices in the same building as each other. They all point the finger at each other. Can’t get answers to the power pole questions from LA DWP without Bureau of Street Lighting, Bureau of street lighting won’t do anything with out LA DWP etc… it’s madness.
House will be 3200sqft, very nice with a pool but lots of value engineering (thanks to my dad). Construction budget is $2m. Will be getting a construction loan. Requires monthly income of $35k combined. Lucky I’m doing this with my twin brother, so we might just be able to afford it, but currently can not due to interest rate rises since we started. Swinging big.
Bank appraised finished project at $3.5m.
My take away from the whole process is that LA infrastructure is terrible, and the city has effectively made it impossible for new construction by family’s. LA DWP single handedly cost us a year in permitting and its incentives are just so not aligned with home owners. My dream is we can go solar and batteries and tell them to get lost. I now have a real respect for what Starlink is doing. Down with the entrenched utilities!!!
You have to be rich to build a house in LA. Renovation is the only real option for individuals. Which just drives up house prices. New houses built is the only way out I think, and the government seems to only be making it harder.
I've looked into building in Portland OR. I don't think we're quite as bad as what you describe (except for the bureaucracy which is spot on), but I came to the conclusion that there'd be about $100k in fees. Just the fees to be allowed to hook up to the city sewer I think came out around $30k if I understand them correctly. (It's possible I'm missing something. I'm not an expert.)
For some people that's probably a bargain, but if you're not wealthy it's a lot of money just for /permission/ to do something.
In my AHJ, if the sewer line passes by your property YOU HAVE TO PAY DISPOSAL/SEWAGE FEES (based on water usage), even if you have your own functional and safe septic system.
A lot of what you are describing is regional issues for costal cities. My specific comment was pointing that {Base land + Materials + Labor} is very expensive, and while addressing these fees and red tape might be important, it's not the whole cake. I was also targeting a more modest experience.
In Texas it might be $40k land (varies by size and location), $250k for construction ($115/sqft * 2250 sqft), and maybe $50k for utilities/landscaping/driveway/permits etc (varies by taste and location). So $350k for a house in a state with a $70k median household income. With a 20% downpayment and a 6.5% interest rate this median family for a median house would spend 1 year salary on the downpayment and over a third of their gross income on the mortgage. If they had a typical amount of debt from cars, credit cards, or student loans their DTI would be too high to qualify.
EDIT: To my original point. Saying "Build more homes" is an oversimplification. Homes are largely priced such that they equal {Land + Building value}, and new homes are largely priced at { Land + Construction costs + reasonable margin for developer }. If you want to build more homes, look at how building can be cheaper. There are some clear low hanging fruit you are describing in your LA experience, but even where the regulatory environment and labor costs are more reasonable the numbers don't crunch well. Let's have conversations about how to reduce the cost of producing housing. Getting cost low enough that the median household income can afford new construction would absolutely drive up the number of homes being built.
I have built a personal house with two brothers — one my own Twin — and wow ya'll are in for an undertaking.
I've built, all-together, about similar budget (for two houses with brothers) and I don't even think I have enough energy to build my own house, now. But gonna try, on some land in a county with minimal regulations.
House Twin and I built was in a Historic District, which was the biggest nightmare of the entire construction. We literally did the rebar and formwork and roof and plumbing and electrical. And they made us re-do windows and other such bullshit to "be in conformity with the neighborhood, but without giving the impression of being historic itself." JFC, make up your minds [worse than any HOA nightmare].
> move 3 power poles
> House will be 3200sqft
> Construction budget is $2m
> impossible for new construction by family’s
Sorry, but this looks like one of the most incredibly out-of-touch rich people comments I've ever read. You're building a freaking castle in the middle of the city, moving roads around, and then you go on to say "families" can't build??
Maybe you're right and even building a modest home in the suburbs is harder than it should, but your project is definitely not proof of that.
Choosing to build a giant home in the LA hills with a budget of $2M just for construction is the out of touch rich people thing, not the additional issues with the city.
I think you missed my point. Our land is super cheap for LA (hence all the infrastructure work). Even if we built a garden shack on it, we’d have spent $600k. How could a working class family ever afford to build a house like this?
If the goal is more houses, make them faster and easier to build. Less red tape, less infrastructure requirements. Otherwise it’s only well of people like me that can (barely) afford them.
Now I’m sure you’ll say “don’t live in a coastal city then”. That where the work is. And it’s also where 40k homeless people live. Connect the dots. We need more houses. There is land to build them, it’s just insane to do that under current rules.
If home prices are going up everywhere that means demand is exceeding supply everywhere.
Only if the houses are selling at the higher price. There are a lot of empty, unsold houses where the owner is refusing to reduce the price. Property economics is weird.
> If home prices are going up, that means that demand exceeds supply. If home prices are going up everywhere that means demand is exceeding supply everywhere.
Misses the fact that homes are bought (most of the time) with borrowed money and leverage.
You can either look at that as increasing the supply of money or lowering the cost of money, and its reflection in housing prices.
Sure, asset bubbles are a known phenomena. Zero-interest rate policy made a lot of big bubbles. That doesn't mean there are enough units built, or that there's no real demand. (It means the opposite, the bubble happened because it is such a good investment.)
Another explanation is that the average new house costs more than it used to. Housebuilders have chosen to build bigger homes at a higher finish level because there's more profit in it. New affordable housing is becoming rarer.
Another factor here is the rising costs and complexity of zoning/permits. In my area it will cost you 6 figures just to put down a foundation with the paperwork. This puts a floor to how cheap a house can be and what is financially viable to build.
Demand for homes may exceed supply but ask what that demand really is.
A big chunk of that demand is for 2nd or 3rd or even 4th properties as investment rental properties. Can’t afford a house in the sf Bay Area, no problem, go buy 4 investment properties in the Midwest! I know people who’ve done that.
Also look what houses are built, they aren’t starter homes in many areas. They are “luxury” (luxury per home marketers, sq ft, and price, I won’t go down the rabbit hole of what I personally think).
That makes zero sense. Do you think those rental units disappear off the market? There isnone unified housing market, rent and buy. People can still rent if they can’t buy.
Building more will inevitably fix the housing market, even if one investor owns every single new house.
Question: Adding out of state investors to the demand pool ( that additionally can out bid locals) will likely
A. Increase house prices
B. Decrease house prices
Question 2: adding rent seeking middlemen between people and housing is likely going to
a. reduce costs for housing
B. Increase cost for housing
So there’s a finite supply of house, investors from out of state are now competing, increasing demand but also have deeper pockets. Now the locals who would hav bought are forced to rent, increasing demand for rentals. They investors aren’t going to take a loss so they’ll rent at the rate that gives them the expected return, which they get because of the high demand they helped create, with rental prices justified relative to the sales price that they themselves jacked up
When investors build with the intention of renting, they typically build at higher density. The only real barrier producing artificially high demand are policies preventing high density building. This is also the thing which makes housing an attractive investment option in the first place. Improved policy will fix both of these problems.
> If homes are to be affordable that means more need to be built.
I'm not convinced it's that simple. Houses aren't widgets that you can flood the market with an unlimited supply to drop the price as much as desired. Homes cost a lot to build and use limited resources, which means at a certain point building more increases the cost.
Picture a city that is building only 1000 homes a year and then they decide to start building 10,000 a year. Will the prices drop? If the prices were very high due to excess demand, probably not because there is enough demand to absorb those 10k units without meeting all the demand, so prices won't drop.
Ok then, let's go all out and build a million units (let's imagine that land is somehow available for that in this thought exercise). Will prices go down? No, prices will go up! Ask anyone trying to build a home in a tight market, labor prices are extremely high because there is so much demand for a limited supply of labor. If this hypotetical city tried to build a million units, labor costs will skyrocket and so will the price per unit.
There are no efficiencies of scale left in a mature industry like house builing. Building more doesn't make the per unit cost cheaper, it actually makes it higher due to labor availability.
Housing is still a very conservative industry, productivity is very low, because any transformative technology only works at scale, but the US is super big and even the population centers are low-density, in many jurisdictions, zoning basically mandated labor intensive low density housing for decades, etc.
Land is available. What's not is infrastructure, and economic surplus to maintain all the required new homes and infrastructure (roads, pipes, power grid, etc).
Housing suffers from the same curse as the transit infrastructure, or the nuclear industry, enormous economic and political inertia keeping/prefering the status quo, any new projects are small, low-efficiency, lack economies of scale, lack innovation (because copy-paste building just one more is the lowest risk thing).
Look at the recent California zoning remedy program, so few real estate developers are taking it, because it turns out that those small local markets are basically incompetitive cronyist distopias, and it makes no sense for them to get into a fight with the zoning/approval board.
> If the prices were very high due to excess demand, probably not because there is enough demand to absorb those 10k units without meeting all the demand, so prices won't drop.
Supply and demand aren't quantities, they're functions. You may be trying to say that demand is inelastic around the present point, but I suspect it actually isn't.
So in those 7 decades there has been build 175 million houses. Population of usa is around 350 million. Most people probsbly also not living alone and some houses that were build before 1950 probsbly still are in use just maybe modernized.
Not familiar with USA market but wondering: Are current houses just more fragile and fell apart within 50 years?
>Are current houses just more fragile and fell apart within 50 years?
Obsolescence gets overlooked but it is important. Not only are houses often poorly constructed, but many are simply no longer desirable. For example in my area, anything pre-1960 is likely very small, possibly without a garage, and may only have one bathroom. The modern homeowner wants something better. Houses in the 1970s were frankly, weird. They don't fit modern tastes at all. Many houses built in the 1990s are falling down already because they were so poorly built. So my point is, you have to take into account not only the top end inventory number, but also that lack of desirability is a real thing that drags down actual available inventory.
Dude - I work in real estate, I know exactly what I’m talking about. I can take you to housing developments in my area built maybe 25 years ago that are falling the fuck apart. Hell - my ex-wife lives in a rental house less than ten years old that already needs real work. Are standards for electrical, insulation, etc higher? Absolutely yes. But don’t you go telling me I don’t know what I’m talking asking about, especially when you are misconstruing what I wrote.
Don't forget that houses get torn down and rebuilt. It doesn't happen often but it happens.
In the US, modern houses tend to be larger, have better insulation (from what I've experienced), but can be cheap in some aspects (e.g. interior doors tend to be hollow, whereas older houses typically had solid doors). Overall though, I'm not sure if new or older homes were better built. I know some really well built old homes, but some very poor built ones too, and this goes for modern homes as well. Most should last 50 years though.
Modern homes have much better insulation and energy efficiency (like LED bulbs), etc. But I think it's also true that a lot of builders can get away with cutting corners, and the materials that go into homebuilding are also often of lesser quality (like wallboard from China that outgasses toxic sulfur fumes). Modern plumbing is mostly snap-fit plastic tubing rather than copper pipes. It's a LOT cheaper to install. Supposedly lasts as long or longer, but it's still shitty plastic.
Shitty wildcat builders throwing down entire subdivisions of deeply defective homes is a serious problem in the Phoenix area, I know that for a fact.
This is not new. My 1954 bay area house: the builders mixed scrap wood in to the foundation concrete to make up for undersizing the order, broken roof boards were patched with coffee cans and other garbage (coffee can had a 1940s date, it was there since built). These are just the most obvious examples.
You're making too many assumptions from such broad data. No, houses don't generally fall apart within 50 years. But most houses built 50+ years ago are small by modern standards, and many have been torn down and redeveloped since then. For the ultimate peek into this phenomenon look at Tokyo, where the lifespan of a house is short and any given plot of land is rebuilt several times per century.
Also, of course, one should keep in mind demographic shifts. There are many small towns (and even some city suburbs) with cheap empty houses that many people would never willingly occupy because there are no jobs there.
Also areas like East Cleveland that have a notorious reputation. Even if in that particular case the city was built by John D. Rockefeller, he is even buried there.
Ah yes, East Cleveland. One night I was biking home, one of the locals took note of my weakened position with a flat tire and that my skin color denoted I was not from the neighborhood, and they put a gun to my head. If you buy there, I recommend availing yourself of Ohio's constitutional carry provisions.
There are a lot of old abandoned homes. I would never live in a home built before 1978. Almost certainly that home is full of lead-based paint and asbestos.
You don’t have a choice in some areas, like the south SF bay (unless you are a multimillionaire). The sources of asbestos are well known and they can be removed cleanly and safely, and lead paint should have been painted over by now with more than a few coats of modern paint — which you can safely touch and lick, if you like.
You never remodel or have to repair holes in the walls of your home? In my experience, we would have lead based paint particles floating all around the house from all the projects and fixes we do.
Presumably you’d baby proof your home and would address any spots where the paint is flaking or chipping off the wall. Especially if you knew it was an older home.
Honestly unless the lead paint is the topmost layer, or they put so many coats of regular paint on that it’s falling off the wall, the actual risk of a toddler encountering and then consuming the paint chips is shockingly low.
>I would never live in a home built before 1978. Almost certainly that home is full of lead-based paint and asbestos.
We're closing in on 50 years past the 1979 lead-based paint cutoff - the vast majority of homes in my area, and I extrapolate that likely most areas, have been remediated. With asbestos - probably the worst issue in my area is that if you have asbestos shingles you want to remove they are stinking heavy and so cost a lot to dump. I live in a 1915 home that is a great example of houses in my area - has gone through multiple renovations in that time such that the guts are fundamentally new. Probably the biggest issue with these older homes is insulation, as unless you truly take them down to the studs, they are never going to be as airtight as modern homes.
Even here in Czechia, where we mostly build out of brick/stone/concrete (and not wood), ordinary 1950s and older homes are pretty undesirable unless thoroughly modernized. (Luxury homes are a different story.)
One of my colleagues lived in such a multi-apartment block where there was a common toilet for the entire floor, so four households. In freezing weather, the toilet was bitterly cold.
Yes, Americans build everything of wood, rather than cement or bricks, like in the civilized world. Remember the tale about 3 little pigs? After 50-70 years it falls apart and needs to be teared down.
So someone who gets their construction knowledge from a children's fable confidently asserts that an entire country, really an entire continent, just doesn't know how to properly build houses.
Americans use wood because they have wood, it's an excellent building material. The parts of the world where they don't use wood, it's because they don't have wood, they've used it all up. America is covered in forests, Canada even more.
The cost of the frame today is a very low percentage of the total house cost, the issue is more cultural: that there are few people in America who know how to build from any other material, there are few cement or brick factories etc.
I don’t think the solution should be homes aka a scale out solution. It should be to go vertical for higher density. Apartments serve the most people and the barriers to entry are much lower than a mortgage.
I hear your point, and I wonder what the stats are on livability of these vacant homes. Cause I bet the other side of the spectrum is true too: luxury units that just sit there because the price point is so high.
But beyond that, housing as investment property alienates people from the natural reward of caring for housing. We ought to be leaving into and communicating peoples' natural desire to make home livable. Instead we rip people from it, we punish people by forcing them to switch apartments when they're perfectly happy.
So many people effectively live in in slow motion life long exile.
Taking a mentally ill fentanyl addict from San Francisco and dropping them in a condemned house in Scranton PA is not actually going to solve the problems you think it will.
There’s actually a philosophy called “housing first” that says you cannot solve those other problems without housing those people.
99 percent invisible did a podcast series on the reality and nuance of homelessness. It is the best take I’ve seen and really opened my eyes on a number of things. Episode 3 covers housing first, but I would recommend going through the whole thing.
Exactly! It often does solve those problems when combined with other necessary resources like mental health care and help finding community and meaningful ways to occupy time, like getting a job or going back to school.
Housing first is evidence based too. And cheaper than emergency services. And when done right much more dignified.
Yet here we have this society full of punitive know it all skeptics who don't actually seem care about the evidence quite as much as they care about dominating social structures that help them feel better about their insecurities.
In a lot of cases they wouldn't have become mentally ill or a fentanyl addict if they weren't homeless. Yes, addiction drives tons of people into homelessness, but homelessness can also cause addiction since a homeless life kinda sucks.
It would save a lot of money on demolition though. The plumbing, cabinets, appliances, doors, ducting, and everything not fixed to the frame would get removed for free and it would be very easy to bulldoze after the house catches fire from people trying to stay warm inside without paying a utility bill.
Some of the school districts near-ish me are so desperate for teachers that they will up and just give teachers a house and a car. It's not prime real estate and not a new car, but you get the gist.
There are hardly any takers.
As has always been true in real estate: location, location, location
Hmmm it might not have anything with to do with the massive money printing and forced low interest rates of the last decades...?
Its not only the us dealing with this.
In many Western countries a large part of the population has been incentivised by both tax cuts and monetary policy to own property that it's become very hard for governments to change those policies to again make houses affordable without huge cuts of the wealth of their middle-class.
We don't know if that is the primary cause though. The US population was growing at a quicker rate for much of it's history, and that population was more rural, and a number of other reasons we can't rely solely on historical data for our predictions of current behavior. With a closer to zero population growth rate and a more urbanized population we would expect there to be fewer houses built.
Additionally, the pure supply and demand argument is insufficient because it does not explain why we have failed to create the additional supply to meet the demand. In a pure sandboxed supply/demand analysis with no other factors, we would expect to see supply increase as demand increases since in theory it means building homes is more profitable. The high school version of supply/demand is that they balance eachother eventually and the timeframe over which that happens is influenced by the elasticity in price of the good in question. Something about how the housing market functions has changed in some locations.
location, location, location. Much of the housing price increase has occurred in areas that are doing well economically, but have more or less maxed out the building density currently legally allowed by zoning. today you could build so many houses in Detroit and yet that wouldn't really ease the housing crisis in a place like the Bay.
there is also, at least anecdotally, a shortage of skilled tradespeople across construction in general. post-2007 basically reduced the incoming pipeline to zero, and so now there is this missing labor cohort that would be really useful right now.
Yep I agree that a large contributing factor in all of this has to do with location.
The shortage of skilled labor is another instance where we need to ask why supply is not meeting demand. I think in the case of the supply of skilled construction workers it is not difficult to come up with a plausible explanation that doesn't require any malicious actors.
Anyway, I'm not really trying to make a political point or give everybody my own pet theories as to how this happened. I'm mostly just trying to make the point that the way this issue is generally discussed in the media is economically illiterate at a pretty fundamental level.The observation in the media that supply is not meeting demand is worthless on account of that not being a meaningful statement.
Wages for construction workers have not kept up with inflation, much like other fields. Unless you're a Master - tier specialist in your field, you will probably be making at best $15/hr to $25/hr with minimal (if any) benefits.
There's simply few reasons to enter the field and risk long term health issues when you can make the same amount, or better doing paperwork in an office.
we also had a whole new category of job (gig economy) and a massive increase in a related category (delivery) show up for unskilled work. In general there seems to be a labor mismatch now, and existing regulations certainly don't help (e.g. you need to not have smoked weed in the last six months to hold a CDL to drive a truck around, and these days that probably eliminates a good chunk of that skill segment)
Additional supply did come on, and has dropped recently in response to rates.
It's really not more than high school supply/demand. There are just a good number of factors which make up each at each location, and at least one of them is large and unpredictable (interest rates). There is always a lag on the supply side because only so many houses can be built at any time. It's the same for many commodities like oil and gas.
Actually computing a good supply or demand curve has always been the difficult part, not the theory. But supply lag and interest rates make up a big component of property supply and demand.
I think that's what the person above you meant as well, that prices being high due to a lack of supply is not controversial nor is it very interesting.
Yes and with supply not meeting demand at least here in York county pa and Baltimore county md.. bidding wars just started to be the norm again and prices are increasing. I bid on a 200k home (a real fixer upper to flip in two years after living in it & remodeling it) last weekend it had 20 bids and I lost out to an all cash offer(supposedly per my real estate agent). That same weekend a 40 year old log cabin ($430k) had an open house where 30 showed up and it was sold within 8 hours.
Up until this month prices in this market were declining and homes sitting on the market for weeks to a month or more with lots of price drops.
It's weird spring comes around with interest rates just as high and we are back to bidding war frenzy that was 2021/half of 2022.
Would be interesting to see how different the costs and difficulties compare to the prior building boom. The red tape involved in building today is off the charts - prior generations had a much easier time building houses.
This isn't to discount the shift of ownership from human persons to corporate persons, that's a factor too. But just numbers of available houses versus population plays a role.