It’s time to get serious about the U.S. housing supply crisis — a leading issue at the heart of the nation’s record high home prices, low rental vacancy rates and affordability problems.
That was a key takeaway from a webinar hosted Thursday by the Bipartisan Policy Center, focused on the state of the nation’s housing market.
Experts who participated in the discussion — Jeff Tucker, a senior economist for Zillow, and Caitlin Sugrue Walter, vice president of research for the National Multifamily Housing Council — explained how the pandemic housing frenzy dynamics are shifting, what today’s “housing recession” really means, why prices are largely expected to stay high, and why we’re in a far different situation than we were after the 2006 housing bubble popped.
To answer those questions, however, Tucker and Walter said we need to rewind to the Great Recession, when home building across the nation constricted dramatically amid the global financial crisis.
The U.S. is facing a structural deficit of homes — both for sale and for rent — stemming from a nosedive in construction activity following the market’s crash in the late 2000s. Since then, supply has slowly inched up, but not nearly enough to keep pace with demand, especially as more millennials age into the market.
Several studies now have concluded the nation is facing a structural deficit of “at least a few million homes, and it is that cumulative deficit built up from the home building industry really shutting down and staying shut down for several years in the Great Recession,” Tucker said.
The U.S. faces a housing supply deficit of 3.8 million units, Freddie Mac researchers estimated in May 2021. That’s an updated estimate from 2.5 million in 2018. Factor in all the young Americans who are now coming of age and want to start their own families — or perhaps no longer wish to live with their parents or roommates — and “we should have 4 or 5 or 6 million more households than we actually do,” Tucker said.
“So Americans are still kind of squeezed in and not able to kind of fulfill their American dream of having a place of their own. Whether it’s owned or rented, everyone’s kind of being squeezed into less space,” Tucker said. And “frankly, I think that actually ... got worse” over the past two years, after the pandemic increased many Americans’ appetite — or need — to live in a place of their own.
But now, as affordability issues sharpen amid still high housing prices and mortgage rates floating between 5% and 6% — up from below 3% this time of year last year — “we are now starting to see a little bit of a return to the doubling up phenomenon,” Walter said.
Why today’s housing crisis is different
That’s the key difference between the 2006 housing bubble and today’s “housing recession.” The 2006 market was largely propped up by risky lending practices that fueled synthetic demand, leading to the subprime mortgage crisis. When foreclosures caught up with big banks, the market collapsed. What followed was a downward spiral, not just in home prices but in construction “that unwound much of the increases seen in the subprime boom,” according to the Federal Reserve.
So as the pandemic housing frenzy simmers down and the Federal Reserve’s war on inflation drives mortgage rates higher, yes, demand has tempered compared to its wild levels in 2020, 2021 and early 2022. But the nation still faces a serious housing shortage, so today’s demand for housing is still real, far outpacing what’s available to buy or rent.
So what should be done about the housing shortage?
“The low hanging fruit,” Tucker said, “comes from getting out of the way of builders.”
While “some regulations are necessary” for health and safety, Walter said, building codes, design requirements, or other perhaps unnecessary requirements can place burdens on homebuilders to the extent that it delays or discourages building. “Local jurisdictions really should take a look at what they’re requiring,” he said.
Red tape can lead to “costly hurdles,” Tucker said, whether they’re regulations on single-family zoning or minimum lot size requirements.
Consider this: an average of 40.6% of total development costs of multifamily development can be attributed to regulations imposed by all levels of government, according to a report published by the National Association of Homebuilders.
Utah, a housing boom hot spot
There are promising solutions out there, Tucker said, and they’re in both blue and red states. “California has just successfully passed a whole raft of bills that are making more housing buildable near transit and other different conditions.”
Utah has also “led the way,” he said.
“Utah has done a great job at clearing the way to help private builders do what they want to do, which is to meet this overwhelming excess demand for housing.”
Tucker expanded on that thought in an interview with the Deseret News after Thursday’s webinar, pointing specifically to HB462, a bill Utah lawmakers approved earlier this year requiring cities to zone for some moderate-income housing while encouraging more dense housing to be permitted near public transit hubs. That bill “is neither a panacea nor the last word on state-level pro-housing-supply policy, but is a meaningful step in the right direction,” he said.
What “struck me” about policymaking in Utah, Tucker said, is there seems to be a “different attitude toward” new home construction “where community leaders and political leaders recognize that it’s a good thing, to make room for more people ... that just seems more welcoming.”
Ross Ford, executive vice president for the Utah Home Builders Association, said he’s glad to hear Utah is getting noticed for its progress on home building policies. He said his association has worked hard, while also crediting a “fairly thoughtful and effective Legislature.”
As another policy example, Ross pointed to HB1003, a bill passed in 2021 that closed loopholes that cities could use to take longer than 14 days to review building permits, while also prohibiting cities from regulating certain building design elements. If the permitting process drags out months, that could mean the difference in thousands of dollars in building costs.
However, Ross said there’s still work to do. There aren’t penalties for cities that ignore those permitting timelines, and that’s something he’d like to see in Utah law. Plus, Utah also grapples with its fair share of NIMBY (not in my backyard) attitudes, which stand in the way of local zoning changes to make way for more affordable higher density housing.
Frustrations with growth — especially if it leads to traffic jams in their communities and other quality of life changes — are “understandable,” Ross said. But at the same time, he argued if Utahns don’t allow more affordable types of housing to be built for younger generations, “that means we have to export our kids because there’s nowhere for them to go.”
Utah is among the nation’s states with the highest concentration of counties that have seen the biggest home building rates from 2020 to 2021. That building boom actually helped make a dent in the state’s own cumulative housing shortage, which the state grappled with even before the pandemic riled up housing demand even more.
After a record home building year in 2021, Utah’s statewide cumulative housing shortage now stands at 31,000 compared to about 56,000 in 2017, according to research by James Wood, an Ivory-Boyer senior fellow at the University of Utah’s Kem C. Gardner Policy Institute.
But Utah’s housing boom isn’t coming without a political cost. In recent years, proposed developments in some areas of the state have been blocked by voter referendums. And Ross said he’s noticed “in this election cycle, we’ve seen an uncomfortably large number of people running on an absolutely no-growth platform.”
“Which will be a problem,” he added. Even if Utah somehow blocks in-migration, a clear majority of its population is home grown: our own kids. “So some of this growth needs to come,” he said.” It needs to be thoughtful. Rather than say, ‘no growth,’ we need to look at it and say, ‘How do we do this?’”
‘The next generation’
Stephanie Dailey, a general contractor for her father’s company, Steven Dailey Construction Inc., which is based in Utah with projects in Salt Lake and Utah counties, has another thought for how to tackle Utah and the nation’s housing problems.
“If we could figure the next generation out, it would solve a lot of our problems,” she said.
What she means by that, she said, is encouraging more trade work in schools to help tackle labor shortages in construction, carpentry, architectural drafting and other skills crucial for the home building industry.
Over time, programs like wood shop classes have been disappearing from middle and high schools over the years, Ross said, largely because they require expensive equipment and space.
“And now we don’t have kids in the next generation that are interested in going into trades,” Dailey said. “They’re not getting the information that trades are an excellent career opportunity.”
Homebuilder restrictions and regulations are “a huge part of the problem,” Dailey said. “But if we can also figure out how to get back into the schools and how to educate the next generation about how amazing trades are ... we’re going to see a lot of things shift. Everything from pricing, availability. ... We just need more people.”