Everyone on all sides of the political and economic spectrums are in agreement that there is a drastic shortage of housing in this country. But similar to the adage about the weather, though everyone is talking about it, no one is doing anything about it.
The spike in interest rates to tame inflation over the past few years has been seen as one of the chief causes of the housing shortfall. Higher interest rates lessen the demand for some goods (such as automobiles) and services, but they also serve to put a lid on the supply of both new homes (because high interest rates impact home builders) and older homes (because existing owners cannot afford to give up the low rates on their current homes).
With fewer homes on the market at a time of surging demand because of the coming of age of Millennials and the influx of immigrants, the prices for new homes and rents are continuing to increase even in the face of higher interest rates. Zillow reports that the median home price in Massachusetts is $629,00, an increase of 8.8% in the past year — with the median price of a home in the Boston area now almost $1 million, an increase of 10.9% in the past year.
It is estimated that given our larger population, the U.S. has failed to meet the demand for housing of all types, both single-family homes and multi-family rentals, by more than two million units per year ever since the Great Recession, thus creating the housing crisis we have today. But with interest rates still at their highest levels in decades, new home construction will continue to fall far short of demand for the foreseeable future. Higher interest rates also will continue to have the ripple effect of keeping Baby Boomers and Gen Xers in their current homes (where they have low interest rates), thereby further decreasing the inventory of homes on the market for younger home-buyers.
In addition to high interest rates, a host of other factors — restrictive zoning laws, supply chain issues, a shortage of construction and trade workers, and the conversion of single-family homes to short-term rentals such as Airbnb — also are contributing to our housing shortage.
The lack of housing has two other significant impacts: The first is that it affects our economy because it reduces the mobility of the nation’s workforce. Individuals no longer can just pull up stakes and leave for greener pastures (and new job opportunities) when home prices are out of reach everywhere.
The housing shortage also affects our national mood. Ever since our founding, America has been a land of opportunity. But with the American Dream now out of reach for most American families, pessimism about the future has replaced the optimism that prevailed for every previous younger generation in our society. In short, what it comes down to is this: Our society is failing to meet the demand for shelter — which is among the most basic of all human needs — and no one has a solution to this ever-worsening problem.