Housing shortage is the root cause of the affordability crisis, and it is growing: report

(TND) — A new analysis from Zillow shows that the country’s housing shortage is increasing.

According to Zillow, the housing shortage grew to 4.5 million homes in 2022, up from 4.3 million the year before.

There were about 8.09 million “missing households” that year, Zillow said. These are people, including families, who live with non-relatives.

At the same time, there were only 3.55 million homes available for rent or sale.

The number of families increased by 1.8 million, but only 1.4 million homes were built, Zillow said.

Slightly more homes were built last year — 1.45 million — but we still have a long way to go after a decade of underbuilding, Zillow said.

And Zillow said the housing shortage is the root cause of the housing affordability “crisis.”

The average sales price of existing homes rose 5.7% in April from a year ago to $407,600, according to the National Association of Realtors. The figures for May will be released on Friday.

The average home price in April was 53% higher than in April 2019, when a typical home cost about $267,000.

Jeff Ostrowski, a housing market expert at Bankrate, agreed with Zillow’s assessment that the housing shortage was at the heart of the affordability crisis.

“It’s just Econ 101,” he said. “There is not enough supply and too much demand.”

Overall, he said he also agreed that “crisis” is an appropriate description for the housing affordability challenges Americans face.

“I’m always a little hesitant to use the word ‘crisis,’ just because there’s so much variation in affordability across the country,” Ostrowski said. “So if you’re talking about San Francisco, LA or New York City, yes, there is a crisis. But when you talk about places like St. Louis and Indianapolis and Cleveland and Detroit, there are very affordable homes in those places.”

It can certainly feel like a crisis for starters everywhere.

The average age of first-time buyers is now 36, which is quite old, he said.

Bank rate surveys have shown that first-time buyers are also leaning more on their parents to afford a down payment on a home, he said.

House prices have risen even though mortgage rates have risen from around 3% a few years ago to 7% now.

Sales of existing homes have fallen to about 4 million a year, from where they normally are about 6 million a year, as fewer owners with lower mortgage rates want to risk foreclosure.

That has increased pressure for new construction to help fill the void, which hasn’t happened.

Housing construction slowed after the Great Recession.

New home construction reached a low point in 2011, with only about 585,000 completions that year.

Since then, housing construction has increased every year, but we still lag far behind the 1.6 million to 1.9 million homes built each year in the early 2000s.

And the deficit grew with seven consecutive years of less than a million completions.

Ostrowski said millennials are a huge generation that is now in their prime home-buying years.

And there has been a shift away from starter homes by builders over the past 15 years, he said.

“There’s not a whole lot of land available for builders,” he said. “Builders, when they build, they don’t focus on the starter home market. They mainly focus more on the upward market, the more expensive market. And that makes it difficult for starters on the market and contributes to the affordability challenge.”

Starter homes simply don’t offer the same return on investment for homebuilders.

“If they’re going to pay all these costs to comply with regulations and acquire the land, then there really is no point in selling $200,000 homes when they could be selling $600,000 homes instead,” Ostrowski said.

Zillow said reforming zoning rules to allow for more density is critical to building more homes.

Ostrowski said every housing project is approved at the local level, and often the neighbors don’t want the extra traffic.

Local resistance has been a major hurdle to more construction, he said.

“It’s not like someone in Washington or in a state capital can wave a magic wand and suddenly there’s more supply,” Ostrowski said. “There will still almost always be resistance at the local level.”