Jan 30, 2020 - Economy & Business

The new housing crisis

Illustration: Sarah Grillo/Axios

Rising house prices don't cause lenders to lose money, or economies to implode. But the bottom rung of the housing ladder has now ascended beyond the grasp of millions of Americans, regardless of whether they want to rent or buy.

Why it matters: When house prices fall too much, the rich and powerful lose money. That, in turn, means central banks around the world will swing into action to try to save the economy. When home prices rise too much, on the other hand, there's no such urgency on the part of policymakers.

The big picture: There just isn't enough housing to go around. Every year the number of U.S. households grows by more than 1 million, while simultaneously somewhere between 300,000 and 400,000 existing housing units are demolished.

  • By the numbers: Lawrence Yun, chief economist of the National Association of Realtors (NAR), tells Axios that when fewer than 1.5 million new homes are built in any given year, the national housing shortage only gets worse.
  • The number of housing starts rose above an annual rate of 1.5 million in December 2019 — it hadn’t been at that level since 2006. For the first time in over a decade, we had a single month when America’s housing shortage didn’t get worse.

House prices are rising too fast, especially at the entry level.

  • A fascinating AEI dataset shows that entry-level houses are worth on average 50% more than they were at the beginning of 2012. That's a significantly faster appreciation than the "move-up" segment of the market, which has risen by 38% over the same timeframe.
  • Denver, Seattle and San Francisco have seen entry-level homes rise in price by more than 75% since 2012, while Las Vegas prices have risen 89%.
  • A recent NAR press release quoted Yun as saying, "The hope is for price appreciation to slow." That's the kind of language that you often hear from affordable-housing advocates, but it's still startling to hear it coming from the industry.

Context: The cost of building any kind of housing has never been higher, thanks to a confluence of factors. President Trump has slapped tariffs on Canadian lumber (which remain in place even under USMCA), but the much larger cost problem is with skilled labor. Unemployment is low, the labor market is tight, and a lot of undocumented construction workers have moved back to Mexico.

  • Rising house prices also exacerbate Nimbyism. The more your house is worth, the harder you're likely to fight against upzoning initiatives that increase the supply of housing in your neighborhood. The fewer the units being built, the more that supply constraint pushes prices up in a vicious cycle (that's great for existing homeowners' wealth).
  • "Affordable housing isn’t affordable to build," the National Apartment Association's Greg Brown tells Axios. As America urbanizes, the apartment shortage is growing even starker than the shortage of houses.

The bottom line: Whether you rent or own ultimately matters much less than whether you have a place to live at all. Right now there's no good economic incentive for homebuilders to build new units for Americans shut out of the market.

Go deeper: The housing market faces an uncertain 2020

Go deeper

The State of the American City: San Francisco

Berkeley Mayor Jesse Arreguín on stage with Axios Co-founder Mike Allen. Photo: Chris Constantine for Axios

On Wednesday morning in San Francisco, Axios Co-founder Mike Allen hosted a series of one-on-one conversations to discuss the future of affordable housing in the Bay Area.

Sen. Scott Wiener, California State Senate

Sen. Scott Wiener focused on the critical need for housing development in the Bay Area, particularly around public transit, and highlighted how affordable housing can work in tandem with climate goals.

  • On the contentiousness of housing politics: "Housing politics, unfortunately, are a little bit like climate and gun safety politics. The people get it. This is not an issue of popular sentiment...But like gun safety and climate, it has not trickled up to elected officials in the way that it needs to. "
  • On focusing development around public transportation: "We don't want to build sprawl and destroy farmland and force people into two-hour commutes to increase carbon emissions and clog the freeways...So it's very, very important from a climate perspective and a housing perspective."
Alice Carr, Head of Community Development Banking, JPMorgan Chase

Head of Community Development Banking at JPMorgan Chase, Alice Carr, discussed the role of the public and private sector in housing development in her View from the Top segment.

  • On the public and private sectors working together to address this challenge: "Low-income housing tax credits are the primary driver for building new affordable units throughout the country. And that's policy-driven. That's a federal commitment to affordable housing."
  • On finding multi-pronged solutions to deeply entrenched problems: "We know that housing tax credits are not going to solve a national affordable housing crisis [alone]. We are behind as a country in providing the number of units we need throughout the country, not just affordable and subsidized housing. So we really need to focus on ways of increasing housing production across the spectrum."
Catherine Bracy, Co-founder and Executive Director, TechEquity Collaborative

Co-founder and Executive Director at TechEquity Collaborative, Catherine Bracy, highlighted the importance of tech workers and employers showing up in conversations around affordable housing and engaging more deeply in the community.

  • On growing a tech economy: "I think growth should lift all boats and that we need to focus on policy solutions that are going to make it possible for a growing tech economy to create opportunity for everybody who lives here, whether they work in the tech industry or not."
  • On tech workers throwing their support behind equitable housing initiatives: "I think most tech workers agree with [increasing affordable housing]."
Mayor Jesse Arreguín, Berkeley, California

Mayor Jesse Arreguín discussed the importance of preventive policies around homelessness, concentrating housing close to where jobs are located, and making sure that housing is more equitably distributed throughout the region.

  • On the need for affordable housing: "[Homelessness] is one of the most visible challenges that we are experiencing, not only in Berkeley but throughout the state of California...I think it really is a symptom of how broken our economic system is that we have people that are finding themselves without housing. We need to build more affordable housing and make sure people stay housed."
  • On making sustainable development plans for the future: "We need to look at how we are going to grow as a region expecting 2.4 million more people to come to the San Francisco Bay region. Where are they going to live? How are they going to commute to work and to home? And that means building housing in areas where there's been active resistance to building housing."

Thank you JPMorgan Chase for sponsoring this event.

Americans want to buy homes, but they're disappearing

Reproduced from Fannie Mae; Chart: Axios Visuals

The steady decline in U.S. interest rates helped the housing sector recover from its malaise in early 2019, and the momentum is continuing so far in 2020.

Yes but: Prospective homeowners are finding it increasingly difficult to find a home, as the lower rates have brought on increased selling prices and fewer available homes.

Trump country's housing crisis

Data: Joint Center for Housing Studies of Harvard University. Cartogram: Andrew Witherspoon/Axios

The rent is too damn high across huge swaths of conservative states, and it's getting worse fast.

Why it matters: The housing crisis gripping coastal cities has now gone national.