From The Desk Of The CEO | September 11, 2023
With Rates Higher, Why Haven’t Shelter Costs Come Down?
From the Desk of the CEO
Everyone needs a place to live, so it’s appropriate that this question is front and center as a topic of conversation – at the dinner table, in the news, and in political debates.
The answer is based on a basic economic principle that pricing for any good – including housing – is determined by balanced supply and demand. And in today’s housing market suppressed supply coupled with strong demand is keeping prices high. Let’s dig in.
The United States finds itself with a dire shortage of available homes, with the situation further exacerbated by bureaucratic policies that hamper new development. This scarcity has led to a surge in both housing purchase prices and rental costs, leaving countless Americans grappling to secure affordable accommodations. Adding to the complexity of the issue is the burgeoning demand driven by millennial household formation, creating a perfect storm in the housing market.
Furthermore, millennials make up a generation that has entered adulthood and is increasingly seeking to establish their households. As these young adults transition into family life, the demand for larger spaces and stable homes has surged. This upswing in demand is straining an already limited supply of homes, resulting in intensified competition and driving up prices in both the for-sale and the for-rent space.
The influence of the millennial generation on the housing market is particularly noteworthy due to its sheer size and distinct preferences. Unlike their predecessors, many millennials are delaying homeownership, often opting for renting in urban and suburban areas. This trend has further escalated the demand for rental properties, leading to an uptick in rental costs. With the COVID-19 pandemic prompting a reconsideration of living arrangements, millennials are seeking more spacious dwellings – houses for rent – thereby compounding the supply shortage.
Unfortunately, bureaucratic policies have complicated efforts to meet this burgeoning demand. Stringent zoning regulations and convoluted permitting processes have stifled construction efforts, making it challenging for developers to respond swiftly to the market’s needs. The pandemic exposed the glaring shortcomings of these policies, as the shift in remote work prompted a migration away from densely populated urban centers. Yet, many areas remained bogged down by regulations, limiting the potential for new housing developments.
To address this multifaceted crisis, a comprehensive approach is essential. Policymakers ought to reevaluate zoning policies and streamline permitting procedures to encourage responsible development that caters to the evolving housing needs. There’s sufficient land, there’s sufficient materials…there should be a clear path to sufficient housing.
Sincerely,
Ezra Stark
Chief Executive Officer