According to Homelight\u2019s Top Agent Insights 2022 Housing Market Preview<\/a>, 75% of agents believe the inventory shortage will persist in 2022, and 52% believe that just a little more inventory would give buyers more options.<\/p>\n In 2022, 83% of agents expect a seller\u2019s market compared with 13% who predict a balanced market and just 2% who expect the market to shift to a buyer\u2019s market.<\/p>\n To untangle the causes of the housing shortage and offer recommendations for how to fix it, we did a ton of research and talked with Mike Galbally<\/a>, a top agent in O\u2019Fallon<\/a>, Missouri. He gave us some much-needed perspective on the causes of the current housing shortage as well as possible solutions to help boost inventory and make housing more affordable over time.<\/p>\n Unfortunately, this is a very complex problem, and there aren\u2019t just one or two reasons for today\u2019s housing shortage. Let\u2019s take a look at some of the major causes.<\/p>\n After the housing bubble burst in 2008, 10 million people had their homes foreclosed on<\/a>, and home prices plummeted by 33%<\/a>. After the Great Recession, the market slowly recovered, reaching a point of relative normalcy a full 10 years later with prices up 50% since hitting the bottom.<\/p>\n Galbally still sees the impact of the Great Recession in today\u2019s market, saying: \u201cAfter the recession, they built far fewer houses than in any other time period. And the houses that they would build at the time in our area were not what people would describe as desirable.\u201d In Galbally\u2019s area, building projects at this time were focused on cheap townhomes rather than single-family homes.<\/p>\n As the market started to recover, there was a shift towards building big, expensive homes. This created the \u201cmissing middle\u201d \u2014 a shortage of entry-level and mid-level housing, including townhomes, duplexes, cottage housing, garden apartments, and smaller single-family homes.<\/p>\n These missing \u201cmiddle\u201d homes are integrated into residential neighborhoods, allowing for more occupancy without the need for a large, high-rise apartment building.<\/p>\n Today, in Galbally\u2019s market, he says they have plenty of big houses and lots of townhouses, but not enough single-family homes. And now, people who bought the big houses are looking to downsize and are entering the market with equity<\/a> and a large down payment<\/a> \u2014 two things that first-time homebuyers<\/a> often don\u2019t have.<\/p>\n In the 1980s, just a little more than 40% of new home builds<\/a> were below 1,400 square feet \u2014 deemed an entry-level home. Construction of homes of this size has steadily decreased since then but experienced a sharper decline after the 2008 recession. In 2020, the percentage of homes built that were under 1,400 square feet was closer to 10% \u2014 a 50-year low.<\/p>\n Between January 2012 and June 2021, 12.3 million American households were formed<\/a>, according to the U.S. Census. During that time, only 7 million new single-family homes were built, creating a shortage of around 5 million homes. This number is higher than the 2019 gap of 3.84 million homes.<\/p>\n When the COVID-19 pandemic hit in 2020, much of the world effectively shut down, halting production and deliveries, and creating supply chain issues that persist today. These shutdowns led to shortages of building materials and caused prices to rise.<\/p>\n As of August 2021, building material prices had risen 19.4%<\/a> during the past 12 months compared to a 1.1% increase in the same period in the previous year.<\/p>\n Wages for construction workers<\/a> are also rising, and those costs are typically passed onto the consumer. So as it becomes more expensive to hire people to build houses, house prices rise. There is also<\/i> a labor shortage in the construction industry, with the Bureau of Labor Statistics reporting 389,000 job openings in January 2022<\/a> (contrast that with 293,000 job openings in January 2019). The labor shortage can extend the time it takes to build a home<\/a>, therefore decreasing the number of houses that can be built and increasing the price of those that are completed.<\/p>\n According to a March 2022 NPR article<\/a>, the chief economist for the National Association of Home Builders cites overly restrictive zoning laws as a significant contributor to the housing shortage. Some zoning laws require one single-family home on lots that could feasibly hold two or three, creating a more expensive home on a larger lot than what the market can support. Other zoning laws may restrict townhomes, accessory dwelling units, or apartments.<\/p>\n Changing zoning laws can be difficult territory to navigate. Many existing homeowners, typically those 58 and older, oppose the construction of housing that would increase traffic in the neighborhood or make the area more crowded, and those residents won\u2019t support changing the zoning laws. This may change as time goes on, as 86% of both Gen Z and Millenials, and 78% of Gen X, approve of either accessory dwelling units or duplexes and triplexes<\/a> as a way to address housing shortages.<\/p>\n While the federal government can take steps to push local governments to change zoning laws through financial incentives and other means, local governments ultimately approve the laws. The Biden administration, for instance, has proposed financial incentives<\/a> for local governments to change zoning laws that restrict certain neighborhoods to single-family homes.<\/p>\n As of 2021, baby boomers held 44% of real estate wealth<\/a>, with Gen Xers coming in second with 31%. As previous generations have aged, they\u2019ve sold their houses, preferring to live in assisted living or nursing homes or with family.<\/p>\n Baby boomers, on the other hand, are deciding to \u201cage in place,\u201d staying in their homes as they age rather than selling and downsizing<\/a> or moving into a senior facility. This trend was only exacerbated by the COVID-19 pandemic, which created concern and caution around living in nursing homes.<\/p>\n Selling a house typically means buying a house to replace it. With prices soaring, some would-be sellers are waiting to sell because they\u2019re not sure if they\u2019d be able to find an affordable home to replace their current home.<\/p>\n Airbnb and VRBO have made it possible for nearly anyone to turn their home into a vacation rental. As a result, the typical Airbnb host in the U.S. made over $13,800 in income<\/a> in 2021.<\/p>\n Before short-term and vacation rental platforms became popular, it was often difficult to hold onto more than one home and potentially pay more than one mortgage. With the ease of listing a home as a vacation rental<\/a>, many are deciding to hold onto their previous home instead of selling it, and are then using the income generated to pay the mortgage or as a side hustle.<\/p>\n Cash offers from iBuyers (instant buyers) have resulted in sellers selling their homes to companies rather than private buyers. According to Zillow, in Q2 of 2021, iBuyers accounted for 1% of the market<\/a>, but this affects markets very differently.<\/p>\n In Galbally\u2019s area, he says, \u201cOpendoor is buying up a good amount of properties in our area. It remains to be seen if they make a profit, but they are disrupting the market for sure.\u201d He sees this as providing a service to the seller but not necessarily supporting the market as a whole.<\/p>\n Often iBuyers will buy homes and then sell them to investors who will either sell house to flipper<\/a> (raising the price of the home) or use them as a rental property, increasing the number of rentals available, but not homes to purchase.<\/p>\n HomeLight offers Simple Sale<\/a> for those looking to sell their home on their timeline and without worrying about negotiations or repairs. (Which is important if you don\u2019t want to wait to take your chances on a traditional sale and miss the chance to buy the home you want). And to make buying a new home even easier, HomeLight\u2019s Trade-In\u2122<\/a>\u00a0program will buy your current home and allow you to make a strong offer on your next home with no lending or home sale contingencies.<\/p>\n Pandemic mortgage forbearance<\/a> phased out in 2021, and HomeLight\u2019s Top Agent Insights survey showed that 38% of agents surveyed think the end of mortgage forbearance plans will result in new listings. Redfin reported that the supply of affordable homes rose 13%<\/a> from the previous year as homeowners of low cost homes whose mortgage was in forbearance decide to sell their homes.<\/p>\n According to Black Knight\u2019s February 2022 Mortgage Monitor, the expected flush of houses into the market after many forbearance periods ended in 2021 didn\u2019t fill the inventory gap despite 28% of the 8.1 million homeowners previously in forbearance selling their homes<\/a>.<\/p>\n While we don\u2019t know what the future holds, there are a number of scenarios and steps that could ease the housing shortage in the upcoming months and years.<\/p>\n This may seem counterintuitive, as many want to take advantage of historically low interest rates. But as interest rates rise throughout 2022<\/a>, the urgency of buyers to lock in low interest rates will lessen and may serve to cool the market, reducing the frenzy<\/a> to scoop up any listing that hits the market, which will mean added inventory and a little breathing room for buyers.<\/p>\n A recent Zillow survey<\/a> found broad support for \u201cmissing middle\u201d homes in residential neighborhoods. They found that even modest densification measures, such as allowing two units on 10% of single-family lots in some of the largest U.S. metros, could boost the housing supply enough to slow housing price growth in a meaningful way.<\/p>\n Of the respondents, 73% supported at least one \u201cmodest densification\u201d option that included duplexes, triplexes, accessory dwelling units (often referred to as a \u201cmother-in-law suite\u201d<\/a>), and small apartment buildings known as garden or cottage apartments.<\/p>\n A solution to the housing shortage that we could see as political and economic policies change is to take away incentives that encourage investments in single-family rentals.<\/p>\n Galbally observes, \u201cif they take away the incentives that are in single-family rentals \u2014 the tax exemptions, the depreciation \u2014 you\u2019ll see all these people dump this inventory. If they can make more money somewhere else, they\u2019re going to move the asset.\u201d If this type of policy change occurs, we could see an influx of homes hit the market, easing the shortage.<\/p>\n Jesse Allen<\/a>, a top agent in Jeffersonville<\/a>, Indiana says that, in the past, leads would come to him, and often, he could get a listing by simply being the person who answered the phone. Now, with the housing shortage, it requires a different strategy in order to find homes for sale.<\/p>\n Allen says that as an agent \u201cyou have to go out and find your own inventory.\u201d Circle prospecting is a strategy that Allen and his team use: \u201cIf we know certain neighborhoods that our buyers want to live in, we\u2019re calling those neighborhoods and seeing if there\u2019s anybody that\u2019s interested in selling.\u201d<\/p>\n Contacting homeowners directly can sometimes yield additional homes for a buyer to choose from.<\/p>\n Adaptive reuse architecture<\/a> takes existing buildings and repurposes them, often into homes. Adaptive reuse projects include repurposing schools<\/a>, banks, electricity plants, factories, and more.<\/p>\n The benefits of this strategy include slowing urban sprawl, maintaining culture and architectural styles, lowering construction costs, and speeding up construction.<\/p>\n Galbally says that a reluctance to get into the market and potentially having to buy a high-priced house is preventing some from selling their current home. He reveals, \u201cthe biggest problem is that people are just frozen. I tell people: If you want to make a move, if you want to make a change, just do it.\u201d<\/p>\n He recommends getting out of your own way and trusting the process \u2014 and getting a little creative. Leveraging options, whether it\u2019s moving back in with parents or renting an apartment<\/a>, will allow you to sell your current home while waiting until a better time to buy a new one.<\/p>\n The real estate market, especially in 2022, can be difficult to navigate on your own, but working with a trusted agent<\/a> can ease some of the stress associated with buying and selling a home. HomeLight can help you find a top real estate agent<\/a> in your area. We analyze millions of home sales to find real estate agents that will help you find the perfect home at the right price \u2014 and submit a winning offer.<\/p>\n Header Image Source: (Rat Ski \/ Unsplash)<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" Why is there a housing shortage? The high cost of building materials, zoning laws, COVID relief funds, and the Great Recession are all factors.<\/p>\n","protected":false},"author":241,"featured_media":30873,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"cybocfi_hide_featured_image":"","footnotes":""},"categories":[192,620,697],"tags":[],"class_list":["post-30861","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-for-buyers","category-buy-house","category-market-news"],"acf":[],"yoast_head":"\n\n
After the recession, they built far fewer houses than in any other time period. And the houses that they would build at the time in our area were not what people would describe as desirable.<\/q>\n
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\n <\/li>\n \n <\/li>\n \n <\/li>\n \n <\/li>\n \n <\/li>\n <\/ul>\n <\/div>\n Currently accepting new clients<\/span>\n <\/div>\n <\/div>\n \n
Why is there a housing shortage?<\/h2>\n
The Great Recession<\/h3>\n
Entry-level homes aren\u2019t being built<\/h3>\n
The cost of materials and labor is rising<\/h3>\n
Zoning laws don\u2019t keep up with new options<\/h3>\n
More people are \u201caging in place\u201d<\/h3>\n
Would-be sellers are reluctant to get into the market<\/h3>\n
Online platforms have increased short-term and vacation rentals<\/h3>\n
iBuyers are offering convenience and cash offers<\/h3>\n
Eviction moratorium\/mortgage forbearance<\/h3>\n
How to handle the housing shortage<\/h2>\n
Wait for interest rate hikes<\/h3>\n
Find the \u2018missing middle\u2019<\/h3>\n
De-incentivize investments<\/h3>\n
Use the \u2018circle prospecting\u2019 strategy<\/h3>\n
Increase adaptive reuse projects<\/h3>\n
Get creative and take action<\/h3>\n
![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2022\/04\/unbalanced-inventory-opens-doors-for-a-new-group-of-buyers-scaled.jpg\")
<\/p>\nWorking with a trusted agent can help you navigate today\u2019s market<\/h2>\n