Homes are in short supply in the USA. The economic relationship between supply and demand shows that the greater the demand and the lower the supply, the higher the prices will be. Income (or per capita income) should also be enough to allow people to buy a home for themselves. The affordability crisis in the real estate market is even more acute in the moderate or low category of renters and home buyers and for affordable homes and properties. Data suggests that the USA may require up to 5.5 million houses. Fortunately, if the challenges to the affordability crisis in the real estate market can be addressed successfully, moderate- and low-income families and first-time home buyers would realize this part of the American dream. They can then enjoy the ownership of their own home affordably.
Factors Causing the Affordable Home and Real Estate Crisis
Multiple factors have caused the escalation of demand and the short supply of homes and housing units in the USA.
Recession: historical data shows that the demand for smaller and single-family homes went down during the recession. On average, fewer single-family and small homes have been constructed in the past two decades. Demand grew further when the millennials entered the market to purchase homes.
Covid 19: Due to the pandemic, there was a shortage of materials and labor. It also caused challenges for the supply chain, which reduced construction and increased costs of materials and labor, as well as the homes and housing units. On the other hand, quarantines and low interest rates were contributing to the increase in demand for homes. Therefore, while the demand escalated the supply was reduced, thereby aggravating the affordability crisis in the real estate market.
Ways to Address the Affordability Crisis in the Real Estate Market
Sincere, solid, and relevant steps can ensure that the affordability crisis in the real estate market is reduced, and more people (including those looking for affordable homes) can buy homes for themselves.
Incentivizing the relevant constructions:state and federal governments should come forward to take the necessary steps to ensure that people of all income groups (including those from the lower and middle-income groups) get access to homes. Some useful measures can be:
Reducing the restrictions and regulations for home purchases.
Subsidies and financial support.
Vouchers/discounts for the eligible.
Improved terms and conditions for lending in the construction sector.
Removing hurdles in building Condominiums: first-time buyers usually choose condominiums due to their cost and other features and benefits. However, the government imposes certain restrictions on sponsoring condominium lending. Such restrictions should be removed so that home buyers can get easy access to finances and capital for condominium purchases.
Facilitating the manufactured housing schemes: manufactured housing and homes are the pre-cut, panelized, and modular homes that are built partially or entirely in the factories, and later on assembled at the residential site. These homes cost much less due to economies of scale in production and other factors (such as the use of prefabricated items). However, the manufactured homes only consist of approximately 7% of the total single-family home segment. Measures including the application of building codes and expanded zoning can increase the demand for such homes, along with their production.
Increasing the supply of homes and making their production more affordable can be key steps that can facilitate growth in the real estate market. Governments should also make it easy for people to lend and buy within the real estate market and ease the relevant regulations for the benefit of ordinary people.