A Lack of Housing Curbs Growth

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This is becoming a big issue. More and more, economic developers from around the country are telling me that the lack of affordable housing that is being built is stunting economic growth in their communities.

And some have even resorted to providing financial incentives to builders of both multi-family and single-family homes to provide affordable housing.

The?supply of entry-level housing, which Freddie Mac defines as homes up to 1,400 square feet, is near a five-decade low.?

"What was really striking to me was the consistency in the decline in the share of entry-level homes, irrespective of geography,” Sam Khater, chief economist and head of Freddie Mac’s Economic and Housing Research division, told The Wall Street Journal. “The thing that struck me the most was that really, it’s all endemic. It’s all over the U.S. It doesn’t matter where.”

In the late 1970s, an average of 418,000 new units of entry-level housing were built each year, according to data from Freddie Mac. By the 2010s, that number had fallen to 55,000 new units a year. For 2020, an estimated 65,000 new entry-level homes were completed nationwide.

In Florida, the share of homes with living area up to 1,400 square feet was 58% of new housing supply in 1985. Thirty years later, the share plummeted to 12%.

?Most?parts of the country are experiencing a significant shortage of housing supply. And conditions appear to be tightest at the lower end of the pricing spectrum where first-time home buyers tend to shop.?

Homebuilders in the U.S. have been under-building for more than a decade. This is partly the result of labor challenges and the high cost of materials. Also,?zoning restrictions limit the number of houses that can be built in many parts of the country. These zoning rules are strictest in real estate markets that have the lowest inventory levels.

?But it’s the smaller?starter?homes that have taken the biggest hit in terms of inventory decline.

In addition, the country experienced a surge in home-buying activity over the past year or so. The pandemic actually?fueled?the real estate market by giving people a renewed appreciation for homeownership.

But relief may be in sight, according to a recent statement from Lawrence Yun, chief economist for the National Association of Realtors:

“We’ll see more inventory come to the market later this year as further COVID-19 vaccinations are administered, and potential home sellers become more comfortable listing and showing their homes. The falling number of homeowners in mortgage forbearance will also bring about more inventory.”

Homeownership leads to greater wealth?for those who buy earlier. An analysis from the Urban Institute estimates that those who became homeowners between the ages of 25 and 34 accumulated $150,000 in median housing wealth by their early 60s. Those who waited until between the ages of 35 and 44 to buy netted $72,000 less in median housing wealth.

Dean Barber is the principal of BBA, a Dallas-based consultancy that helps economic development organizations unleash and create a better business environment within their communities. BBA also helps companies find optimal locations where risks are reduced and a return on investment is enhanced. Visit us at barberadvisors.com