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Is a Housing Shortage Coming?

Is a Housing Shortage Coming?
By Ron Pfleger

As the nation continues to struggle through the worse housing crash since the Great Depression, it may be hard to believe a housing shortage could be on its way.

According to economists and real estate experts, the nation is simply not building enough homes to keep up with potential demand. Just 672,000 new homes were started in April, an annualized rate and less than half the long-term number of units needed to meet the nation’s natural population growth.

So far the shortfall has been overshadowed by a weak economy that has put a damper on home buying. Once the job market rebounds, however, people will look to have their own homes again. This pent-up demand could get unleashed on unprepared markets, causing shortages and rising local prices.

Household formation, the technical term for people moving in together, has be on hold during the past few years as people have been unable to find jobs. In the past, an average of more than 1.3 million households were formed each year, causing demand for 1.5 million new homes, including homes destroyed by fires, floods and teardowns.

In 2009, only 398,000 new households were formed, according to the Census Bureau. That is much lower than average and a quarter of the number formed just two years earlier.

While there is a large inventory of unsold homes across the country, many people feel this may not be adequate to cover the future shortage in housing for several reasons. First, many of the properties are located in the hardest hit areas where people may not want to live. Second, many of these vacant, distressed properties are in very poor condition. Many are not even habitable. And many first time buyers are reluctant to take on this type of property.

Ordinarily, the nation’s homebuilders can react quickly to meet surges in housing demand. With financing difficult to obtain, many builders are forced to delay or cancel purchases of land they could prep for future development. It will take them that much longer to gear up production once the housing market improves.

And many builders went out of business over the past few years so there will be fewer companies out there to do the building. The survivors will confront a transformed regulatory environment that will make new homes harder to build and more expensive.

Ron Pfleger, MBA is a licensed California Real Estate Broker affiliated with California Mortgage Advisors, Inc. He may be contacted at 707-933-8100 or email at rpfleger@calmtg.com.