Orlando, FL

Why Aren’t We Building Enough Houses for Our People?

Joe Duncan

When will I become the next victim of the housing crisis?

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Have you ever stopped and wondered why we can't just build enough housing for our population in America? Why is it that the homelessness crisis has gotten so out-of-control? In wondering this myself, I decided to do a deep dive into the ins-and-outs of the housing market so I could answer this question for myself...and for you.

550,000 people are homeless on any given night. 1.4 million are technically homeless. It's a massive problem for the United States economy and not to mention, for our social well-being.

Why Can’t We Just Build More Housing?

Why, with the homelessness crisis as it is, don’t we just build more housing? Why can’t our society seem to put people into the houses they so desperately need?

As it turns out, there are a lot of factors at work. So I decided to take a deep dive and try to understand this process as much as possible so I could begin to have this discussion with all of the facts at hand.

Much of it has to do with the ways markets function. Others have to do with cultural shifts and trends, like the rise of Airbnb that’s been accused of gobbling up low-cost housing, as well-to-do upper-middle-class families seek to buy up affordable housing to fix up and make into short-term rentals.

What’s the Land Worth?

One thing a lot of people don’t think of when it comes to building housing is the cost of the land itself. Barren land, especially land that’s near or in cities and is thus capable of being developed, costs money. Being that land is a market of its own, it’s subject to the same market forces that affect everything else.

And as the price of land goes up, even farmland, so too must the final price of any finished house that is built on that land in order to make a profit and not take a loss. This means that a lot of developers are developing nicer homes for higher-income people simply because that’s the only way they can make a profit off of their development.

The Topheavy Housing Market

And it’s not just enough to build housing. One needs to build affordable housing if the goal is to combat homelessness. In many markets, because the cost of land has gone up and exceeded 40% of its peak value, only the mammoth homes built for the very rich are profitable.

When you take a drive here in Central Florida, you see the vast expanse of empty, identical homes built for upper-middle-class families, as ghost subdivisions sit empty waiting for the people who make enough money to move to the area and buy them up.

Orlando has the worst housing market with only 13 low-income homes for every 100 low-income families (who make the median income for the area and below).

And it’s not just here in Florida. No state has an adequate supply of affordable housing for the lowest income earners.

Like far too many other markets in the United States, the housing market is built, quite literally, for the rich.

The result is a glut of expensive houses that sit empty while families and individuals go homeless or sleep in motels intermittently to avoid sleeping on the streets. Not a very efficient system if you ask me.

Not Enough Total Housing

The amount of new housing being built over the years has also plummeted. Whereas we used to build over 1.1 million new units per year, that quickly fell to around 500,000 or so per year following 2006.

It’s estimated that it will require us to build an excess of new houses (more than would meet the demand of our expanding population), plus an additional 2.5 million new houses to make up for the slack of years prior.

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*U.S. Census Bureau

A detailed report published by Freddie Mac concluded the following of our total housing shortage:

“A shortage of housing remains a major issue for the United States. Years of underbuilding has created a large deficit, particularly for states with strong economies that have attracted a lot of people from other states. The issue of undersupply will be further exacerbated as Millennials and younger generations enter the housing markets.
Dynamic estimates suggest that contrary to expectations, it isn’t only the larger states that have a higher housing supply shortage. Some of the smaller states, which have been attracting a lot of migrants from other states, also need to build more housing units to accommodate the needs of their growing population.”

This is what a collapsing society looks like. We stop building things. We huddle into our homes and we think, “Thank goodness it isn’t me out there,” and we consume, paying little mind to the crises going on right outside of our comfortable four walls.

The Barriers to Entry

There are a lot of barriers to entry that need to be worked out. One of them is NIMBY-ism, which I’ll get to in a minute, but local regulations often make it difficult and burdensome for developers to build houses that people can actually, umm, afford.

As Matthew Gardener, Chief Economist at Windermere Real Estate said back in 2017 in a LinkedIn post, “…the cost of obtaining a building permit, which is remarkably high thanks to government regulations which can now account for almost 25% of the final price for a new single-family home.”

He went on to explain:

“The National Association of Homebuilders stated back in 2015 that it is difficult to build a home anywhere in America for less than $300,000. Then take into account that only four percent of all new homes sold in 2016 were priced below $150,000, and in the Western U.S., just six percent were priced below $200,000.”

NIMBY-ism & its Discontents

A lot of people pay lip service to the idea of solving the housing crisis, but when the time comes, they aren’t willing to have low-cost housing built near their homes.

There’s a lot of NIMBY going on. For those yet unaware, NIMBY is an acronym that stands for “not in my backyard.”

Many people have a false perception that low-cost housing being near their houses will lower the value of their homes. But the research has been consistent in showing that this hunch is off the mark.

It’s essential that we learn to see low-cost housing as something other than undesirable, otherwise, the markets will continue to falter and our society will continue to fall apart.

But that requires us to address the racial component…

Racism & Homelessness

Racial tensions also touch housing, just like everything else in America. Like a disproportionate amount of other people who suffer from homelessness, my friend Larry was a black man.

While non-Hispanic whites make up more than 50% of the population and aren’t expected to become the minority until 2044, we make up only 6% of extremely low-income families.

As the National Low Income Housing Coalition pointed out in a report from March 2020:

“Black households account for 12% of all households in the United States and 19% of all renters, but they account for 26% of all renter households with extremely low incomes.
Likewise, Hispanic households account for 12% of all households, 19% of all renter households, and 21% of all renter households with extremely low incomes.
No state has an adequate supply of affordable and available homes for extremely low-income renters. The current relative supply ranges from 18 affordable and available homes for every 100 extremely low-income renter households in Nevada to 62 in West Virginia.”

The effects of redlining can still be felt to this day and it’s safe to assume that past redlining and NIMBY-ism combine for a racist dog-whistle that works with alarming regularity.

Let’s not forget former President Donald Trump running for re-election in 2020 announced that, “Suburban women don’t want to have people coming in and forcing low-income housing down their throats.”

The implication here is that poor people are non-white and are dangerous.

Safety concerns are the number one reason cited for people who oppose the building of affordable housing in their cities and suburbs.

I’ll let you read between the lines.

Construction Worker Shortage

Since the infamous Great Recession in 2008, there’s been a consistent and ongoing shortage of construction workers. There’s an estimated shortage of 300,000 construction workers in the United States. A lot of construction laborers left their respective trades and never came back. And it’s understandable why they did.

The average salary for a construction worker per Salary.com is $33,161 to $41,436 per year. Let’s split the difference and say you make $35,000 per year in construction, you can only afford a $105,000 home. But if new homes cost $300,000 just to build, there’s a huge flaw in the system, here.

We’re not paying construction workers enough money to live in the homes they build, even the most affordable ones.

Let me get this straight…we’re not building enough houses because we can’t pay people enough to live in the houses we build so they can build more houses? Ah, the joys of capitalist logic.

Markets don’t have logic.

That’s why capitalist systems will always fall apart. That’s why entropy will always set in. It’s basically economic psychosis.

So, tell me why we want to halt immigration again while we have a labor shortage in construction fields. I’ll wait.

Immigration and Housing Construction

Immigration plays a huge role in our construction economy. In 2010, our 11 million illegal immigrants in the United States were overrepresented in the construction field.

And that’s only talking about the illegal immigrants, which made up 19% of our construction workforce. And here’s where more NIMBY-ism comes into play, only instead of “not in my backyard” it’s “not on my job site.”

We all know the notion that illegal immigration drives down wages. But do we ever give much thought to how that happens? It happens because immigration drives up the supply of available workers in any given field, offsetting the ratio of supply and demand.

But we’re short 300,000 construction workers, remember? We need more workers not less.

So it seems that yet again, our intuition is off and it’s arguably driven, at least to some degree, by race and our perceptions of “outsiders.” We might want to consider an immigration policy that takes the housing and construction worker shortage crises into consideration.

Conclusions

Could this be where the expression “falling through the cracks” came from? When something, in this case, housing, or someone, in this case, the homeless, is said to have “fallen through the cracks,” we mean that a game of hot potato has transpired, whereby the responsibility of taking care of a social need has been passed around and forgotten.

Once the potato is dropped, it’s impossible to distinguish who or what is most to blame. Everyone bears a little bit of the responsibility, but nobody bears so much responsibility that we can say, “The buck stops here.”

And that’s because societal problems are usually complex and sophisticated. They aren’t problems that can be solved by just pointing the finger and blaming one entity, one group, or one institution. Tribalism won’t work to solve this crisis.

It’s at the intersection of privilege, shortages, markets, race, and perceptions that the crisis begins and it ends with the countless millions of people who are homeless or near-homeless sleeping out on the streets, in the cold rain.

One thing that’s for sure, is we need to get this crisis under control, if not for any other reason (for the most selfish among us) than the fact that homelessness is extremely costly. It’s an economic sinkhole.

But beyond that, there’s the human cost.

What kind of a monstrous society births people without giving them places to live because wealthy people can’t profit off of the construction of houses at each point in the supply chain?

The land is getting more expensive because people want profits. Houses are getting more expensive because the land is getting more expensive and different people want to profit off of both.

Workers are getting paid less because people want to profit more off of them, so we build less and we build more expensively. And people lobby against low-income housing because they believe it will drive the value of their homes down, thus rendering them less able to profit off of them in the future, or able to borrow against them (this isn’t true, I’ll remind you).

It seems like every step of the way, each person contributes to this emergent crisis. Perhaps at some point, the government can step in with a program to expand the housing supply well above the level of demand. That would lower housing values, of course, but perhaps we’d be wise to look at houses as places we live rather than things we invest in.

Photo by Ben Hershey on Unsplash

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