Planet Money - Three Reasons for the Housing Shortage

Episode Date: July 30, 2021

America's housing shortage has been decades in the making. A lot of people blame Baby Boomers — but is it really their fault? We unpack three big reasons for the shortage. | Subscribe to our weekly newsletter here.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

This is Planet Money from NPR. Blacksburg, Virginia is this pretty small town surrounded by rural areas. It's kind of out there. And the people who live in Blacksburg, 30,000 of them are college students at Virginia Tech University and just 15,000 are permanent residents. What this community has to offer is that small-town living where you know your neighbors, where you have easy access to services, not a lot of traffic. Kim Thurlow works on housing initiatives for the town of Blacksburg,

and she says homes there are flying off the shelf right now. So average days on market for a for-s sale home is less than one right now. Less than one day? Less than one day. Kim says there are just about 27 homes for sale in Blacksburg right now, and 10 of those homes haven't even been built yet. So there's just very little housing stock at any given time. And that is causing a rise in prices, and it's causing a bidding war. And that is causing a rise in prices, and it's causing a bidding war.

Kim says the median income for Blacksburg is $89,000. And making that, she says, you could afford to buy like a $270,000 home. But homes are going for much more than that. The average home being sold for new construction was $435,000. In Blacksburg, we're reaching the half a million mark here? Yep. Wow. Yep. That's depressing.

It is. A bunch of homes in tiny Blacksburg are going for over a million even. All over the U.S., the small towns, the rural areas, the big coastal cities, home prices are going up and up. And there's a simple reason. There just aren't enough homes for everyone who wants one. Do you see the housing shortage ending anytime soon? Not in the next decade. Not in the next decade. Like 2031? Fun, right? Hello and welcome to Plata Money. I'm Sarah Gonzalez. And I'm Erica Barris.

Today's national housing supply shortage has actually been decades in the making. Today on the show, three big reasons for the housing shortage and why it's going to take so long to solve it. A lot of people blame baby boomers, but is it really their fault. One of the reasons there's so much interest in housing right now is because interest rates are historically low. So if you can afford to buy an overpriced house, now's the time to do it. Now, in a healthy housing market, you'd have about six months of housing supply. But according to a report last month from Harvard, there's currently less than two months of housing supply in the U.S., which is very, very tight by historic standards. We are talking record low

inventory. There are just over a million homes for sale, which is 3.8 million homes short of what we need to meet demand. So why aren't there more homes for sale? The first big reason kind of does come down to a battle between generations. Baby boomers versus millennials. Boomers are in the late 50s, 60s, and 70s. So some of them are retired, but many of them are still working. And boomers are a huge generation. Millennials are in their 20s and 30s.

Some are even 40. Right. So millennials are in like their prime home buying years. And they're an even huger generation. And they are ready to buy homes. But there's a problem. Boomers kind of own too many of the homes right now. They have the biggest share of real estate wealth in the U.S.,

44% of it, even though they're just 28% of the adult population. So this chapter? Are boomers the problem? All right, here's what previous generations did. They got older and they sold their homes. They moved in with their kids or to a nursing facility or they downsized to like a little condo or whatever. But boomers are not doing that. They are choosing to grow old in their homes. So some people are like, sell your homes already, boomers. Make room in the market for the next generation. But not everyone feels this way. So Karan, you're here to basically defend baby boomers. They're not who we should blame for our housing supply shortage.

Yes? I think it's very, very unfair. Baby boomer generation is just not creating the housing shortage. Karan Kal is a housing supply specialist at the Urban Institute. Housing shortage problem is a multi-pronged problem. Can I ask if you're a baby boomer? I'm not. You're not. Okay. I just had to ask. Karan says there's a few reasons boomers aren't selling their homes. For one thing, they're healthier than previous generations,

so many don't need to move in with their kids or into a nursing home. Also, boomers don't want to move. They like their grocery store, their friends, their social activities. They want to stay where the action is. Yeah. I mean, the baby boomer generation, they're, you know, they're in their 60s and their 70s. They're not like 80s and 90s, right? Like many of them are still working. It's sort of, I mean, it makes sense that they are not ready to sell their homes because they still have a lot of life left to live. Oh, yeah, absolutely. And people are, you know, they're living longer. Their health is in better shape. And those are all good things. And you should celebrate those things. You know, we can't force people to, you know, move out and live in places where they don't want to live. You just need to find more housing for younger folks. And Karan says even if those

healthy boomers did choose to sell their homes down and downsize to a condo, they'd still need to find some other place to live. They'd probably just buy a different home. And you might think, like, well, they could just become renters. But if they do that, then you just create more demand for rental housing and rents will go up even more than they already have. And on top of that, people don't usually go from being homeowners to renters. The point of all of this is if you just reallocate people from one type of housing to another, you're not solving the problem in the long run. The problem is we have more people wanting to live in homes than we have homes. The obvious answer is build more homes, right?

If there weren't enough peaches in the U.S., we'd grow more peaches. If there weren't enough TVs, we'd make more TVs. Or at least, you know, China would make more TVs. Right. So we should make more housing. We should build more housing. But we can't. And this is where things maybe do come back to the boomers a little bit.

I'd say the one area where we can kind of point the finger at boomers is that they have tended not to allow change in their neighborhoods. Chapter two. Still a little boomery, but really in the end, we're all boomers. Still a little boomery, but really in the end, we're all boomers. Jenny Schutz is an economist at the Brookings Institution. And she says baby boomers have tended to block new housing developments. They haven't really wanted anything in their neighborhoods other than stand-alone, single-family homes. Yeah, I mean, I blame them more for their political behavior for opposing new development than for wanting to live in their houses and age in place. Remember when we said boomers aren't moving into smaller condos when they get older?

Well, there actually aren't that many condos for them to move into. You literally can't add more homes to a neighborhood because the older residents who live there won't let us build it. Listen, this is totally rational behavior. You buy a house, it's in your interest for there to be fewer houses around you. That makes the value of your home go up. And homeowners have a say in what kinds of homes get built and where,

because these decisions are all made at the local level by city councils and county supervisors. So a developer will tell a city, I want to build a new apartment complex on this corner. And existing residents, Jenny says, usually homeowners who tend to be white, tend to be male and are older, will say, I don't want it. It's going to change the feel of my neighborhood. It's going to bring traffic or schools are already overcrowded, whatever. They oppose it. And local officials side with them. And so we know that this happens, you know, replicated over and over in neighborhoods across the country.

But collectively, then that means we're not building enough housing in the places where people want to live. Well, what about like what about the city council members, though? Like, why do they listen to older constituents so much? Yeah. So city council members and mayors and county supervisors are also homeowners and they tend to be older too. So their personal experience is a lot closer to the homeowners who are saying, don't change my neighborhood. They're part of the generation that's pushing back. I'm curious, do we all just become baby boomers and act like baby boomers? And the older we get, we just end up blocking new housing? It does seem to be true that once people

buy houses, they become a lot more resistant to change in their neighborhoods. I mean, they say that we become our parents as we get older. That's probably true. All right. So blocking new housing goes way back, of course, stems from racism and redlining and policies meant to prevent Black people from buying in white neighborhoods. So boomers did not invent blocking new development, but their opposition to more housing and different kinds of housing has led to some really hard to undo zoning laws. Oh, yeah. It's illegal to build anything

other than a single family detached house on the majority of land, even in big cities across the country. So in most of the US, you are not allowed to have townhouses or duplexes or triplexes or mobile homes, no apartments, no condos, no tiny homes, no granny flats in most of the US.

And pretty much everyone agrees we cannot get out of the housing crisis without changing some of these zoning laws. And kind of amazingly, Jenny says some of these zoning laws are starting to change. Minneapolis just decided to allow duplexes and triplexes. Oregon now allows duplexes. Same with Raleigh and North Carolina. It sounds so weird to hear, oh, North Carolina has made it legal to build duplex. Like, why has it not been legal to build a duplex? That's exactly the question. Why did we ban most forms of housing on most land? And yes, some places are starting to unban other forms of housing.

But even in those places, there still aren't enough houses. The reason why is the final chapter of the show. We'll get to that after the break. Chapter three, last reason for the housing shortage. The U.S. doesn't have enough people who know how to build houses. And it goes back to the 2008 housing crisis. During the Great Recession, there were just a glut of homes on the market. They were losing value. It didn't make sense to build more houses.

So we didn't. The U.S. underbuilt for years. In the Great Recession, we stopped building houses. So we didn't. The U.S. underbuilt for years. In the Great Recession, we stopped building houses. The construction industry basically shut down. If you just look at the number of homes built in the U.S., in the years before the housing crisis, we were building around 2 million new homes each year. In the years after the housing crisis, we were building like 500,000 homes and like 900,000 homes. So that is at least a million homes each year for years that didn't get built. And all this sends a pretty clear message to people who might have gone into the construction trades. There may not be a job here for you. Right. So the construction trades are things

where you go in as an apprentice, you build up experience and skill. And after 10 years, you become a master plumber, electrician, carpenter. So we lost kind of a whole cohort of people going into the construction trades. That takes a long time to fix. So now we're in a situation where we need to build more homes fast, but there's not enough skilled people to do it. Kim Thurlow, the housing manager in Blacksburg who we heard from at the beginning of the show, she called it a trades crisis. She's dealing with it right now. We are really lacking skilled trades in our area, so we are having to pull on contractors and subcontractors from outside of our region, which just increased the costs overall for the development. They also have to wait a lot for plumbers and electricians and carpenters to be free and ready

to work. So that adds to the costs. And for Kim, this comes down to something else, which is that for decades, students were encouraged to go to college and get white-collar jobs, not go into the trades. And it's not true that trades will make less money than many white-collar jobs. I can tell you that right now in this community. So like a lot of places around the country, Blacksburg is now trying to get people to go into the construction trades again. They have an initiative to help offer community college for free to people going into the trades. But it's going to take some time. It's going to take a decade to try and reverse that issue.

A bunch of experts agree. It will take years to catch up. We just won't be able to build enough homes fast enough. So millennials, if everything goes well, great news. Looks like we'll all be able to buy homes just around the time we're about to retire. Great timing. I don't know. That sounds like pretty good news for Gen Z, though. Yeah, it's like right in time for them. We didn't mention Gen X at all, Erica. They're used to being forgotten. Oh, are you? You're Gen X, right?

You're basically Gen X. Yeah, but we're not putting that in the story. Oh, we're not doing that? Okay, no, so sorry. We're not including that in there. She's Mary, she's a cusper. She's a cusper. Today's show was produced by Darius Rafian. Jacob Goldstein edited the show. And Alex Goldmark is our supervising producer.

Bryant Erstad is our show editor. I'm Sarah Gonzalez. And I'm Erica Barris. This is NPR. Thanks for listening. And a special thanks to our funder, the Alfred P. Sloan Foundation, for helping to support this podcast.