The housing shortage in the United States is difficult to solve

The shortage of affordable housing has always been one of the long-term challenges facing the United States. High interest rates and low inventory have led to supply reaching its lowest level on record. Due to soaring housing prices and high interest rates, many buyers have been squeezed out of the market. Last year alone, the number of affordable housing decreased by nearly 41%, equivalent to over 243000 properties.

Firstly, the main reason for the decrease in housing is the sharp decline in affordability. By 2023, only 16% of housing in the United States is affordable, down from 21% the previous year. As mortgage interest rates have more than doubled in just two years, housing affordability has become increasingly difficult to bear. Although affordable housing accounted for 39% of the market in 2021, this share has sharply declined as interest rates have risen. In 2023, the average annual interest rate of 30-year fixed mortgage loans reached 6.81%, the highest level in 20 years. Although if the Federal Reserve cuts interest rates, mortgage rates may fall within the year, this may not be enough to increase the supply of affordable housing. This is because interest rates may not fall significantly, which is not enough to eliminate the "golden handcuff" effect, where homeowners are unwilling to sell their homes to maintain lower mortgage rates. In addition, since the global financial crisis, housing construction has significantly declined. During this period, homebuilders and loan institutions became increasingly cautious, resulting in a 55% decrease in housing construction between 2006 and 2021.

In addition, there are significant geographical differences in this issue. The most severe decline in affordability is in smaller cities, including Kansas City, Missouri, Greenville, South Carolina, and Worcester, Massachusetts. This is because there is relatively greater room for local housing costs to rise, while local income often only increases by a small margin, making it difficult to keep up with the speed of mortgage payments. In contrast, San Francisco's affordability has only slightly decreased, but has almost reached its limit. By 2023, only 0.3% of unsold homes can be affordable for typical Bay Area households.

Secondly, another reason why housing costs are difficult to bear is the severe housing shortage that has persisted for many years. Since the real estate crash in 2008, the new homes built in the United States have been insufficient to meet demand, resulting in a deficit of millions of units. This not only drives up housing prices, but also rents, with the affordability gap among low-income families being the most severe.

Currently, more cities and states in the United States are relaxing zoning laws to encourage construction, hoping that this will ultimately lower overall prices. The number of apartments under construction this year has indeed reached a historic high, although economists say it will take several years to find balance. The United States expects an increase in new housing construction in 2024, with single household residential construction expected to increase by 4.7%. Although new home sales have traditionally accounted for 10-12% of the single household residential market, this proportion has recently surged to 30% due to a sharp decline in the supply of existing homes. But even if new supplies enter the market, housing affordability may take several years to recover to historical levels. JPMorgan Chase stated that assuming housing prices remain at historical highs and wages continue to rise at the current rate, it may take two years if mortgage interest rates fall by one percentage point.

Overall, the sustained high housing costs and scarcity of available housing continue to pose budget challenges for many potential buyers, which may keep some buyers in the rental market or wait and see, and delay purchases until the situation improves. Moreover, as some cities have successfully continued to expand, while others are considering various solutions to address the rising housing crisis, the question of where housing development will develop has been raised, which may be related to the depth and severity of the next economic recession in the United States.