New Episode: The U.S. Housing Supply Crisis and Economic Mobility
Hi, I’m Pete Carroll, executive of public policy at CoreLogic, and today we’re going to discuss which people are most affected by the Housing Supply Gap Crisis in the U.S.
When thinking about the housing supply gap, it’s important to understand the sheer scale of this crisis.
This includes first understanding how far in the hole we are already—or how much housing we are presently lacking overall. Then, to understand how the scale of the crisis will grow, we need to forecast the annual undersupply of new housing units in the U.S. going forward.
In terms of how much housing we’re presently lacking overall, Freddie Mac conducted a study in 2018 that included looking at long term targets for housing vacancy rates and future household formation. It concluded that the U.S. is lacking roughly 2.5 million units to match long term housing demand.
In terms of forecasting the annual undersupply of new housing units, Freddie Mac’s study also looked at units to accommodate household growth, to replace depreciated existing stock, to meet the demand for second homes, and to provide enough vacant homes to maintain an efficient marketplace. It found that the U.S. has an annual undersupply of roughly 370,000 units.
Thus, all things equal, if one assumes we were lacking roughly 2.5 million units as of 2018, with an ongoing undersupply of roughly 370,000 new housing units each year, one can forecast that by 2022 the U.S. will be facing a housing supply gap of 4.35 million units.
Of course, all things aren’t equal. For example, we have seen a significant uptick in new housing starts in 2019 and 2020. And even Freddie Mac acknowledges that there are inherent uncertainties with respect to the assumptions underpinning their estimates. But even if one were to heavily discount these forecasts, when we consider that the 10-year average is roughly 1.15 million new units, it is hard to envision any scenario where the housing supply gap problem is not of crisis proportions.
This notion of crisis proportion becomes even more acute when one considers who is most impacted by this chronic housing supply gap.
CoreLogic estimates that by 2022, the most economically disadvantaged—or those who earn less than half of what their neighbors do—will have a housing gap of roughly 2.6 million units. This particular gap is especially critical because the problem is twofold: in addition to there being an under-supply of new units for this income level, total household income is not keeping pace with the cost to operate and maintain these housing units, which as we will discuss in the next episode, tend to be multifamily rental units.
People with low-to-moderate income are those who earn somewhere between half of what their neighbors earn to a little more than what their neighbors earn. The gap for these folks by 2022 will be roughly 1.1 million units.
And even more economically advantaged people who earn more than what their neighbors earn are experiencing a housing gap. By 2022, that gap will be roughly 650,000 units.
In the last episode, I talked about the housing supply gap as a ladder. If you only fix the rungs at the bottom, people can’t move upward. That’s why it’s important to solve it for everyone. Otherwise, as the poorer and more economically vulnerable begin to gain more wealth, they won’t have room to grow—or “rise up” on the ladder.
Something big has to be done if we’re going to catch up.
Thanks for tuning into this episode of “The U.S. Housing Supply Crisis and Economic Mobility.” For more information about the property ecosystem, visit corelogic.com/insights. Otherwise, make sure to like, leave a comment and subscribe, and we’ll see you in the next episode.
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