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The Housing Crisis and the American Dream [1]
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Date: 2023-11-07
The grip of the housing crisis has tightened over the last few decades. Housing has become less and less affordable, with around half of Americans (49%) saying affordability is an issue, and 70% of Americans saying that young people today have a harder time buying a home than Americans of generations past. There is a deepening housing crisis that requires a big solution, a solution that, under current political conditions, is unlikely to happen. Americans pay have to get used to lower rates of home ownership, rising housing and rental prices, and the end of the American dream.
Declining Supply and Rising Prices
I examined the number of active listings in America and compared them to the median sales price, and found a striking phenomenon, with the number of active listings declining sharply, while the median sales price rose. This is not surprising. Basic economics tells us that the harder something is to get, the more expensive it becomes, assuming that the number of people who want that thing remains the same. If the number of people who want that thing rises, then the price increase is even sharper. Given that the American population continues to grow, the problem is growing, not stable.
Not only is there a reduction in the supply of homes for sale, there is also a reduction in the number of available rental units. Since the third quarter of 2009, the rental vacancy rate has fallen from 11.1% to 6.6%. Again, the home vacancy rate has also declined. Since the third quarter of 2009, the home vacancy rate has declined from 8.3% to 0.8% last year.
Americans are Becoming Poorer
Now, think back to what we have just said: the supply of homes for sale or rent is declining, and prices are increasing. Unfortunately for Americans, these housing cost increases are growing faster than incomes, as the chart below from the Federal Reserve shows. The collapse of the housing affordability index detailed below is very, very worrying.
Source: FRED
The Decline in Construction
The decline in the supply of housing is a result of the decline in housing construction . The chart below shows how housing construction has still not recovered from the highs of the Great Recession peak, despite a larger population. In fact, since April 2022, there has been a steady decline in construction, and so, not only are housing declines falling away from Great Recession heights, they are further from housing starts in the 1970s, an era of construction that enabled many older Americans to become homeowners.
Source: FRED
Add to this the pandemic-driven splurge on housing , and we have the perfect conditions for reduced availability and rising prices.
We No Longer Do Big Things
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