Editor’s Note: RISMedia’s Year-End Outlook series provides an in-depth analysis of the housing market’s leading indicators for economic health, and showcases expert insights on what’s to come in 2022.
It is hard to sell houses without houses to sell.
With spectacular demand eating up inventory faster than builders can put up homes, and older Americans less likely to downsize than previous generations, this year has been an incredibly difficult one both for buyers forced into stressful bidding wars as well as for listing agents, who have to fight harder than ever over a limited home supply.
But is all this turning around? Will demand pressure decrease, or supply chain strictures fade and allow more homes to be built in 2022? Is this winter’s cooling of the market indicative of re-balancing and normalization, or just seasonality that will revert to another spring of bidding wars and soaring prices?
The answer appears to be, prepare for another high-demand, low inventory year, even if conditions do not quite match the wildness of 2021. With no easy fix for the housing shortage and strong indications demand will stay elevated, real estate professionals will need to hunker down and continue adapting to the unique market conditions.
“Obviously with a housing inventory shortage, the solution has to come about through new construction,” says Rob Dietz, chief economist for the National Association of Home Builders (NAHB).
Dietz says that NAHB expects to release data showing this year saw a 10% growth rate in new home construction, and anticipates a “moderation” of that rate next year, likely to add 1.1 million single-family starts and 500,000 apartments in 2022—up 25% overall since 2019.
Despite this, Dietz does not expect the industry to meet demand any time soon.
“We need more, clearly,” he says.
A lack of land, restrictive zoning, a failure to find skilled labor and supply chain constraints all together will simply not allow the kind of construction needed to re-balance the market, Dietz says. This is further exacerbated by a larger demographic trend that has seen older Americans especially less willing to downsize or sell their homes.
Jordan Levine is vice president and chief economist for the California Association of REALTORS® (C.A.R.). He says homeowner attitudes are also stymying the supply of existing homes.
“I think there’s a generational component—for folks in the baby boomer era in particular, homeownership was pretty much synonymous with the American dream. You had a lot of folks who worked hard for their homes, they got their foot on the property ladder,” he says. “They have a kind of psychological attachment, if you will, to the properties that are keeping them in place a little longer.”
This is especially true in coastal markets, where inventory has been an issue for years even before the turbulence of 2020 and 2021. Real estate professionals are being forced to find new ways to create business with new listings few and far between.
Leslie Cato is a team leader and CEO of Keller Williams Elite in Middlesex County, New Jersey, a dense, trendy region less than an hour by train to Manhattan. She says that she has provided training for her agents on how to work with builders, and also encouraged them to expand their reach beyond the most desirable inner suburbs to outlying towns where there might be a little more land.
“Of course, it’s a lot in building relationships and things,” she says. “We may not have a lot of land, but there are some properties that can be knocked down. And there is land, it just might not be in the center of where someone wants to be. I find when inventory is so low, people are willing to move further, and I think COVID might have helped that as well.”
Cato adds that she expects the bidding wars and spiraling home prices to continue in towns like Metuchen, which boasts a downtown train station, elegant shopping and expansive white-picket fence neighborhoods. Eventually, even people who were dead set on that location will have to look further out into the exurbs, she says, because there simply isn’t anything available there.
“Unless someone can make land, there’s no other option,” she quips.
In other hot markets—from Orange County, California, to Boise, Idaho—the situation is largely the same, according to Levine. Taxes, land cost and restrictive zoning all make it harder for builders to put up large, single-family homes. Many builders are putting up denser living spaces—townhomes and condos—or looking further away from metros and suburbs.
But Dietz adds that large-scale regional trends that have been in place for a while are likely to continue or accelerate, with southern and mountain states seeing more construction and Northeast and Western markets experiencing affordability issues and stagnation.
“Over 50% of single-family home building occurs in the south,” he says. “The reason for that is, it is easier to develop land, the land is relatively cheaper.”
Some of these issues can be addressed structurally. Cato says there are towns in her region that require as much as three acres per housing unit, and dictate multiple parking spaces per bedroom for multifamily constructions. That simply is not viable in the current climate, she says, though residents continue to push back against any change to these rules.
“You could actually get more land to build more homes,” she says. “We’re getting to the point in some areas where that is what’s going to have to happen.”
According to Levine, tempting people to leave existing homes is difficult but not impossible, which could create more movement in the market if new homes are built to serve older homeowners, who often have very specific, less flexible needs.
“Issues in the new supply pipeline prevents the older home from getting into the hands of the entry-level buyer,” he says.
And for new constructions, the most pressing and debilitating unsolved problem is a lack of labor, Dietz says. Even with an easing of supply chain back-ups as expected in 2022, if builders cannot attract and train more skilled labor (Dietz estimates the industry needs to add over 700,000 new workers a year to keep up with demand) the industry will remain bottlenecked.
“I think that tight labor market is going to be the challenge in high-growth markets,” he says. “Supply side, the market will respond and produce more inputs—the materials—but the limiting factor is going to be the skilled labor shortage. It’s going to take longer to build all kinds of housing and it’s going to cost more.”
Jesse Williams is RISMedia’s associate online editor. Email him your real estate news ideas to firstname.lastname@example.org.