The median home price has increased by more than 20% in the past year alone, rendering homeownership an effective ideal for a significant number of individuals. It is a situation that has resulted in millions of Americans being unable to afford residences as they observe their prices rise beyond their means.

Why Housing Is So Expensive?

For Whom Is This Taking Place?

Quite a bit goes into it.

The age-old law of demand and supply is at the heart of this problem, but it has a new twist that you may have missed in your high school economics lesson.

Housing Market Shortage: Freddie Mac Report

  • Unprecedented shortage of 3.79 million properties.
  • Highlights the growing disparity between available homes and homeownership demand.

Therefore, Why Not Construct Additional Residences?

If only it were that straightforward.

The construction of homes is confronted with a multitude of obstacles, such as a scarcity of land available for development, skyrocketing construction costs, and zoning restrictions, particularly in areas where people desire to reside. San Francisco, we are addressing you.

The development of affordable, higher-density housing is effectively stifled in numerous urban areas by zoning laws that restrict land use to single-family residences over vast areas.

Regulatory Labyrinth and Home Prices

  • Constrains supply amidst rising demand.
  • Limits total unit erection.
  • San Francisco's median home cost: $1.3 million due to zoning laws.

However, the obstacles do not conclude with zoning.

Pandemic Impact on House Building Costs

Rising land, labor, and material prices have driven up the true cost of building new houses. Crucial construction supplies have seen their prices spike due to the pandemic's impact on supply chain disruptions.

Timber Cost Increase

  • Timber cost rose from $400/board feet in 2020 to over $1600/board feet in 2021.
  • Expenses for materials like concrete, steel, PVC, polymers, and copper also increased.
  • Manufacturing shortages, geopolitical tensions, and global instability have strained pandemic-impacted supply chains.

There is now much less land available.

Urban Growth Decreases Developable Land Supply

The supply of developable land decreases as cities grow, driving up the prices of the remaining parcels to unsustainable levels.

This problem is most severe in places where housing is in high demand but where employment, public transit, and other amenities are easily accessible. The end consequence is a complicated and expensive development environment.

Institutional Investors' Role in Housing Affordability

  • REITs aggressively purchasing single-family houses.
  • Other residential real estate types are also undervalued.

The tendency has intensified competitiveness, thus reducing the availability of homes for individual purchasers. A substantial increase from prior years occurred in 2021, when investors purchased 24% of all single-family houses. This implies that in the event of a house bidding war, J.P. Morgan may be a party opposing you.

The Federal Reserve's Inflation and Interest Rate Increase

  • Increased interest rates aimed at curbing inflation.
  • Increased borrowing costs.
  • Directly affects mortgage rates, following US Treasury bond yield for 10 years.

Mortgage rates rise in tandem with interest rates, making it more difficult for Americans to purchase a house.

Obtaining a House in a Modern Market

  • Doable despite challenges.
  • Starting a business is essential.
  • Saving money doesn't guarantee wealth.
  • Revenue-related issues must be addressed.

My tax-overage investment classes have been a game-changer for hundreds of students looking to increase their income. Right now would be the best moment to supplement or perhaps replace your current income source.

The good news is that…

The greatest defense against price increases, as far as I'm aware, is to increase your earning potential.

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