[toomuchtodo]

A correction won't occur because there is a housing shortage of between 3-8M units, depending on who you ask. There is not enough labor to build more units at any reasonable rate, so it'll be a slow burn as the system reaches equilibrium over time (new housing comes into the market when owners must sell, demand destruction due to pricing). Due to demographics, a lot more housing could be satisfied by smaller units accounting for reduced forward looking family formation, but the challenge remains in sourcing labor to build these units.

With regards to the labor market, due to structural demographics and labor shortages, it is highly unlikely in my opinion that the job market weakens to the point where housing experiences a crisis from a rapid, sustained increase in homeowners who cannot afford their mortgage payments.

https://www.voronoiapp.com/demographics/Over-Half-of-Househo... ("Over Half of Households in the U.S. Don't Have Kids")

https://www.fanniemae.com/research-and-insights/perspectives... ("U.S. Housing Shortage: Everything, Everywhere, All at Once")

https://www.fanniemae.com/media/45106/display ("Fannie Mae: The U.S. Housing Shortage from a Local Perspective")

https://www.marketplace.org/shows/marketplace/the-housing-se... ("APM Marketplace: The housing sector droops under a labor shortage and price hikes")

https://www.businessinsider.com/baby-boomers-housing-wealth-... | https://archive.today/OsNgL ("Business Inside: Baby boomer homeowners got rich from skyrocketing house prices. Now they can't find retirement housing.")

https://www.bloomberg.com/news/articles/2024-09-18/us-faces-... | https://archive.today/Lyr5t ("Bloomberg: US Faces a Deficit of 6 Million Workers in Less Than a Decade")

https://www.axios.com/2024/06/27/labor-shortage-workforce-ec... ("Axios: Labor shortages are the new normal")

https://www.axios.com/2023/08/27/labor-shortages-air-traffic... ("Axios: Labor shortages plague high-stakes industries")

https://www.axios.com/2023/05/08/us-labor-shortage-older-wor... ("Axios: Why labor shortages could be here to stay")

[ericmay]

Never say never, but yes, agreed. And that shortage depending on how it’s calculated may be more pronounced if we look at where people plan to live in the future. Central Ohio where I live is on track to gain in population while the state as a whole loses population. A house in a rural county doesn’t necessarily count/help, even if it’s included in official “here are many houses we have” statistics.

Home builders, especially with a risk-free 4% return today, do not have any incentive to build “cheap” or “affordable” housing, and as material prices continue to increase because there are 330 million people in America who also want those resources, new builds will have to continue to increase in price and perhaps decrease in quality, depending on how much oil goes into the construction of the house. Home builders, absent clear evidence of industry collusion will simply increase their profitability and will not build ‘starter homes” or “affordable housing”.

We can address the issue in a few ways, for example removing artificially limiting zoning practices, generally speaking, or perhaps the elected government can just pay for cheaper housing, or we can craft good legislation.

But on its own I don’t see a good catalyst right now that will cause home prices to “correct”* without a treatment worse than the disease (economic depression or global war or something else that is otherwise catastrophic).

* The term “correction” is popular but misused. The current price of an asset is always correct. When an asset decreases in price, that decrease is no more correct than a corresponding increase in price.

[toomuchtodo]

Great points, great comment. An additional measure to solve for this would be by making remote work a protected labor right (assuming it does not overly burden the employer and such), so workers can move where the housing is, or the housing is cheap. But we'd rather let old, status seeking folks at the top of the corporate ladder "show workers who is in charge" and maintain control while workers get extracted from for higher than necessary rent or mortgage payments near an office (where housing is in demand but very slow for additional supply to come online, if it ever does at all).

https://news.ycombinator.com/item?id=39037589 ("HN: Remote work doesn't seem to affect productivity, Fed study finds")

https://www.stlouisfed.org/on-the-economy/2024/nov/why-do-wf... ("Federal Reserve Bank of St Louis: Nearly half of people working from home — who moved to a different state — moved because of housing.")

People argue about paperclip maximizers that don't exist yet while being unaware of the one they live their lives in today.

[ericmay]

Thanks - back at you!

[tmnvix]

> A correction won't occur because there is a housing shortage of between 3-8M units, depending on who you ask.

I'm not from the US, and unfamiliar with the statistics, but in NZ the general narrative has been similar - i.e. "the property price boom was due to a shortage caused by an increase in population and a lack of new stock".

For NZ, this doesn't hold up when looking at actual statistics.

- Prices rose x4 between 1995 and 2021 (inflation adjusted).

- The total number of households to total number of dwellings remained relatively unchanged over the same period.

- The average household size remained steady (i.e. it's not just a case of each dwelling housing more people).

Given the above (and some other evidence), my assumption is that the property boom was not driven by increased demand for homes, but by steadily declining interest rates causing an increase in demand for investments. If this is true, and we are at the end of the era of ever decreasing interest rates, then I believe a correction is entirely possible (it is well underway in NZ - 30% down in 3 years in my city).

I would be interested to know what makes the US situation so different (my feeling is that the situation in most anglo countries is similar - if not so extreme as NZ with regard to price rises and population increases).

[toomuchtodo]

US institutional ownership is too low nationwide to be material compared to new housing build rate when considering overall supply shortage. Of note, there is institutional concentration in certain local markets, which diminishes purchase supply in those localities (and potentially contributing to price level firmness in those localities).

https://nlihc.org/resource/gao-releases-report-institutional...

https://www.gao.gov/products/gao-24-106643

https://www.census.gov/construction/nrc/pdf/newresconst.pdf

[tmnvix]

Thanks.

When I said "steadily declining interest rates causing an increase in demand for investments", I wasn't referring to institutional investment only (for residential properties this is almost entirely insignificant in NZ). I was referring to the motivations of all purchasers.

Nobody was paying the average of NZD1M for just a home - they were making an investment with future capital gains in mind (as well as getting a home). Now that credit is no longer cheap those capital gains are less than assured - even negative. So a correction is occurring. The correction has not been caused by a drop in demand for homes/places to live.

[frmersdog]

This is a misconception that gets perpetuated because of a conflation of a shortage of physical housing units (which does not exist) and a shortage of affordable units (which does)[1]. This shortage is highly local, as your Fannie Mae sources discuss; it is best characterized as a mismatch between local resources and opportunities. This suggests that it's not merely a matter of market failure, but additionally (if not principally) one of municipal mismanagement.

The solution is already known, as it has been executed successfully in many places, including Singapore, the UK[2], and the Soviet Union: the government builds units directly and either sells or rents them according to affordability rather than cost. This will destroy housing as an investment, which would certainly have knock-on effects, but in terms of solving the problem at hand - "Are there enough places for people to live?" - it's adequate. Chalk up any resulting difficulties as a redistribution of the externalities of letting the problem fester for so long.

>With regards to the labor market, due to structural demographics and labor shortages, it is highly unlikely in my opinion that the job market weakens to the point where housing experiences a crisis from a rapid, sustained increase in homeowners who cannot afford their mortgage payments.

Please see GP for examples of situations where just that exact scenario happened (China, relevant because of the potential for financial contagion) or almost happened (the rest). It's unwise to bet the labor market on the ability of officials to pull novel remedies out of thin air every time a systemic threat appears.

[1] https://www.tandfonline.com/doi/full/10.1080/10511482.2024.2...

[2]https://www.youtube.com/watch?v=jZpLiJdIGbs