How Low Home Inventory Affects Buyers


Why is there a housing shortage in the United States?

What’s behind the lack of available housing in the United States? Unsurprisingly, several factors contributed to this shortage.

Competition between home buyers and investors

Investors have long viewed residential real estate as a safe haven for their money. This is especially true when the global economy is fragile. Today, therefore, traditional single-family home buyers are not only competing with other buyers, but with investors large and small.

Some investors also buy large tracts of land and develop housing for tenants. Landlords lost many of their tax advantages over tenants once the Tax Cuts and Jobs Act 2017 came into force. This law significantly increased the standard tax deduction, making the mortgage interest deduction less valuable to homeowners.

It also capped the deduction for state and local taxes at $10,000. This is a disadvantage for homebuyers, especially in high-tax states where the property tax deduction was typically worth well over $10,000.

With these advantages gone, many people who would otherwise buy a home are choosing to rent instead. Some investors responded to this by building rental units instead of more single-family homes.

The National Association of Home Builders (NAHB) said single-family homes built for rental still represent a small segment of the housing industry. But the fact that some investors are putting rental homes on the market instead of traditional single-family homes is just adding pressure to buyers in low-inventory markets.

Chronic skill shortages

Developers are also building fewer new homes as they struggle to find enough labor. Homebuilders have faced this labor shortage since the onset of the COVID-19 pandemic.

According to the NAHB, the number of open jobs in the construction industry averaged between 300,000 and 400,000 each month at the end of 2021. Without enough skilled labor to build homes, developers put fewer new homes on the market.

Rising material costs

Builders are also facing rising costs for the materials they use to build new homes. Everything from steel to insulation to concrete to wood costs more today. The NAHB in March last year said rising lumber prices added more than $24,000 to the price of a new home.

It is also difficult for builders to obtain these materials due to supply chain disruptions that have continued throughout the pandemic. These disruptions, along with higher prices, delayed the amount of new home construction the market would typically see.

Legal and bureaucratic obstacles

Homebuilders also have to deal with zoning rules and permit requirements when building in communities across the United States. Depending on the stringency of these regulations, it may be difficult for builders to add more housing in certain areas.

Other municipalities have environmental, historic and community character preservation concerns, forcing builders to follow rules on how they can alter building exteriors and limiting the types of properties that can be built in certain neighborhoods. Again, this can make it difficult for builders to add new homes to these communities.


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