What's Being Done to Ease Tight Housing Inventory?

The most persistent problem for the housing industry since the Great Recession of 2008 is that, put simply, there aren’t enough homes on the market for the buyers who are interested in purchasing.

Consider this fact: For every four jobs created, only one housing permit is issued, according to the NATIONAL ASSOCIATION OF REALTORS®. There was also 4.3 months of inventory on the market in August 2018, when six months is considered a balanced market.

“Everything about housing markets is local,” explains Lisa Sturtevant, a senior visiting fellow at the Urban Land Institute (ULI) in Washington, D.C. “But nationally, if you added it up, there’s indeed a housing shortfall broadly. Looking at trends in household growth and household production, we’re not producing enough housing.”

NAR and other stakeholders are actively working to fix this persistent problem by pursuing strategies that they expect to unclog the pipeline of available homes. Those changes may take some time, but the groundwork is solid, and progress is being made.

Spreading the word

It’s nearly impossible to solve a problem if few people understand that there is one. That’s why NAR is tackling that first step by working to raise awareness of housing underproduction, reports Nadia Evangelou, an NAR research economist in Washington, D.C.

“We receive lots of questions about what could be done by local stakeholders to overcome the housing shortage,” she explains. “We came up with the idea of highlighting research about what could increase housing supply.”

NAR Research now publishes a housing shortage tracker that compares how many permits are issued relative to the number of new jobs. In addition, it issues the REALTORS ® Affordability Distribution Curve & Score, which compares housing affordability in various metro areas to the statewide figures. It has also created a tool that permits REALTORS® to check single-family construction in 175 metro areas against the 20-year construction level and the employment growth. You can find all those data sources at https://realtorparty.realtor/supply.

“We need to start the conversation, and through the data, everybody can see if an area seems to have a housing shortage or not,” says Evangelou.”

“REALTORS® are taking the lead to address the housing affordability and inventory issues in their communities,” said Susie Helm, NAR Vice President, State & Local Services and Advocacy Operations. “The NATIONAL ASSOCIATION OF REALTORS® has developed resources for REALTOR® Associations to engage with others in the community: developers, planners, builders, public officials, and other stakeholders, to assess their unique housing issues; and then, to develop short- and long-term solutions that work. There are grants, expertise and services available from NAR to bring solutions to every community. Two of the grants available through state and local REALTOR® Associations are Smart Growth (SGA) grants and Housing Opportunity (HO) grants.”

The SGA grant program offers state and local REALTOR® associations a way to connect with government officials, partners, and the public in planning and designing a community’s future using 10 smart-growth principles, such as mixing land uses, creating walkable neighborhoods, and preserving open space and critical environmental areas. The HO grant program positions REALTORS® as leaders in improving their communities by creating affordable housing opportunities.

“In Scottsdale, REALTORS® established an annual smartgrowth workshop for civic and business leaders in the city,” reports Hugh Morris, NAR Smart Growth Program Manager. “The sessions were led by a smart-growth expert.”

Morris notes that inventory and smart-growth development are long-term concepts, so it can take several years for these grants to produce concrete outcomes. “One immediate concrete outcome is starting the discussion and creating those relationships with partner organizations, state and local governments, or like-minded associations,” he says.

“These grants have been used often for the last couple of years,” adds Morris. “A lot of people see what we call community advocacy grants as a first step to advocacy, and they establish REALTORS® as experts and partners in the betterment of the community. Between the research and advocacy groups, NAR staff and the REALTOR® Party are really here to support the advocacy and outreach efforts of our local associations.”

The constraints on construction

Also engaging in discussions is the National Association of Home Builders (NAHB). It’s advocating policies that would reset the conditions constraining the construction of homes, particularly single-family homes, in the country.

“I’d categorize it as the five Ls,” states Robert Dietz, NAHB’s Washington, D.C.,-based senior vice president and chief economist. “Lumber, labor, land and lots, lending to builders and land developers, and laws — with the primary two being lumber and labor.

“In total, what they represent are supply-side headwinds or blocks that have prevented the single-family construction sector from expanding its production faster,” adds Dietz. “This year, I expect around 900,000 units to be built, and I think the market could absorb between 1.1 and 1.2 million units.”

Residential construction consumes about one-third of the softwood lumber used in the United States, and about one-third of that lumber comes from Canada, reports Dietz. That country, however, has seen a rail car shortage, wildfires, infestation issues, and starting in 2017, a U.S. government-imposed tariff.

“In the last year and a half, there’s been a lot of price volatility,” says Dietz, who notes that at one point, there was a 63 percent increase in cost, though prices in September were down to 19 percent higher than in 2017. “That’s a significant increase, but it’s not 63 percent. The volatility continues, and the increase in cost has added thousands of dollars to the typical newly built home. That limits production. And if you think of the homes that are most affected, it’s going to be the homes we need the most — the smaller, entry-level homes — because those buyers have the hardest time absorbing those cost increases.”

Among other priorities, NAHB has been advocating that the federal government rescind the lumber tariffs and negotiate a settlement.

The second major factor holding back single-family construction is the lack of workers in the homebuilding sector. The percentage of open jobs in the industry has been for the past two years higher than at the peak of the building boom before the Great Recession, reports Dietz.

“The construction industry, residential and nonresidential, such as highway and commercial builders, has 273,000 open, unfilled construction jobs,” he says. “That’s at a post-recession high, and that’s been rising for the last four years.”

Many of the workers formerly in the industry shifted to other sectors — think transportation and energy during the fracking boom — during the Great Recession, and Dietz predicts they’re not coming back. “Also, young people are more attracted to office jobs and don’t want to work outside, particularly with more of them having four-year degrees,” he adds. “It’s also because of the macro environment, meaning the current 3.7 percent unemployment rate.”

Dietz says the homebuilding industry needs to recruit new workers, including more women. “Currently, only 9 percent of the construction industry is women,” he says, “and many are concentrated in office jobs, such as sales, rather than swinging a hammer.”

Sturtevant agrees. “One thing I’m struck by is the decline in the construction workforce,” she laments. “People aren’t becoming construction workers, and that’s slowed down the pace of building. My son started high school this year, and the first thing he was handed was a brochure on how to get into a four-year college. What if we also handed out something about trade schools and vocational education? We don’t value that as much today as we once did.”

It’s about local policies, too

While some groups are focusing on federal policies, ULI’s focus is more on local issues. “We spend a lot of time thinking about this, and we believe the policies that matter most don’t come from the federal government,” says Sturtevant. “Yes, the extent to which tax policy changes the ability of the low-income housing tax credit program to provide funding to housing, that’s of course important.”

However, the solution will come in changes to local landuse policy and local regulations, Sturtevant notes, stating a conclusion she and others expressed in a 2017 ULI report, Yes in My Backyard [https://americas.uli.org/wp-content/ uploads/sites/125/ULI-Documents/State-Housing-Policy- Report-2017.pdf ].

The report stresses that local governments should rethink land use and zoning to allow more density — but not just for density’s sake. “It’s about how increased density can be brought to bear where there’s access to transit or jobs,” says Sturtevant. “But not every place should look like Manhattan.”

The challenge on that front, however, doesn’t typically come from local government, says Sturtevant. “The folks who tend to gum up the works on changing zoning to allow for more housing are typically not the bureaucracy but the residents,” she says. “Even if the local elected body or staff thought it was good idea to increase density, the loudest voices tend to be those who don’t want change in their neighborhood. That’s really hard for elected people to deal with.”

Another local factor is various zoning regulations that may be outdated given today’s trend toward walkable communities and other demographic shifts that show signs of changing how Americans view and use cars. “Parking minimums have been brought up as a possible way to ease development costs if they are lowered,” says Sturtevant. “Those requirements were often written in the 1960s and 1970s, and it’s about taking a look at the kinds of requirements in a zoning code that may have been put in place then when different things were an issue.”

Local impact fees are another issue on which many organizations, including NAR and the NAHB, are pressing for change. “Research has shown that they create additional hurdles to homebuilders,” says Evangelou. “Some areas, like Sunnyvale, Calif., and Denver have reduced impact fees, and that’s worked for those areas.”

All of these local limitations often come together to add delays to new development. “From the early 2000s to today, we’ve seen the time it takes to build any sort of housing in high-growth markets significantly increase,” says Mike Kingsella, executive director of Up for Growth, a new nonpartisan, nonprofit coalition of housing stakeholders, including developers, employers, chambers of commerce, trade organizations, environmental groups, and constituents affected by the lack of available and affordable housing.

“In California, a project that then might have taken, say, five years from beginning to opening the doors for occupancy can take north of 10 years today,” he notes.

Despite these headwinds, Evangelou stresses that what works in one area may not work in another, and NAR Research’s aim is to provide hyper-local insights. “Our goal is to go to every area and have recommendations for each of the areas,” she says. “We also want to get feedback on what local stakeholders think would work best for their area, and from their feedback we can customize our information for the top 100 metro areas.”

Will prefab ease the squeeze?

The future also will see more homebuilding in factories, Dietz predicts, as a workaround to the industry labor shortage. “Only 2 percent of homes are currently built in factories,” he says. “I also predict we’ll see brick-laying robots, auto-drywalling machines, and other machines taking tasks currently done by hand. I’ve seen some mockups that are currently more in the idea stage. But in the next 10 years, we’ll see more of that.”

Dietz isn’t the only one predicting that factory-built homes will make a mark in the future. Gay D. Cororaton, CBE, an NAR research economist in Washington, D.C., also sees signs they’ll expand and improve housing affordability, in part because of what seems to be a growth in the number of companies focusing on increasing the production of manufactured homes.

In June 2017, a San Francisco Bay area developer opened Factory OS in an old shipyard in Vallejo to manufacture homes. Months later, in September, Amazon announced funding for Plant Prefab, a company that builds prefab custom single- and multifamily homes. “Manufactured homes are a more affordable, safe, and decent housing option for aspiring homeowners,” says Cororaton.

Manufactured housing and mobile homes were terms that used to mean much the same thing, explains Cororaton. However, after 1976, when the U.S. Department of Housing and Urban Development implemented tougher standards for things like construction and safety, only homes that meet those standards can be called manufactured housing.

Cororaton says increased production of manufactured housing would ease the housing shortage by moving the affordability needle toward those who can’t afford site-built homes. Manufactured homes cost about $50 per square foot, or half the cost of a newly site-built home, excluding the cost of land. “But it’s facing the same issue as other types of traditional types of homebuilding — including a labor shortage, a land shortage, and zoning challenges,” she says. “I was told by one major manufacturer that it has a six-month lag, meaning that a consumer puts in an order for a home, and there’s a six-month wait.”

This type of housing is also getting attention from the Federal Housing Finance Agency, which is required to implement regulations to implement the so-called duty to serve of Fannie Mae and Freddie Mac; they’re required to facilitate a secondary market for mortgages for very low-, low-, and moderate-income families in underserved markets, including that for manufactured housing.

Cororaton says the issue of how manufactured housing can affect inventory and affordability needs more research, a mission she’s personally pursuing.

While there are still gains to be made, Evangelou says housing strategies are working. “Construction is improving,” she says. “It’s up in general, but not enough to replenish what wasn’t constructed during the down period. It’s not a recovery yet, but we’re seeing improvement.”