Let’s face it there is a crisis of huge proportions in the housing area. Multiple things contribute to it. Houses are getting more expensive and demand outpaces supply. It was exacerbated by the COVID pandemic. Offices were shut and people went remote giving them options of working from anywhere. Here I will put forth some of the factors contributing to this shortage leading to the crisis.

Remote work as a fallout of the COVID pandemic.

Most of us were going to the office before the pandemic. We were struck in the traffic for hours, cursing our daily commutes but having little option other than quitting and looking for a job near our area. Chances of which were less. The COVID pandemic in that sense was opportunistic for businesses as well as employees. Business continued with added productivity as people saved the time they were commuting. Employees were also happy that their stress was reduced. As the pandemic hit no one saw what was coming from a housing sense.

People were now working from anywhere and decided to move to places with options of bigger houses and cheaper payouts. People moved and gained financially and got a bigger house they always dreamed about. So, places like Austin, Phoenix, Dallas, etc. which were affordable as compared to some of the places in California got a lot of traffic. Increased demand and extra cash in their pocket led them to pay exorbitant prices, sometimes paying more than $100,000 over the asking price.

Low-interest rates

Another factor that led to the lack of houses in the market was the low-interest rates. People who moved got a much lower mortgage, leading them to afford a much higher-priced house. People who afforded a house around the 400s were now moving to 550+ and so on. The low-interest rates contributed majorly to the housing shortage and demand outpaced the supply in the market. New houses were not being built as fast as people were buying in the market.

Lumber price increases

As lumber prices more than doubled the cost of construction for a new house increased. As the new houses cost increased the sellers of old houses saw an opportunity and greed set in, they increased the prices to commensurate with the new house price increase. All the places increased the existing house prices without any contributing factors for it. This greed pretty much outpaced the demand in the market and existing house prices soon became like new house prices. People bought into the crisis for the fear of missing out. This fear led them to pay outrageous prices over asking.

Airbnb

As I was thinking about the shortage another factor contributing for a long time has been the ability of people to buy houses and convert them to an Airbnb. Earlier hotels and commercial establishments were separate and abundant to cater to that clientele but now people had a new option of staying, for their vacations. Earlier people would either rent houses which would be a small percentage or sell the house, there was a constant churn in the market and the balance was maintained. Now with all the other contributing factors which I talked about earlier a large segment of houses were removed from the mix leading to the shortage in the market.

As you see, multiple factors led to the current housing crisis each of them contributing to it ultimately. Affordability has become a major issue and most buyers are priced out of it. What can be done for this crisis is a thing that people would ask. There is no easy option. Some things which will help are the construction of more affordable housing, most people need smaller units. Having more focus on small houses will help, the government can help by subsidizing the initial investments. It’s a win-win situation as more people will be able to afford houses. The government will gain ultimately and recoup its subsidies through the taxes they get from the public.