With the nation’s economy on sound footing and incomes on the rise, the number of people forming households in the U.S. has returned to a more normal pace. Housing production, however, has not.
The 2019 State of the Nation’s Housing report, released on June 25 by the Harvard Joint Center for Housing Studies, documents how the housing shortfall is keeping pressure on home prices and rents, eroding affordability for modest-income households in many markets.
The report found that household growth is now back from post-recession lows, but new-home construction remains depressed, with new homes barely keeping pace with the number of new households. Several factors may be contributing to the slow construction recovery, including excess supply following the housing boom—which took years to absorb—and persistent labor shortages.
“The most significant factors, however, are rising land prices and regulatory constraints on development,” says Chris Herbert, managing director of the Joint Center for Housing Studies. “These constraints, largely imposed at the local level, raise costs and limit the number of homes that can be built in places where demand is highest.”
Meanwhile, a large percentage of new housing being built is intended primarily for the higher end of the market, Herbert says. The limited supply of smaller, more affordable homes in the face of rising demand suggests that the rising land costs and the difficult development environment make it unprofitable to build for the middle market.