What’s Wrong with the Housing Market?

Compass and Redfin, two major real estate companies, have recently laid off countless employees due to the lack of home sales. While this is harmful to our economy, this downfall in the housing market is nothing new to our country. The Housing Market in the United States originated in the early 1900s where it later faced many impactful series of events such as the Great Depression and The Dust Bowl. Going into the present, the Housing Market is facing similar conflicts that are heavily affecting the current society and many communities around the nation. The two critical issues that are impacting the market are rising prices and gentrification.

Looking back at the past century, there is no doubt that the Housing Market has faced countless changes that have undeniably affected the economy, job market, and communities. World War II is a great example of a housing shortage conflict that received attention. After World War II, soldiers returned home with serious worries about their future living conditions. A huge factor for these concerns was the World War II construction restrictions. Due to these restrictions, homes were not being built which created a shortage for the soldiers that arrived home. Wealth Management reads, “The housing shortage By the end of the war in the mid-1940s, it was clear that there was a severe shortage of housing.” (Freeman 1999) The Great Depression was another crucial event that ultimately hurt the market. During the Great Depression, millions lost their properties, jobs, and savings. Likewise, the United States went through the Great Recession in 2008 which also impacted the economy and hurt individuals. The act of individuals borrowing large loads of money from brokers for stock investments caused the housing market bubble to burst and affected millions of people who lost their jobs and ultimately sent the economy into a recession. (Rocket Mortgage Brock 2022). Aside from the negative trends in the housing market, there were also many positive times such as the Great Moderation. The Great Moderation was a time from 1990 to 2006 when home prices were stable and experienced a moderate level of inflation. Unfortunately, like most things in economics, the housing market ebbs and flows and currently, it is in turmoil.

One major cause of the turmoil in the housing market is the increase in prices. More specifically, the supply side has faced many nightmares as the construction costs have been increasingly rising in the past couple of years. The shortage of materials being imported to the United States has been a notable issue that is a major cause of the construction costs. Construction parts have not been as accessible as they have been in the past and this impacts the number of homes that can be built. Without the supplies needed, the home development slows down and the shortage only gets worse. Due to lack of shipment, parts are now heavily marked up which is a challenge for many companies. Not only does this negatively affect companies, but an increase in prices is passed on to the consumer which makes home buying out of reach for many. 

While construction costs have seen a major increase, labor is also a very notable issue that impacts the supply side. Ever since the start of the Coronavirus pandemic, more and more employees have dropped work due to health concerns and the government funding of stimulus checks. Unemployment experienced a sharp spike during the pandemic and has severely affected the speed of new homes being built. Many employees left due to health risks, but many also wanted to take advantage of the unemployment relief checks that often paid more than their current jobs. A statistic that was shared on CNBC states, “Roughly 40% of workers stand to make more money while unemployed than from their former jobs, according to one analysis of expanded benefits.” (Iacurci, 2020) With this opportunity, construction workers chose to avoid the long hours and hard labor in the sun. As of now, the job market still has not rebounded as many jobs are still open in the construction field. Until more jobs are filled, the home shortage and lack of the supply side will only increase. 

Alongside the supply side issues, the demand has also seen an extraordinary increase. Going back to the start of Covid-19 when employees were sent to work from home in virtual environments, the need to stay in business booming cities like Los Angeles, San Francisco, or New York became minimal. Due to this, many employees decided to move to suburban areas where living expenses were much lower. This was a way to dodge the incredibly high rent prices for properties in such major cities. To these virtual workers, they were able to find monetary relief by paying rent that was much more affordable in suburban areas.  This movement did not help the housing market at all. In fact, it drove up the demand in suburban cities that was never expected before the pandemic. Demand also heavily increased as there has been a common trend where wealthy individuals and corporations have used home buying as a profitable investment, further increasing the prices and lowering the supply which makes it more difficult for average families to afford homes. A quote from the New York Post shares, “Rich investors like Warren Buffett and B.W. Hughes are buying up many of the single-family homes that have long sustained the US middle class.” (Getlen 2022) The housing market has experienced new lows as the supply of homes has continued to decrease. To simply state, the supply and demand phenomenon was one of the biggest causes that gradually caused the housing market to be what it is now. Due to many factors such as the greedy buyers, there have simply not been enough homes throughout the past years. As there are not enough homes, the demand only increases exponentially. Due to supply and demand, homes are less available to purchase and prices have risen to unreasonable prices. The imbalance of buyers and homes available is the reason why the housing market is very broken.

Additionally, another issue that has truly been salient in the housing market is gentrification. Ultimately, gentrification hurts those who are in poverty as the poor become displaced by the wealthy. Displacement leads to more poverty, homelessness, lack of education opportunities, and decreased access to healthcare. With a rise in essential living necessities, the poor find it near impossible to thrive in communities. Gentrification limits housing options for those in poverty. Likewise, affordable areas of town become inaccessible to the low socioeconomic status citizens. Gentrification affects the housing market as prices are being increased and creating restrictions for those who are not the wealthiest. Thirdly, eviction plays a huge role in gentrification. For example, many communities have seen recent increases in daily life necessity prices, which surges the rent bill. This only tempts other landlords to increase rent just as much. As a result of this scenario, middle or lower-class families are not able to pay the overwhelming prices which leaves them with one option, eviction. One place where gentrification is being hit hard is the bay area. An article from The Pioneer reads, “Despite rent caps and legislative inhibitors, housing prices are projected to rise in the Bay Area due to gentrification efforts. San Francisco and Oakland boasted the highest rates of gentrification in the nation, affecting one-third of poor neighborhoods in the area, Mercury News reported.” (Temirtashev 2022) Not only does this scenario hurt the tenant, but it hurts the original owner just as much. Due to the increase in rent, taxes, and property values increase, which makes it unaffordable for the original owner. All in all, gentrification certainly has its harm and puts the housing market on a downward trend.

These issues that are clearly detrimental to the housing market will not improve without solutions. The lack of materials being imported overseas needs new supply chain policies that alleviate the stress of the import process. To fix the labor shortage caused by Covid-19 and government relief checks, more individuals must be recruited.  Obviously, the work right now is not convincing enough for many so there must be better benefits that bring them back to work. These benefits can be education, insurance, and increased wages. This can help to recruit and retain employees in this industry. . Companies can also provide job development that provides the opportunity to advance their career in the construction industry. This can be crucial for those who have bigger intentions in their career and those who want to build crucial networking experience. 

Another issue in the housing market is the sudden rise in demand. This can be tackled by asking employees to return back to the office in urban areas. A big issue in suburban communities is the lack of homes due to those who work remotely and want to live in cheaper areas. By changing work-from-home policies (WFH) and asking employees to return to the office, we can relieve the demand for homes in suburbia. In many states, Covid cases are declining as schools are back to in-person learning and studies have shown the severity is not as it used to be. Therefore, we can assume employees may also return to the office. As a side note, research has shown employees to be more productive in the work setting rather than at home. A statistic from Apollotechincal states, “Another more recent study states that the more hours an individual works from home, the less productive they become. Those who worked full time (8 hours/day) at home are 70% less productive than those who don’t work from home..” (Apollo) This can be seen as a win-win situation as demand for homes decreases and employees are more productive at work. 

As for the issue that involves investors buying homes in bulk, there should be a limit on home ownership. For example, interested home buyers could be limited to two properties in one community in order to give other buyers opportunities. This would cause home prices to become reasonable again as average individuals can purchase. What better way to bring home prices back to normal than to also set the market back to homeostasis.

 Finally, gentrification is a serious problem that is affecting many communities and individuals across the country. There are many ways to help control gentrification, including providing more support to original homeowners as prices, taxes, and property values increase due to gentrification. Another solution can be to have strict neighborhood protection. In certain communities, gentrification occurs as there are renovations or community makeovers that mark up the value. If there were rules that restricted any change to communities, gentrification would be much less severe. For eviction, they could soften the laws and place limits on rent as it could benefit the poor as well as the homeowners.

The prevalent issues that are causing the housing market to be so confusing and messy are due to many causes, but more specifically, the fast rise in prices and gentrification in communities is having a disproportionate effect. Though the current market is still very unpredictable and could be miles away from stability, there are solutions that can be beneficial to the greater conflict.

Work Cited

“Compass and Redfin Announce Layoffs amid Slowing Home Sales.” CNBC, CNBC, 14 June 2022, cnbc.com/video/2022/06/14/compass-and-redfin-announce-layoffs-amid-slowing-home-sales.html. 

Fettke, Kathy. “History of the U.S. Housing Market: Great Depression to Donald Trump.” RealWealth, 10 Dec. 2020, realwealth.com/learn/us-housing-market-history/. 

Ross, Sean. “Has Real Estate or the Stock Market Performed Better Historically?” Investopedia, Investopedia, 28 June 2022, investopedia.com/ask/answers/052015/which-has-performed-better-historically-stock-market-or-real-estate.asp#:~:text=For%20the%20majority%20of%20U.S.,those%20of%20the%20stock%20market. 

“Housing Predictions for 2022.” Housing Predictions For 2022 | Rocket Mortgage, rocketmortgage.com/learn/2022-housing-market-predictions. 

Temirtashev, Zhanserik. “Gentrifying California: One City at a Time.” The Pioneer, thepioneeronline.com/46333/features/gentrifying-california-one-city-at-a-time/ cnbc.com/2020/05/09/it-pays-to-stay-unemployed-that-might-be-a-good-thing.html. 

Getlen, Larry. “How Corporations Are Buying up Houses - Robbing Families of the American Dream.” New York Post, New York Post, 18 July 2020, nypost.com/2020/07/18/corporations-are-buying-houses-robbing-families-of-american-dream/. 

“Surprising Working from Home Productivity Statistics (2022).” Apollo Technical LLC, 12 Apr. 2022, apollotechnical.com/working-from-home-productivity-statistics/. 

30, Tyson Freeman | Sep. “The 1950s: POST-WAR America Hitches up and Heads for the 'Burbs.” Wealth Management, 11 Mar. 2021, wealthmanagement.com/news/1950s-post-war-america-hitches-and-heads-burbs. 

Iacurci, Greg. “It Pays to Stay Unemployed. That Might Be a Good Thing.” CNBC, CNBC, 10 June 2020, cnbc.com/2020/05/09/it-pays-to-stay-unemployed-that-might-be-a-good-thing.html#:~:text=Roughly%2040%25%20of%20workers%20stand,retail%2C%20accommodation%20and%20food%20services.