Cody Bjugan, a seasoned land developer and mentor at Vestright, sheds light on the escalating housing shortage in the U.S., a situation that’s becoming increasingly alarming. The multifamily real estate sector saw a dramatic 74% drop in investments in apartment buildings by May 2023, compared to the previous year, as reported by The Wall Street Journal. This trend suggests a potential exacerbation of property scarcity by 2025.
Underlying Causes of the Shortage
The crisis is not an abrupt one; it stems from persistent market imbalances, notably the scarcity of developed land. Despite the abundance of land in the U.S., much of it is not on the market, and what is available is often entangled in complex negotiations and lengthy government approvals.
The Federal Reserve’s interest rate hikes, intended to control inflation, have had ripple effects. The housing market, after reaching a peak in 2022, is now in a state of flux, with many potential buyers sidelined, awaiting a clearer market outlook. The modern buyer’s accustomed to lower interest rates, and the inevitable increase is forcing a recalibration of expectations.
The housing crisis intertwines with larger economic and societal issues. Business Insider highlights a shortfall of 1.5 to 6 million homes in the U.S., despite a majority of households being owner-occupied. The Great Recession’s impact on the housing and construction sectors still lingers, exacerbating the challenge of meeting housing demands.
Bjugan points out that the average entitlement process for land development can take over 18 months, a delay that worsens the supply-demand imbalance. Despite vocal support for affordable housing, the reality of rising permit fees and costs often contradicts these claims.
As 2024 approaches, the housing crisis is expected to deepen. The combination of rising interest rates, land scarcity, bureaucratic hurdles, and the Great Recession’s aftermath will starkly highlight the shortage.
There is optimism, however, as efforts to bring off-market deals to light and streamline government processes are underway. Real estate professionals can contribute to sustainable solutions by collaborating with communities and advocating for more efficient approval processes. Partnerships across the real estate sector could foster innovation and integrate affordable housing into mainstream projects.