I keep hearing about a housing shortage. How we are not building fast enough. I personally know several people that own more than one home and AirBnB it when not in use. Also hedge funds are now targeting real estate. I can't help but wonder if this is partially an AirBnB and hedge fund created situation. Of course these are the same people that have access to all this free money. The average Joe still has to pay interest.
I recently listed to an NPR Planet Money podcast regarding the housing shortage. One of the points they mentioned was that the number of people joining construction related trade schools (plumber, electricians, etc) dropped because the construction industry was decimated after the 2008 crash. It takes 5+ years for someone to go to school, get an apprenticeship and become skilled in their trade. This scarcity is also impacting the ability to build new homes (apart from the zoning laws and NIMBYism that prevents building new high-density housing). The pandemic is more of a short term supply-shock which is exaggerating the situation.
Interest rates are historically low. I'd imagine hedge funds are paying interest too. You'd never want to tie up all that capital to avoid a 2% interest rate.
Even I, an average Joe, pay the minimum payment on my mortgage and invest the rest. It would be foolish to pay it off early.
Yes they are maybe %1 - I was able to get %2 at 15 years. And hedge funds get money from investors then leverage that with loans that brings their total cost of capital down even lower. Our previous Secretary of the Treasury (Mnuchin) made his fortune that way after 2008.
> I keep hearing about a housing shortage. How we are not building fast enough.
New construction is temporarily extremely expensive due to supply chain issues. Prices of everything from lumber to copper are (or were) elevated because COVID shut down factories and supply chains.
New construction is still happening, but it's slowed down and expensive for a short while.
There's a secondary problem that the new construction is happening in the suburbs and outskirts where there's still land available. Meanwhile, the trend is to move toward city centers and popular areas, where housing prices continue to climb.
There is a specific locality to housing that is key to think about.
This report from Brookings [1] titled "The Washington, DC region has built too much housing in the wrong places", lays out a strong case for what is happening in my general geography. All politics aside, this is very accurate anecdotally as all the major housing developments I know of were fairly distant from work. We have housing going up, but not in the right place for the employees. Had colleagues commuting > 90 minutes one way for work, pre-pandemic. COVID changed all that for the better.
Before getting married, my wife & I rented individually, and our combined housing expense (mortgage) for a medium sized TH in a good neighborhood is fairly close to our rents, previously. This is thanks to the low interest rate environment which has increased affordability despite the higher prices.
So true. That fact that people consider it normal to commute from Fredericksburg, VA to Tysons/Ashburn/Reston is bonkers.
Fredburg to DC isn't quite so bad - at least there's commuter rail and slug lines. But exurb-to-suburb commuting should never be something that's encouraged.
And FWIW, we downsized to a TH to be closer to work. Couldn't be happier. I now walk to work; my wife cycles. We're in walking distance to all local schools. And a short bike ride to dining and shopping. I don't know why more people don't do the same. The house cost was in the same ballpark as the single-family we owned previously.
It absolutely is a speculation driven market, and has been for a long time, and that is the key driver for housing prices, which is why housing price increases coincided with a massive increase in money supply.
People talk about adjustable rate mortgages and such from the last bubble, and these sorts of thing played a role and helped nail in the people at the bottom, but they aren't what caused that crisis. Turning a market for an inelastic utilitarian asset into a speculative market is the fundamental cause, everything else is just an instrument of that perverted market.
