Housing crisis

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The term housing crisis refers to acute failures in the housing market at a given place and time. Depending on the context and the speaker, the term has taken on substantially different meanings. [1] A prominent current use, for example, refers to shortages of available housing in the United States and other countries, but it has also been used to describe financial crises related to the real estate sector.

Contents

Following the first definition, the term "Housing crisis" or "affordability crisis" is currently used in the United States and other English-speaking countries to refer to widespread shortages of housing in certain regions where people want to live. These shortages, caused in part by regulatory barriers to new construction, have had consequences such as elevated regional homelessness, housing insecurity, and high housing costs. Within this context, the term housing crisis has been applied to a number of different manifestations, with different causes and consequences. One California housing researcher, for example, chronicled at least thirteen ways in which the term "housing crisis" has been applied to shortage and affordability issues, indicating that there is not one "housing crisis" but instead a "web of problems and dysfunctions". [2] Even in regions that are not experiencing an overall housing shortage, for example, the term housing crisis has been used to refer to a shortages for specific segments of the population, such as a shortage of dedicated affordable housing for very-low income populations or permanent supportive housing for those with disabilities.

As a second definition, the term has also been used to refer to financial crises tied to the housing sector, conceptually distinct from issues related to housing shortages. In the past, the term was used in the United States to refer to problems in the financial sector related to instruments tied to housing, such as the sub-prime mortgage crisis of 2007-2008. Similarly, "housing crisis" has been used to describe financial problems in the Chinese property sector that began in 2020 and are ongoing.

"Housing crisis" as shortage and affordability crisis

The first use of the term "housing crisis" discussed here refers to the related issues of decreasing housing affordability and worsening housing shortages.

Global housing crisis

Cities around the world are facing an "affordability crisis" as part of a long run trend that has persisted for decades.

Economists debate the causes of this affordability crisis. The state of the debate as of 2022 was summarized by economists Christian Hilber and Olivier Schöni in a contribution to the Oxford Research Encyclopedia of Economics and Finance:

"Three strands of the literature can be distinguished. The first is a strand of the urban economics literature, which highlights the importance of local long-run supply constraints, especially land use restrictions, in conjunction with local longrun demand growth, as crucial determinants of high and growing house costs. The second strand emphasizes macroeconomic factors and financing conditions. It argues that a unique macroeconomic environment with a decline in the real rate of interest (influenced by central banks) or unprecedented availability of housing credit may explain a significant fraction of the increase in house prices over the last two decades. The third strand focuses on the role of unrealistic expectations about future house price growth." [3]

Of the three strands, "the main underlying cause for the 'affordability crisis', which has been mounting for decades, is a combination of strong and growing demand for housing in desirable areas in conjunction with tight long-run supply constraints, both physical and man-made regulatory ones." [3]

Although major cities around the world face housing shortages, leading to the use of the term "Global housing crisis," substantial variation exists across countries and across planning systems. [4] Among developed countries, for example, cities in Japan have relatively abundant and affordable housing for their size, which some have attributed to nationalized control of zoning and easy and fast permitting for housing construction. Most english-speaking countries, on the other hand, stand out for planning systems that enable NIMBY obstruction of housing, with prices rising and housing falling into shortage as a result. Exceptions include Houston non-zoning approach with no restrictions on specific land use (YIMBY) but with other developmental code. [5] Developed European countries, which favor higher density construction than Anglophone countries, have followed a path intermediate between these two. [6]

Current U.S. housing crisis (shortage and affordability crisis)

The United States currently faces a housing crisis defined by shortages of housing that differ in scope and effect depending on region or segment of the population.

Market-wide housing shortages in high-demand areas

Decades of under-building in economically prosperous metros has led to regional housing shortages with national implications. In the 19th century, housing development in the United States was characterized by rapid urban growth in economically productive places. [7] Throughout the 20th century, however, a number of regulations that were designed to block in-fill and direct greenfield development took hold, such as exclusionary zoning. These regulations had the net effect of reducing housing construction and reducing the ability of regional housing stock to adjust to changing market conditions. Beginning in the last quarter of the 20th century, market-wide housing shortages have existed in a growing number of markets throughout the country, starting in prosperous coastal regions, such as Boston, New York, or the California Bay Area. [8] In the last two decades, these shortages have spread from coastal superstar cities to affect broader areas of the country, so that on average there is a deficit of housing nationwide. [9] Rental vacancy rates, for example, which are one marker of the balance of housing supply, have declined across the country. While, in a balanced market, rental vacancy rates should fall between 7 and 8 percent, only one U.S. census region, the South, achieved target levels on average in its metro areas as of 2021. [10]

These regional housing shortages have had nationwide effects. Rates of migration within the United States have fallen, housing costs have risen in areas that would otherwise provide quality jobs, and incomes from region to region have increasingly diverged. [7]

Within areas experiencing these shortages, effects are especially acute among the young, the poor, among renters, those living in crowded conditions, and those experiencing homelessness. Areas with market-wide housing shortages have significantly higher rates of homelessness than those with adequate or surplus housing stock: Variations in rent-levels and vacancies are chief factors explaining regional variations in homelessness rates. [11]

After the COVID-19 pandemic, some baby boomers whose children have moved away have found it prohibitively expensive to move into smaller homes, a paradox caused by the higher prices of newer homes, tax benefits given to long-time owners, higher interest rates, and low supply of appropriately-sized housing caused by restrictive zoning that prohibits accessory dwelling units or requires single-family homes. [12]

Specific regional housing shortages

Nationwide shortages of dedicated-affordable and supportive housing

In addition to market-wide housing shortages in certain regions of the United States, the term "housing crisis" has been used to describe persistent shortages of non-commodity and supportive housing provided to vulnerable members of the population. Even in regions with relatively abundant market-rate housing, the market can fail to supply safe and sufficient housing to populations with very low income or disabilities that impair independent living. Insufficient public funding has contributed to a distinct housing crisis affecting these groups. [13] [14] Even regions with relatively abundant housing supply and low rates of homelessness, such as Mississippi, face challenges with street homelessness due to factors like addiction, as well as issues with housing quality. [15]

Shortages of housing affordable housing are discussed in the article "Housing gap" under the section "United States."

In addition to shortage and affordability issues, the term "housing crisis" has been used for overlapping concepts such as a "fair housing crisis," involving residential discrimination and effects of segregation; an "eviction crisis"; issues of gentrification and displacement; and environmental concerns. Eviction, displacement, and forms of housing inequality are worsened by and related to the shortage and affordability crisis, but also have causes of their own and require distinct solutions. [2] [16]

Housing crises in other countries (shortage and affordability crises)

United Kingdom

The United Kingdom faces regional shortages of housing, with undersupply and high demand in the south, relative to more abundant housing in economically depressed areas of the north. [17]

Other countries

Historic housing crises (shortage and affordability crises)

A distinct use of the term "housing crisis" refers to financial crises related to the housing sector. Rapid swings in housing asset prices can cause shocks to credit markets, the banking sector, and the wider economy. [18]

Foreclosure crises

Many homebuyers purchase housing on credit in the form of a mortgage, but changing economic conditions can leave them unable to pay back their loans. Guren and McQuade (2020) argue that widespread foreclosures can interact with the housing market to amplify declines in asset prices, leading to prices below levels determined by fundamentals: "When the housing market is hit by a shock that lowers housing demand and induces some foreclosures — for example a drop in employment . . . the dynamic interactions between falling prices, defaults, and credit constraints keep growing numbers of buyers out of the market. The scarcity of buyers lowers prices, intensifies the buyers’ market, and leads to a downward price-default spiral." [19]

Asset cycles and housing crises (financial)

In addition to long-run trends driven by fundamentals, house prices are also subject to asset cycles. Economists debate the causes of these cycles, but have studied links to changing beliefs about asset prices, broader economic conditions, credit constraints, and interactions with mortgage lenders. As part of an asset cycle, house prices can rise above levels determined by fundamentals ("Housing bubble"). During a correction, a financial-housing crisis can occur in the context of a downward price-foreclosure spiral. This "price-foreclosure spiral . . . pushes prices below their long-run level" leading to patterns such as the boom-bust-rebound of the 2000s housing cycle. [20] These foreclosure crises can have significant consequences for the wider economy.

See also

Related Research Articles

<span class="mw-page-title-main">Affordability of housing in the United Kingdom</span> Housing affordability in the UK

The affordability of housing in the UK reflects the ability to rent or buy property. There are various ways to determine or estimate housing affordability. One commonly used metric is the median housing affordability ratio; this compares the median price paid for residential property to the median gross annual earnings for full-time workers. According to official government statistics, housing affordability worsened between 2020 and 2021, and since 1997 housing affordability has worsened overall, especially in London. The most affordable local authorities in 2021 were in the North West, Wales, Yorkshire and The Humber, West Midlands and North East.

<span class="mw-page-title-main">2000s United States housing bubble</span> Economic bubble

The 2000s United States housing bubble or house price boom or 2000shousing cycle was a sharp run up and subsequent collapse of house asset prices affecting over half of the U.S. states. In many regions a real estate bubble, it was the impetus for the subprime mortgage crisis. Housing prices peaked in early 2006, started to decline in 2006 and 2007, and reached new lows in 2011. On December 30, 2008, the Case–Shiller home price index reported the largest price drop in its history. The credit crisis resulting from the bursting of the housing bubble is an important cause of the Great Recession in the United States.

A real-estate bubble or property bubble is a type of economic bubble that occurs periodically in local or global real estate markets, and it typically follows a land boom. A land boom is a rapid increase in the market price of real property such as housing until they reach unsustainable levels and then declines. This period, during the run-up to the crash, is also known as froth. The questions of whether real estate bubbles can be identified and prevented, and whether they have broader macroeconomic significance, are answered differently by schools of economic thought, as detailed below.

The YIMBY movement is a pro-infrastructure development movement mostly focusing on public housing policy, real estate development, public transportation, and pedestrian safety in transportation planning, in contrast and in opposition to the NIMBY movement that generally opposes most forms of urban development in order to maintain the status quo. As a popular organized movement in the United States, it began in the San Francisco Bay Area in the 2010s amid a major housing affordability crisis and has subsequently become a potent political force in state and local politics across the United States.

<span class="mw-page-title-main">Affordable housing</span> Housing affordable to those with a median household income

Affordable housing is housing which is deemed affordable to those with a household income at or below the median as rated by the national government or a local government by a recognized housing affordability index. Most of the literature on affordable housing refers to mortgages and a number of forms that exist along a continuum – from emergency homeless shelters, to transitional housing, to non-market rental, to formal and informal rental, indigenous housing, and ending with affordable home ownership.

<span class="mw-page-title-main">Spanish property bubble</span>

The Spanish property bubble is the collapsed overshooting part of a long-term price increase of Spanish real estate prices. This long-term price increase has happened in various stages from 1985 up to 2008. The housing bubble can be clearly divided in three periods: 1985–1991, in which the price nearly tripled; 1992–1996, in which the price remained somewhat stable; and 1996–2008, in which prices grew astonishingly again. Coinciding with the financial crisis of 2007–08, prices began to fall. In 2013, Raj Badiani, an economist at IHS Global Insight in London, estimated that the value of residential real estate has dropped more than 30 percent since 2007 and that house prices would fall at least 50 percent from the peak by 2015. Alcidi and Gros note; “If construction were to continue at the still relatively high rate of today, the process of absorption of the bubble would take more than 30 years”.

<span class="mw-page-title-main">Real estate investing</span> Buying and selling real estate for profit

Real estate investing involves the purchase, management and sale or rental of real estate for profit. Someone who actively or passively invests in real estate is called a real estate entrepreneur or a real estate investor. Some investors actively develop, improve or renovate properties to make more money from them.

<span class="mw-page-title-main">Workforce housing</span> Housing for low-income households near workplace

Workforce housing is a term that is increasingly used by planners, government, and organizations concerned with housing policy or advocacy. It is gaining cachet with realtors, developers and lenders. Workforce housing can refer to any form of housing, including ownership of single or multi-family homes, as well as occupation of rental units. Workforce housing is generally understood to mean affordable housing for households with earned income that is insufficient to secure quality housing in reasonable proximity to the workplace.

<span class="mw-page-title-main">Mortgage</span> Loan secured using real estate

A mortgage loan or simply mortgage, in civil law jurisdictions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any purpose while putting a lien on the property being mortgaged. The loan is "secured" on the borrower's property through a process known as mortgage origination. This means that a legal mechanism is put into place which allows the lender to take possession and sell the secured property to pay off the loan in the event the borrower defaults on the loan or otherwise fails to abide by its terms. The word mortgage is derived from a Law French term used in Britain in the Middle Ages meaning "death pledge" and refers to the pledge ending (dying) when either the obligation is fulfilled or the property is taken through foreclosure. A mortgage can also be described as "a borrower giving consideration in the form of a collateral for a benefit (loan)".

<span class="mw-page-title-main">Subprime mortgage crisis</span> 2007 mortgage crisis in the United States

The American subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010 that contributed to the 2007–2008 global financial crisis. The crisis led to a severe economic recession, with millions of people losing their jobs and many businesses going bankrupt. The U.S. government intervened with a series of measures to stabilize the financial system, including the Troubled Asset Relief Program (TARP) and the American Recovery and Reinvestment Act (ARRA).

<span class="mw-page-title-main">Timeline of the 2000s United States housing bubble</span>

Housing prices peaked in early 2005, began declining in 2006.

<span class="mw-page-title-main">Causes of the 2000s United States housing bubble</span>

Observers and analysts have attributed the reasons for the 2001–2006 housing bubble and its 2007–10 collapse in the United States to "everyone from home buyers to Wall Street, mortgage brokers to Alan Greenspan". Other factors that are named include "Mortgage underwriters, investment banks, rating agencies, and investors", "low mortgage interest rates, low short-term interest rates, relaxed standards for mortgage loans, and irrational exuberance" Politicians in both the Democratic and Republican political parties have been cited for "pushing to keep derivatives unregulated" and "with rare exceptions" giving Fannie Mae and Freddie Mac "unwavering support".

This article provides background information regarding the subprime mortgage crisis. It discusses subprime lending, foreclosures, risk types, and mechanisms through which various entities involved were affected by the crisis.

<span class="mw-page-title-main">Affordable housing in Canada</span>

Affordable housing in Canada is living spaces that are deemed financially accessible to those with a median household income in Canada. The property ladder continuum of affordable housing in Canada includes market, non-market, and government-subsidized housing.

<span class="mw-page-title-main">San Francisco housing shortage</span> Serious crisis in California

Starting in the 1990s, the city of San Francisco and the surrounding San Francisco Bay Area have faced a serious housing shortage. Such is that in October 2015, San Francisco had the highest rents of any major US city. San Francisco has the slowest permitting process of any large city in the United States. The first stage can take an average of 450 calendar days, and the second stage taking 630 days for typical multi-family housing, or 860 days for a single-family house, and the second-most expensive construction costs in the world.

The property bubble in New Zealand is a major national economic and social issue. Since the early 1990s, house prices in New Zealand have risen considerably faster than incomes, putting increasing pressure on public housing providers as fewer households have access to housing on the private market. The property bubble has produced significant impacts on inequality in New Zealand, which now has one of the highest homelessness rate in the OECD and a record-high waiting list for public housing. Government policies have attempted to address the crisis since 2013, but have produced limited impacts to reduce prices or increase the supply of affordable housing. However, prices started falling in 2022 in response to tightening of mortgage availability and supply increasing. Some areas saw drops as high as around 9% - albeit from very high prices.

<span class="mw-page-title-main">California housing shortage</span> Extended and increasing shortage since 1970

Since about 1970, California has been experiencing an extended and increasing housing shortage, such that by 2018, California ranked 49th among the states of the U.S. in terms of housing units per resident. This shortage has been estimated to be 3-4 million housing units as of 2017. Experts say that California needs to double its current rate of housing production to keep up with expected population growth and prevent prices from further increasing, and needs to quadruple the current rate of housing production over the next seven years in order for prices and rents to decline.

<span class="mw-page-title-main">Affordable housing by country</span>

Affordable housing is housing that is deemed affordable to those with a median household income as rated by the national government or a local government by a recognized housing affordability index. A general rule is no more than 30% of gross monthly income should be spent on housing, to be considered affordable as the challenges of promoting affordable housing varies by location.

<span class="mw-page-title-main">New York City housing shortage</span>

For many decades, the New York metropolitan area has suffered from an increasing shortage of housing, as housing supply has not met housing demand. As a result, New York City has the highest rents of any city in the United States.

<span class="mw-page-title-main">Housing in the United States</span> Overview of housing in the United States

Housing in the United States comes in a variety of forms and tenures. The rate of homeownership in the United States, as measured by the fraction of units that are owner-occupied, was 64% as of 2017. This rate is less than the rates in other large countries such as China (90%), Russia (89%) Mexico (80%), or Brazil (73%).

References

  1. ↑ Rudy, Melissa (2020-11-25). "'Housing Crisis' Can Take On Different Meanings: Here Are 5 Examples". HomeLight Blog. Retrieved 2023-12-30.
  2. 1 2 Menendian, Stephen (November 30, 2022). "Deconstructing the 'Housing Crisis'". belonging.berkeley.edu. Retrieved 2023-12-30.
  3. 1 2 Hilber; Schöni (May 2022). "Housing policy and affordable housing" (PDF). London School of Economics: Centre for Economic Performance, Occasional Paper (56).
  4. ↑ "What Can Be Done About the Global Housing Crisis? Plenty". Wired. 2022-04-24. Archived from the original on 2022-04-24. Retrieved 2023-12-30.
  5. ↑ Fulton, B. (2020, January 12). Houston doesn’t have zoning, but there are workarounds.
  6. ↑ "The Anglosphere needs to learn to love apartment living". www.ft.com. Retrieved 2023-12-30.
  7. 1 2 Glaeser, Edward L. (2020). "The Closing of America's Urban Frontier". Cityscape. 22 (2): 6. ISSN   1936-007X. JSTOR   26926891.
  8. ↑ Smith, Jennifer (2023-10-30). "Kenzie Bok says Boston housing shortage no accident". CommonWealth Beacon. Retrieved 2023-12-30.
  9. ↑ Bahney, Anna (2023-03-08). "The US housing market is short 6.5 million homes". CNN Business. Retrieved 2023-12-30.
  10. ↑ "Supply Skepticism Revisited: What New Research Shows About the Impact of Supply on Affordability". furmancenter.org. Retrieved 2023-12-30.
  11. ↑ Gregg Colburn; Clayton Page Aldern (2022-03-16). "Homelessness Is a Housing Problem". Sightline Institute. Retrieved 2023-12-29.
  12. ↑ Laurel Wamsley (April 18, 2024). "Many baby boomers own homes that are too big. Can they be enticed to sell them?". NPR.
  13. ↑ "Why Is America Still Falling Short on Affordable Housing?". Architectural Digest. 2023-12-28. Retrieved 2023-12-29.
  14. ↑ "Permanent Supportive Housing as a Solution to Homelessness: The Critical Role of Long-Term Operating Subsidies" (PDF).
  15. ↑ "Mississippi has problems, but it's handling homelessness better than L.A." Los Angeles Times. 2023-08-23. Retrieved 2023-12-30.
  16. ↑ George Fernandez (2023-04-21). "It's National Fair Housing Month. And no one's paying attention". Pennsylvania Capital-Star (Opinion). Retrieved 2023-12-30.
  17. ↑ Hatherley, Owen (2014-02-14). "All That Is Solid: The Great Housing Disaster by Danny Dorling – review". The Guardian. ISSN   0261-3077 . Retrieved 2023-12-30.
  18. ↑ Garriga; Hedlund (July 2019). "Crises in the Housing Market: Causes, Consequences, and Policy Lessons" (PDF). St. Louis Fed. Oxford Research Encyclopedia, Economics and Finance.
  19. ↑ "Foreclosures Can Amplify Downward Spirals of House Prices". NBER. Retrieved 2023-12-30.
  20. ↑ Chodorow-Reich; Guren; McQuade (April 2023). "The 2000s Housing Cycle with 2020 Hindsight". The Review of Economic Studies. doi:10.1093/restud/rdad045. Archived (PDF) from the original on 2023-12-30.
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