Housing crisis

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An affordable housing crisis or housing crisis is either a widespread housing shortage in places where people want to live or a financial crisis in the housing market. Housing crises can contribute to homelessness and housing insecurity. They are difficult to address, because they are a complex "web of problems and dysfunctions" with many contributing factors, [1] but generally result from housing costs rising faster than household income. [2] [3] [4]

Contents

There is an ongoing decades-long increasing trend of cities around the world facing housing crises. [2] [5] Some notable examples of financial crises in the housing market are the American subprime mortgage crisis in 2007-2008 and the Chinese property sector crisis beginning in 2020.

Global

In much of the world, incomes are too low to afford basic formal housing, [2] as housing expenses have increased faster than wages in many cities, especially since the global financial crisis of 2008. [3] In some places, this leads to informal settlement in slums or shantytowns, while in others such informal settlements are prohibited. [2] Even regions that are not experiencing an overall housing shortage may experience shortages for specific segments of the population, such as in affordable housing for very-low income populations or permanent supportive housing for those with disabilities.[ citation needed ]

Although major cities around the world face housing shortages, substantial variation exists across countries and across planning systems. [6] 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. Developed European countries, which favor higher density construction than Anglophone countries, have followed a path intermediate between these two. [7]

Causes

Economists debate the causes of the crisis. In 2022, economists Christian Hilber and Olivier Schöni found that the primary strand in this debate argues that supply constraints such as land use restrictions prevented the meeting of growing housing demand, resulting in higher housing costs. Others strands in the debate found causes in macroeconomic factors, financing conditions, and poor forecasting of expected prices. [5] People's poor earnings also contribute to the global crisis. [2]

A study by Moody's Analytics found that the main causes of the crisis also included shortages of labor and materials. The COVID-19 pandemic may also have exacerbated the crisis. In some places, refugee crises are a contributing factor. [4]

Impacts

Housing crises have contributed to social unrest in cities around the world. [5] They have especially hurt the finances of Millennials and Generation Z, who entered a more competitive housing market, resulting in paying a higher proportion of income towards housing costs. [8] Politico suggests that in many countries this has allowed populist politicians to stoke anti-immigrant sentiment among younger voters and has resulted in a generation more skeptical of the ability of democracy to deliver results. [8]

A "considerable number" of investors have profited from the housing crisis. [3]

National

India

According to a 2012 report by the National Buildings Organisation (NBO), the shortage of housing units in urban areas was estimated to be 18.78 million. The shortfall is particularly acute for households belonging to the Economically Weaker Section (total household income does not exceed 300,000 rupees), with a shortage of 10.55 million units, as well as the Lower Income Group (total household income is between 300,000 and 600,000 rupees), with a shortage of 7.41 million units. The Middle Income Group and above (households with a total annual income exceeding 600,000 rupees) face a shortfall of 0.82 million units. [9] [10] [ non-primary source needed ]

New Zealand

Auckland quickly boosted supply and slowed the increase in rents and home prices by loosening constraints on the construction. [11] [12] Auckland saw rents grow more slowly than in other parts of the country and more slowly than incomes since it started reforming its housing laws in 2013. As of July 2024, Ryan Greenaway-McGrevy estimated that rents were 28% lower than they would have been without the reforms. [13] Building on Auckland's success, the national government passed a bipartisan upzoning of much of the country's largest cities to allow 3 units and 3 stories on all residential parcels in October of 2021. [14] [15]

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. [16]

The UK National Planning Policy Framework uses the "standard formula" to assess local housing need. The formula uses household growth projections, adjusted for affordability [17] Critics of this method say that it does not account for the present backlog of housing. Households that live in poorly maintained or overcrowded accommodations would not be represented in the standard formula. [18] A 2019 report estimates that 4.75 million households in Great Britain are in need of adequate affordable housing. [19]

In the 2019 general election, both major political parties identified the housing gap as an obstacle for the country, and pledged to increase housing supply. [20] [21] The Parliament has a stated target of 300,000 new homes a year by the mid-2020s. [22]

United States

See also

Financial crisis

Another use of the term "housing crisis" refers to financial crises related to the housing sector. Rapid swings and especially declines in housing asset prices can cause shocks to credit markets, the banking sector, and the wider economy. [23]

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." [24]

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. [25] These foreclosure crises can have significant consequences for the wider economy.

See also

Related Research Articles

<span class="mw-page-title-main">Household debt</span> Combined debt of all people in a household

Household debt is the combined debt of all people in a household, including consumer debt and mortgage loans. A significant rise in the level of this debt coincides historically with many severe economic crises and was a cause of the U.S. and subsequent European economic crises of 2007–2012. Several economists have argued that lowering this debt is essential to economic recovery in the U.S. and selected Eurozone countries.

<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 or reduce interest rates. 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.

<span class="mw-page-title-main">Shortage</span> Economic demand that exceeds supply

In economics, a shortage or excess demand is a situation in which the demand for a product or service exceeds its supply in a market. It is the opposite of an excess supply (surplus).

A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults. Financial crises directly result in a loss of paper wealth but do not necessarily result in significant changes in the real economy.

<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. Demand for affordable housing is generally associated with a decrease in housing affordability, such as rent increases, in addition to increased homelessness.

<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 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">Minsky moment</span> Sudden collapse of asset values which generates a credit or business cycle

A Minsky moment is a sudden, major collapse of asset values which marks the end of the growth phase of a cycle in credit markets or business activity.

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<span class="mw-page-title-main">Housing</span> Living spaces

Housing refers to the usage and possibly construction of shelter as living spaces, individually or collectively. Housing is a basic human need and a human right, playing a critical role in shaping the quality of life for individuals, families, and communities, As such it is the main issue of housing organization and policy.

<span class="mw-page-title-main">Great Recession</span> Global economic decline from 2007 to 2009

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A credit crunch is a sudden reduction in the general availability of loans or a sudden tightening of the conditions required to obtain a loan from banks. A credit crunch generally involves a reduction in the availability of credit independent of a rise in official interest rates. In such situations the relationship between credit availability and interest rates changes. Credit becomes less available at any given official interest rate, or there ceases to be a clear relationship between interest rates and credit availability. Many times, a credit crunch is accompanied by a flight to quality by lenders and investors, as they seek less risky investments.

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.

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The Australian property market comprises the trade of land and its permanent fixtures located within Australia. The average Australian property price grew 0.5% per year from 1890 to 1990 after inflation, however rose from 1990 to 2017 at a faster rate. House prices in Australia receive considerable attention from the media and the Reserve Bank and some commentators have argued that there is an Australian property bubble.

<span class="mw-page-title-main">Housing inequality</span>

Housing inequality is a disparity in the quality of housing in a society which is a form of economic inequality. The right to housing is recognized by many national constitutions, and the lack of adequate housing can have adverse consequences for an individual or a family. The term may apply regionally, temporally or culturally. Housing inequality is directly related to racial, social, income and wealth inequality. It is often the result of market forces, discrimination and segregation.

<span class="mw-page-title-main">2008 financial crisis</span> Worldwide economic crisis

The 2008 financial crisis, also known as the global financial crisis, was a major worldwide economic crisis, centered in the United States, which triggered the Great Recession of late 2007 to mid-2009, the most severe downturn since the 1929 Wall Street crash and Great Depression. The causes of the financial crisis included predatory lending in the form of subprime mortgages and a resulting U.S. housing bubble, excessive risk-taking by global financial institutions, and lack of regulatory oversight. The first phase of the crisis began in early 2007, as mortgage-backed securities (MBS) tied to U.S. real estate, and a vast web of derivatives linked to those MBS, collapsed in value. A liquidity crisis spread to global institutions by mid-2007 and climaxed with the bankruptcy of Lehman Brothers in September 2008, which triggered a stock market crash and international banking crisis.

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

Affordable housing in Canada refers to living spaces that are deemed financially accessible to households with a median household income. Housing affordability is generally measured based on a shelter-cost-to-income ratio (STIR) of 30% by the Canada Mortgage and Housing Corporation (CMHC), the national housing agency of Canada. It encompasses a continuum ranging from market-based options like affordable rental housing and affordable home ownership, to non-market alternatives such as government-subsidized housing. Canada ranks among the lowest of the most developed countries for housing affordability.

The Making Home Affordable program of the United States Treasury was launched in 2009 as part of the Troubled Asset Relief Program. The main activity under MHA is the Home Affordable Modification Program.

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.

By the 2020s, the United States has faced a growing shortage of housing. The scope and effect of the housing crisis depends on the affected region or segment of the population. The housing shortage has been cited as a major factor in inflation in the US. Artificial scarcity in the supply of housing, due to NIMBYism, has been a significant factor in making housing more expensive. Freddie Mac estimated that the shortage of homes increased by 52%, to 3.8 million units, between 2018 and 2020.

References

  1. ↑ Menendian, Stephen (November 30, 2022). "Deconstructing the 'Housing Crisis'". Othering and Belonging Institute (UC Berkeley). Retrieved 2023-12-30.
  2. 1 2 3 4 5 Potts, Deborah Helen (2020). Broken cities inside the global housing crisis. London: Zed books. ISBN   978-1-78699-054-9.
  3. 1 2 3 Wetzstein, Steffen (2017-11-01). "The global urban housing affordability crisis" (PDF). Urban Studies. 54 (14): 3159–3177. doi:10.1177/0042098017711649. ISSN   0042-0980.
  4. 1 2 "What has caused the global housing crisis - and how can we fix it?". World Economic Forum. Archived from the original on 2025-01-23. Retrieved 2025-01-31.
  5. 1 2 3 Hilber; Schöni (May 2022). "Housing policy and affordable housing" (PDF). London School of Economics: Centre for Economic Performance, Occasional Paper (56).
  6. ↑ "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.
  7. ↑ "The Anglosphere needs to learn to love apartment living". www.ft.com. Retrieved 2023-12-30.
  8. 1 2 Dettmer, Jamie; Cancryn, Adam; Hartog, Eva; Taylor-Vaisey, Nick (August 3, 2024). "Priced out of housing, many younger disillusioned voters embrace populism". Politico.
  9. ↑ Housing Data Tables (PDF). National Buildings Organisation. p. 5.
  10. ↑ Credit Linked Subsidy Scheme for EWS/LIG (PDF). Ministry of Housing & Urban Poverty Alleviation. January 2017.
  11. ↑ Cruz, Diego Sánchez de la (2024-03-18). "El milagro de Nueva Zelanda: desregula la vivienda y los precios de los alquileres bajan". Libre Mercado (in European Spanish). Retrieved 2024-09-17.
  12. ↑ Clark, Emily (2023-09-24). "Australia has long debated this housing idea, but in Auckland it's already working". ABC News. Retrieved 2024-09-17.
  13. ↑ "YIMBY cities show how to build homes and contain rents". The Economist. July 17, 2024. ISSN   0013-0613 . Retrieved 2024-09-17.
  14. ↑ Greenaway-McGrevy, Ryan (January 24, 2022). "Commentary: New Zealand's bipartisan housing reforms offer a model to other countries". Brookings. Retrieved 2024-09-17.
  15. ↑ "New Zealand's YIMBY Success - And How We Can Learn From it". Reason.com. 2024-04-03. Retrieved 2024-09-17.
  16. ↑ 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.
  17. ↑ "Housing and economic needs assessment". GOV.UK. 16 December 2020 [20 March 2015]. Retrieved 2022-11-24.
  18. ↑ Bramlet, Glen; Pawson, Hal; White, Michael; Watkins, David; Pleace, Nicholas (November 2010). "Estimating Housing Need" (PDF). Department for Communities and Local Government.
  19. ↑ Bramley, Glen (May 2019). "Housing Supply Requirements Across Great Britain For Low-Income Households and Homeless People" (PDF). Crisis and National Housing Federation: 10.
  20. ↑ "Conservative Party Manifesto 2019". Conservatives. pp. 30–31. Retrieved 2022-11-24.
  21. ↑ Labour Party (2019). "It's Time For Real Change: The Labour Party Manifesto 2019 Archived 2019-11-21 at the Wayback Machine ". p. 77-80.
  22. ↑ "Planning and the broken housing market: oversight and assurance". UK Parliament. 26 June 2019. Archived from the original on 24 November 2022. Retrieved 24 November 2022.
  23. ↑ Garriga; Hedlund (July 2019). "Crises in the Housing Market: Causes, Consequences, and Policy Lessons" (PDF). St. Louis Fed. Oxford Research Encyclopedia, Economics and Finance.
  24. ↑ "Foreclosures Can Amplify Downward Spirals of House Prices". NBER. Retrieved 2023-12-30.
  25. ↑ 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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