The Housing Shortage Is Hurting Almost Every Part of the Economy
KEY POINTS
Insufficient housing construction in the U.S. is causing various issues in the economy, such as job scarcity, economic growth stagnation, wealth inequality, and inflation. While there is no single solution, experts suggest that building more homes and reforming zoning regulations could help alleviate the problem.
According to a 2021 report by the National Association of Realtors, the U.S. fell short by an estimated 5.5 million homes in the first two decades of the 21st century.
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Compounding the problem, homeowners are hesitant to sell their properties due to high-interest mortgages, as they would lose the low interest rates they secured during the peak of the pandemic.
The consequences of this housing shortage are evident in the skyrocketing home prices, making it extremely challenging for anyone except high-income individuals to enter the housing market.
Moreover, the housing shortage has had adverse effects on inflation, economic growth, job creation, and wealth inequality.
Mark Fleming, the chief economist at First American, a title insurance company, emphasized the significance of accessible and affordable housing for the well-being of the U.S. population. He stated, “If accessibility to affordable shelter becomes problematic, that’s obviously bad for the U.S. We need to be able to shelter—affordably—the people who live in this country.”
Escalating housing costs have a substantial impact on household budgets, as they constitute the largest portion of expenses for most families. Consequently, any changes in housing costs significantly influence the official inflation rates, which are used to measure the cost of living. Housing costs account for 45% of the Consumer Price Index (CPI), the widely recognized gauge of inflation.
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In fact, rising rents primarily contribute to inflation as measured by the Consumer Price Index, playing a significant role in the inflation spike experienced after the p.
Higher housing costs pose significant challenges for individuals looking to relocate for job opportunities they would otherwise prefer. This, in turn, creates difficulties for employers in finding the skilled workforce they require. A recent report from the Federal Reserve Bank of Boston highlighted the struggles faced by Cape Cod businesses in hiring prospective employees due to the soaring housing prices, rendering it unaffordable for many.
Furthermore, a housing shortage report by White House economists in March emphasized that when there is a mismatch between available jobs and workers, it hampers the overall productivity of the economy. The historical strength of the U.S. economy has been its ability to effectively match labor with industries. However, the reluctance to relocate due to financial constraints acts as a drag on the potential benefits derived from labor mobility.
Despite these challenges, the impact of this drag has been somewhat mitigated by the increasing prevalence of remote work, as highlighted by Fleming and Hale.
