In an
interview with CNBC, Dennis McGill, director of research at Zelman & Associates, says the “current supply of homes for sale is not indicative of the overall need to build more houses. Demand is strong right now because of an
unusual emotional surge driven by the pandemic. Demographics, which are a better measure of housing demand historically, do not support more construction.”
(Did the phrase “unusual emotional surge” piss anyone else off? Just me? 😂 😂)
A bit of background on Zelman & Associates, a research firm that operates in the housing sector. It was founded by Ivy Zelman, the analyst largely credited as the first to warn of the housing crash in 2008. Its parent company Walker & Dunlop is a real estate finance company that primarily funds commercial real estate and multifamily buildings. I share this because it’s helpful to know the positionality of these sources. In this instance, Zelman is centered on housing finance.
➡️ Back to the point about not needing more construction. My understanding of the Zelman argument is that homebuilders are going too hard on construction starts at the same time that way too much investor money is pouring into the housing market. 🤑 Their fear is that when the market starts to turn down and investors start selling off their properties, we’ll be flooded with a ton of supply, which could have the effect of lowering home prices by like, a lot. Which sounds great if you’re looking to buy, but terrible if you recently bought a home that is suddenly worth less than you paid for it.
Lately, Zelman has warned of an upcoming “correction” in the market and says that investors are adding pressure to the market – I found
this clip particularly interesting. This is especially problematic when investors (often cash buyers!) buy single-family homes with the intention of renting them, which has been happening throughout the pandemic. Low interest rates tend to fuel investor activity like this, which tbh really sucks for the rest of us.
My gut reaction is that we need to implement policies that curb investor behavior like this. In reality, because so many policy decisions about housing happen at the local level, I’m not sure how realistic that is in the near term. It’s definitely an idea I want to dig into more.
I’m also not convinced that we don’t have a shortage of housing units. Frankly, a lot of economic models assume that people are location-indifferent. But shifts in our demographics over the last several decades show that cities are becoming bigger as more people flock to them in search of high-paying jobs and the city lifestyle.
So while there might be tons of homes available in farther-reaching parts of the country, that doesn’t mean we have enough homes in the places where people want to live. (Can you tell I’m taking urban economics this semester?? LOL.)
Until next week,
Dominique
