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Home Sweet Shortage: The Housing Crunch and What You Need to Know
Your 5 minute weekly real estate update
Patrick Donoghue
March 16, 2023
with Patrick Donoghue, VP of Market Risk
In Today’s Email
Housing Shortage
Status on Existing Homes
Groundfloor’s Contribution
Quick Reads
Executive Summary
Housing Shortage
Many say the US is currently experiencing a significant housing shortage, with demand for housing outpacing supply in many parts of the country.
One key driver of the housing shortage is the growing demand for housing, driven in part by population growth and demographic shifts. Many younger Americans are entering the workforce and looking for housing in urban areas, while older Americans are seeking to downsize or move to more desirable locations. At the same time, housing construction has not kept pace with demand, leading to rising prices and a lack of available units.
Nationally the months of supply for listed homes has been on a downward trend over the past 10 years.
Brooklee Han from Housingwire views the shortage this way:
“In 2022, 2.06 million households were formed, marking the highest level of yearly household formations in the past decade, and bringing the total number of household formations from 2012 to 2022 to 15.6 million households. During that same time period, just 13.1 million housing units were started, and 11.9 million were completed, with 8.5 million being single-family units and 3.4 million being multifamily units.
This resulted in the gap between single family home construction and household formation growing to 6.5 million homes, according to the analysis. The gap shrinks to just 2.3 million units when multifamily statistics are included.”
Existing Homes
Existing housing inventory continues to decline even into this year's upcoming spring market, a time of year where inventory seasonally would typically be on the rise. Altos research notes that existing inventory fell by over 11k units for the week ending March 6, 2023.
Additionally, builders have pulled back on plans for new housing units, throughout 2022 building permits fell consistently. Below is a one year chart of building permits.
Trading Economics summarizes the data this way:
Building permits in the United States inched 0.1 percent higher to a seasonally adjusted annual rate of 1.339 million in January 2023, remaining close to December's 31-month low, as high inflation and rising borrowing costs continued to weigh on demand for new housing, revised data showed. Single-family authorizations declined 1.2 percent to a rate of 722 thousand, the lowest since April 2020, while the volatile multi-segment rose 1.8 percent to 617 thousand. Permits were down in the West (-4.6 percent to 293 thousand) and Northeast (-7.8 percent to 106 thousand), but were up in the South (3.0 percent to 762 thousand) and Midwest (1.7 percent to 178 thousand). source: U.S. Census Bureau
In addition to the pending shortage of housing units we see above, there are also fully 16,000,000 vacant homes in the US ready to be renovated and brought back on line.
How does Groundfloor help in providing solutions to the existing housing shortage?
Groundfloor specializes in providing debt and other liquidity to developers (small and large) who build new homes and renovate existing homes both vacant and otherwise. It’s these entrepreneurs who, house by house, consistently put units back online and bring new units to communities. Groundfloor investors participate in these transactions and receive positive, risk adjusted returns when the homes are completed, sold or rented.
Groundfloor's efforts to work with borrowers who are creating more housing may contribute to the housing shortage, as it adds more units to the market. With over 3,700 loans originated and an average of 69 originations per month, Groundfloor is certainly making a significant impact in the housing industry.
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