Housing is in Need of New Profit Models

Were it not for the structural inefficiencies of our non tradable sectors, the pandemic would not have proven so difficult, and Washington might have been less compelled to add more long term budgetary burdens. Alas, these fiscal "rescues" intensified in part due to the housing costs of lower income groups. Lower income levels also suffered more employment losses than other groups. If all this weren't enough, as the pandemic eases, employers are finding it difficult to hire new employees, since there are too few low to medium priced housing options in places with good employment potential.

These are just a few reasons why housing needs new models for ownership and profitability. Not only could new housing models benefit from further manufacturing innovation, but also organizational capacity which includes lower income levels in land based ownership. Even though lower income levels presently have access to manufactured housing, for instance, they still suffer from a severe lack of land use options for these homes. 

In recent years there's been plenty of dialogue about the problems of housing supply limitations. Yet the main response (thus far) has been encouragement for more of the same, in terms of traditional building methods. Where are market innovators for housing when we need them most? According to Axios:

America has a record-low number of homes available for sale - just 1.03 million, according to the latest NAR data. 

Only consider how this compares to the recent housing supply peak of more than four million in July of 2007. However, what many believed to be a bubble in the last price run up, was occasionally linked to excessive building in places with limited zoning. As it turned out, many places where people wanted to live, weren't where home building was still actively encouraged. These were also years when communities disallowed flexible ownership arrangements, such as settings where manufactured homes could be brought in. 

What kinds of short term responses might help these circumstance? Bill McBride of Calculated Risk recently offered some suggestions and additional thoughts about near future housing supply. Even though many market observers are pessimistic re housing in general for 2021, McBride expects sellers to resume putting their homes on the market, once pandemic circumstance subside and sellers regain the confidence to interact with buyers. For that matter, rising interest rates might decrease demand. As to policy, McBride notes that if higher income owners were offered a one time waiver on capital gains, more higher priced properties would be placed on the market. As to lower income levels, recall how many single family homes and condos had been previously converted to rental units:

Another policy that would help would be to offer a tax break to landlords of single family homes and condos, if they sell a rental property this year. 

I for one would be especially pleased if there were more condo offerings on the market, since condos are one of the best ways for aging homeowners to downsize and lessen their maintenance responsibilities. That said, insofar as new housing prospects, traditional builders mostly find profits in the sometimes excessive square footage of higher income level housing. Increasingly, builders face their own pressures in hiring construction workers, not to mention the rising costs associated with their own supply networks. These factors make it difficult for traditional builders to even realize a profit from lower income housing. 

It would seem these realities are something many municipalities have been reluctant to come to terms with. Not only has NIMBYism gone too far, it has led to effects which negatively impact the economy along with many areas of our personal lives. Which is why I'm convinced that serious innovation in housing and land use might do more good for all concerned, than NIMBY proponents realize.