Researchers at the University of Southern California (USC) recently released a comprehensive study highlighting how years of policy errors have contributed to a shortage of affordable housing in the United States, making homeownership increasingly unattainable for millions of Americans.
The full study, featured in The Russell Sage Foundation Journal of the Social Sciences’ January issue, delves into the last two decades to analyze the root causes of the current housing crisis. This analysis is particularly timely as devastating wildfires ravage parts of the Los Angeles region. According to a report by CBS News on Wednesday, the wildfires have claimed at least 25 lives, destroyed over 12,000 structures, and left 88,000 residents still under evacuation orders.
USC researchers predict that the national housing shortage, which some estimates put at up to 7 million units, will worsen in the coming years due to the impact of climate change and the increased frequency and severity of natural disasters like hurricanes and wildfires.
“A constrained housing supply diminishes the ability to absorb losses from unforeseen disasters – such as fires, earthquakes, and hurricanes. In Los Angeles, this lack of flexibility could exacerbate gentrification as relocations strain the existing housing inventory,” explained Dowell Myers, a USC professor and the lead author of the study.
The study traces the crisis back to the early 2000s when subprime lending practices were prevalent. The subsequent housing market crash and the Great Recession prompted policymakers to overcorrect by tightening mortgage lending standards and restricting funds for new construction. Consequently, millennials, who were just entering the housing market, found themselves with fewer options as homebuilding activity plummeted to its lowest level in six decades.
Data from the Urban Institute reveals that mortgage credit availability in the second quarter of 2024 remains significantly below what was considered “reasonable lending standards” from 2001 to 2003.
The study highlights several policy missteps, including underestimating millennial demand, failing to consider the impact of past policies and demographic trends on current homeownership rates, relying on flawed demand assessments that overlook households unable to form due to housing shortages, and misinterpreting the post-housing crash decline in homeownership as a permanent shift in consumer preferences.
Between 1976 and 1990, the national birthrate surged by 32%, leading to a wave of young adults relocating to cities by 2010. The Great Recession delayed their entry into stable employment and housing, and by the time they were ready to buy homes, the supply was scarce. Homebuilders and local authorities incorrectly assumed that millennials would opt for longer tenures in apartments with roommates, but their desire for homeownership soared instead.
USC researchers propose two key solutions to combat the growing housing inventory shortage. Firstly, they recommend reducing the time lag in constructing new homes by anticipating demand over the next five years. Secondly, they advocate for integrating the tracking of population growth with housing supply rather than treating them in isolation.
“Housing policy must improve in forecasting the needs of various age groups and life stages to prevent mismatches between supply and demand,” stated Myers. “Without proactive policies, we risk not only failing to meet demand but also being ill-prepared with a resilient housing supply capable of accommodating victims of climate-induced disasters, such as wildfires, or other sudden emergencies that create new demand.”
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