Thursday, June 1, 2023 | The Latest Buzz for the Appraisal Industry

What Will It Take to Solve the Housing Crisis? 

Entering the housing market today is challenging for many homeowners. There’s currently an inventory shortage, which is leading to more competition and increased prices. One of the reasons for this is material and project delays. In 2021, more than 90% of builders reported backlogs and supply scarcity.

The price of the items has risen as well. COVID-19 caused breakdowns in the supply chain and labor shortages that are still challenging the market years after the pandemic began. Pent-up housing demand, low-interest rates and new buyers have also added to the ongoing crisis. So, here are a few ideas to help solve the problem.

1. Try Upzoning

Governments have begun to address the housing issue by upzoning single-family homes. Upzoning is when the zoning codes are changed to allow for taller or denser buildings. This can promote social inclusion and allow for more housing options. Just remember — creating more overgrown lots is time-consuming and may have a limited impact.

Building entire neighbors can encourage large-scale construction. A good example is Manhattan zoning limits, which focus on expanding height restrictions. These developed skinny towers as luxury condominiums.

2. Loosen Immigration Policies

Immigration policies can impact construction because the industry relies on them for labor. A Home Builders Institute 2022 market report shows migrant workers account for 24% of the construction industry, so they are essential to building residential and commercial properties.Less restrictive immigration laws help with labor shortages by increasing the available workforce, speeding up construction schedules and balancing market prices in turn.

President Biden has put some policies in place to combat immigration restrictions. On January 20, 2021, he lifted certain restrictions on immigrant visas for nationals of Burma, Eritrea, Iran and others. He also rescinded a Trump-era executive order which allowed the removal of undocumented immigrants living in the US without giving them an immigration hearing before a judge. When more immigrants can defend themselves and work through the immigration system, they can sign up for long-term jobs in industries like construction.

3. Improve Finances On All Sides

Financial incentives could help solve the housing crisis. Low-interest loans and tax abatements for construction companies would be helpful strategies because they reduce capital costs that are part of turning unused offices and hotels into residential spaces.

Other possible financial incentives would be more federal support, clearer construction lending terms and fewer local regulations. New York Governor Kathy Hochul is taking steps in this direction. She plans to implement a five-year, $25 billion plan to create and preserve 100,000 affordable homes.

Here are a few of Hochul’s ideas for expanding housing:

Allowing accessory dwelling units in single-family neighborhoods
Giving New York City the authority to encourage densification
Easing restrictions on converting hotels and offices to housing
Kick-staring transit-oriented development

The $25 billion would be federally-provided money for construction companies to create expanded affordable housing, leading to their creation at a time when the market presents high costs to industry leaders.

4. Include Down Payment Assistance

Down payment assistance programs do exist but aren’t always obtainable, given income restrictions and other qualification setbacks for future homeowners. Opposition to development in local areas and anti-business measures have also worsened the problem.

Less restrictive banking regulations can help with this issue by circumnavigating the programs. Allowing smaller down payments makes housing more affordable for many people who may not qualify for financial assistance, especially middle-class families.

Sellers can also provide down payment assistance by being more open to negotiating the initial deposit. Current-market sellers often pick people with at least a 20% down payment, given the risky market and increased cost of building homes. However, the average down payment was just 10% of a home’s value before the pandemic changed the market. If it became easier to negotiate a down payment rate between 10% to 20%, home affordability would improve.

5.  Remove Condo Lending Restrictions

The construction of condominiums is at a record low. Research shows the condos available for sale are 5.4% of the housing market the lowest availability rate in the last half-century. One reason for this is financial constraints related to people still financially recovering from the pandemic.

Fewer occupants can pay with cash while inflation remains at a 40-year high and credit is tight for first-time buyers. Another concern is defect litigation can increase the cost of insurance. The pandemic even caused many residents to consider places with more space than traditional condo floorplans contain.

However, condos still provide stepping stones for many first-time buyers. Fewer lendingrestrictions like requiring cash up front or high credit scores will make it easier to get a loan and further the demand for new construction.

6. Increase Buyer’s Confidence

Another part of the housing crisis puzzle is making borrowers feel more financially empowered. Mortgage credit is tight, blocking out many potential new buyers with less-than-perfect credit scores. With less confidence, some homeowners turn to renovations on their current homes. Home additions are common choices because they fit into their budget better.

Government-sponsored agencies can help ease credit restrictions and give people more opportunities. Strategies include allowing for more small balance mortgages, underwriting flexibilities and reduced fees. This will help low and middle-income families obtain higher-quality homes.

Another idea is improving down payment assistance for first-generation home buyers. It can allow inexperienced families to take the first step to homeownership.

7. Invest in Manufactured Homes

Manufactured, modular and prefabricated homes can help with the housing crisis. These properties are either partly or entirely built offsite, making them more affordable and less time-consuming to produce. Controlled factory conditions create a more efficient process that reduces waste.

Contractors save on materials and get projects done faster with modular homes. Plus, they’re better for the environment because they emit 45% less carbon dioxide than traditional home construction. Expanded zoning and more flexible building codes can encourage the production of these types of homes.

8. Increase Financing for Current Homes

Instead of solely focusing on new construction, looking at older homes is essential. Due to financing restrictions, many people can’t afford to buy and repair a house. Lenders often give money based on the property’s current value, which doesn’t cover repair expenses. Then, investors buy these houses in bulk and rent out the properties — this eliminates the chance for the building to return to the buying market.

Lenders and the Federal Housing Administration can improve financing terms for purchase and rehab loans. The other strategy is to update homes before they go on the market. Consider offering local subsidies, acquiring foreclosed properties and prioritizing offers from occupant buyers.

9. Using Commercial Retail Space for Tax Revenue

Cities are creating more pedestrian-only areas and expanding commercial spaces. For example, Paris’ Champs Elysées increases daily foot traffic in vital urban areas. The buildings in those areas then become more highly valued because more people stroll by to sign up for their services than businesses within driving distance of residential properties.

In addition, people will spend 3.9% more money during 2022 than during  COVID-19 lockdowns. While retail properties are growing in value, property revenue likely will as well. Governments can then use the extra income to create more affordable housing.

10. Use Low-Cost Materials and Technology

Using low-cost materials can increase the rate of new construction. With building material prices rising 20.4% over the past year and 33% since the beginning of the pandemic, this is essential.

In India, construction companies are looking at ways to speed up the process and use recycled elements. The Plastics for Change India Foundation built one home in 10 days — entirely out of repurposed plastic. While this occurred before the pandemic and may not work for every company, it’s an intriguing idea for industry experts to consider.

Here are a few other affordable supplies to think about:

Concrete sheets
Shipping containers
Reclaimed wood

Also, you can take advantage of new technology to make the construction process more efficient. For example, 3D printing has grown in Africa, Mexico and Europe. This can produce high-quality homes at faster speeds.

How to Improve the Housing Crisis

Today there is a shortage of homes paired with growing demand and rising prices. This makes the housing market more competitive and creates roadblocks for first-time buyers.

Easing regulations, offering financial incentives and increasing manufactured homes can reduce this issue. These changes require both local and governmental support.