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Spritzler Special Report: Why Millennials can’t afford housing? How did we get here?

Since the pandemic, the avg cost to own/month has doubled while rents keep marching higher. Our nation’s young are getting boxed out of the housing market. So what went wrong?

The short answer is our government (Federal, State and local) made some well-intentioned policy decisions that had unintended consequences and backfired badly.

  • Destroying the national pool of workers qualified to build homes.

  • Municipal zoning laws and rent control stopped the construction of new housing in major cities.

  • The Feds spending more than they took in causing massive borrowing and inevitable inflation/high interest rates.

The details:

Our story begins in the mid-2000s. Both parties thought it was a great idea to provide homeownership ops to the economically disadvantaged. By 2007, millions of folks had bought homes they couldn’t afford thanks to help from Uncle Sam. As interest rates moved up (2008), their variable-rate mortgages became too expensive. They bailed and we had the recession of 2008.

In the next 18 months, home buying stopped & over 8 million construction workers left the industry. Our nation’s ability to build new housing got derailed & our workforce has never recovered. A shortage of workers has caused construction costs to spiral and production to drop.

Meanwhile, municipalities decided they didn’t want more housing. Restrictive zoning rules made it impossible for developers to find ops to build in major Northern locations (the South was a notable exception). Additionally, rent control in large urban areas, like NYC, drove developers away because they couldn’t make money.

Starting during Obama and continuing till present day, the US has been on an uncontrolled spending spree. Our national debt has tripled during this time with the inevitable result being inflation and high interest rates. While pandemic supply chain price increases are largely over, the days of low interest rates are long gone.

What’s next? Are things ever going to get better? As I explained recently (see link below), we are in the middle of another housing bubble. One in every 5 homes is owned by an investor who’s renting and whose loan is likely to come due in the next 36+ months. When that occurs, folks who borrowed at 2% will be looking at exponentially higher costs which makes renting uneconomical. They are likely to sell at reduced prices. Ergo it’s not unlikely that the RE bubble will burst or at least deflate, causing prices to fall and interest perhaps with them.

If you’re young and can wait, your time to buy a home may be coming in the next few years. Fingers crossed.

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