Last month, Empower Missouri launched a new educational series on the American housing crisis. In our March piece, we focused on sharing statistics on the decrease of new home builds across the country and the resulting impact on both renters and aspiring homeowners. Today, we’re going to look at some of the underlying factors that created the current crisis.
Economic + Workforce Factors
According to a 2023 article in the International Journal of Disaster Risk Reduction, the 2007-2009 economic recession led to the loss of over two million skilled construction workers following the collapse in the housing market and a sharp decline in lending for new commercial construction projections. These positions accounted for nearly one-third of the total job losses during that era. The sector was slow to rebound, and then was hit hard again in 2020, as US construction workers saw an immediate loss of one million jobs in the early weeks of the pandemic.
However, even when the country has not been facing significant national challenges, the construction industry has been floundering in recent years. A 2017 survey of Missouri construction firm owners showed that 71% of Missouri construction companies were reporting difficulty in hiring skilled workers. Firms engaging in residential constructors reported specific difficulty in hiring carpenters (59%), cement mason (49%), and laborers (41%). The 2021 U.S. Chamber of Commerce Commercial Construction Index showed 92% of contractors were reporting difficulty finding construction workers and as a result, 42% of them reported turning down new projects. A 2021 series of articles in Constructive Dive, a leading industry publication, notes a number of factors contributing to this problem:
- National college enrollment rates have nearly doubled over the last 50 years, with more families encouraging children to pursue careers requiring a four-year college degree. In Missouri, college enrollment increased 141.8% between 1970 and 2010.
- A 2016 article in the Journal of Construction Accounting and Taxation noted that millennials show a strong preference for jobs with flexible work hours, and that preference is inconsistent with the construction industry.
- An analysis of 2019 federal employment data shows that the average construction worker is 41, demonstrating an issue attracting millennial and Gen Z workers to the industry. A survey of over 29,000 Gen Z high school and college students shows that only 16.7% of these future workers are interested in working in construction.
Restrictive Zoning Laws + Regulation Costs
Restrictive zoning has and is preventing builders from building the types of homes that are in high demand right now– apartments, townhomes, duplexes, etc. Today, roughly 75% of land zoned for housing in US cities is specifically designated for single-family homes. Municipal zoning laws often include minimum lot sizes, height requirements, and other guidelines that limit housing options, like smaller houses. The marriage rate in the US has been steadily declining since 1970, and younger generations are much more likely to live with family members, roommates, or by themselves than they are to live a traditional ‘nuclear’ family makeup. Multi-family housing developments, condos and small, one-bedroom houses are more appealing to these buyers, yet zoning requirements often force the production of large multi-bedroom single family homes. According to Brookings, units with four or more bedrooms have comprised almost half of housing inventory growth on average across major metros in the last decade, while one-bedroom units have accounted for just 16.7% of such growth. This trend needs to be reversed, but it can’t happen without significant zoning reform.
In addition, housing regulations typically account for nearly one-fourth of the average sales price of a new single family home. This works out to $93,870 of the cost of an average new construction build in the US. Eighty-five percent of developers and over half of single-family builders reported being subject to “design standards” imposed by local governments that force costs beyond what they would typically pay. According to a study by the National Association of Home Builders, municipalities have “increasingly sought to impose architectural design standards motivated by aesthetics, or possibly even, in some cases, a desire to price less affluent residents out of particular neighborhoods. Prohibition of vinyl siding has become relatively common, for example, but NAHB has also reviewed ordinances that mandate details like the orientation of a garage, material used in fences, window shutters, the square footage of window space, and dimensions of particular features down to a quarter of an inch.” These costs contribute to the inflation of housing prices and make it harder for working-class families to afford housing.
Lack of Investment in Public Housing + Affordable Housing Units
Public Housing is government-owned properties that were constructed or purchased specifically to house families earning low incomes. As of 2024, there are 807,000 of these units across all 50 states. However, no new public housing has been built since the mid-1990s, and the number of units has fallen by over 250,000 during that time because of deterioration resulting in units needing to be demolished or otherwise removed from stock. This is largely due to the Public Housing Capital Fund, the funding designated for renovations and replacements of items such as appliances, being significantly underfunded over the last 25 years.
States, in theory, could use Community Development Block Grants funds for rehabilitation of these units (or privately held units to convert them into affordable units). However, CDBG funding is down significantly. In 2004, Missouri received $29M in CDBG funds, and in 2024, we only received $23M. This is a 50% decrease when factoring in inflation. Another source of federal funding to support the construction of new affordable housing units is the HOME Investment Partnerships Program. In 2004, Missouri received over $17M in HOME grants. In 2024, we received only $11M, a 65% decrease when factoring in inflation.
Low-Income Housing Tax Credits (LIHTC), incentives for owners and developers of housing that can only be occupied by families earning low wages, was generating an average of 115,000 affordable units nationwide each year between 2000 and 2016. Over the last decade, that number has dipped substantially, averaging only 76,000 new units each year. And, at the same time, more and more units constructed with LIHTC funds are passing their 15- or 30-year compliance period and can now be rented to families earning higher incomes.
Finally, state funding for affordable housing development has been very lackluster. The majority of funding for housing in Missouri is the Missouri Housing Trust Fund (MHTF), created in 1994. MHTF is funded by a $3.00 recording fee on all real estate transactions in the state, an amount that has not been increased in three decades. As a result, Missouri spends only $0.55 per capita on housing supports annually, an abysmally low amount compared to the $20.18 per capita spent by Arizona or the $22.59 per capita spent by Florida each year. As a result, two-thirds of applications received are denied, and no funding has been awarded for new construction and rehabilitation since 2022.
Institutional Investors + Short-Term Rentals
One final factor that exacerbates the shortage is the activity of institutional investors, who buy up housing inventory to flip or rent out for profit. Investors purchased nearly 20% of all of the homes on the market in the first quarter of 2024, and over one-fourth of all lower-priced homes. Investing in lower-priced homes helps investors maximize their profits, but stresses the market even further by preventing working class families from being able to purchase these homes for themselves. According to a report from Bankrate, “many investment companies make cash offers to buy homes and are willing to accept them in as-is condition. This makes them more appealing to sellers than individual buyers, because there’s no financing risk and no need to worry about appraisals or repairs.” However, after an investor flips a property, the new price is likely to be too high for buyers on a budget.
In recent years, more and more institutional investors are holding on to properties and using them as short-term rentals. Properties that could be occupied full-time are being taken off the market and rented out for just a few nights each month, providing a profit for their owners but depriving the community of necessary housing stock. More research is needed on this practice to determine the full impact on housing prices, but more localities have begun to regulate short-term rentals in order to discourage their growing prevalence in communities.
In the next installment of our series, we’ll look at various factors that are exacerbating the housing crisis, including aging housing stock, a lack of protections for tenants, and negative perceptions of renters earning low incomes. Stay tuned!
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