In almost every corner of the United States, people are complaining about the high housing prices. So why are houses so expensive in America?
Despite regional variations in the real estate market across the country, there are common factors at play. The most important one being: the continuous growth in housing demand and an increasingly severe shortage of supply.
In short, the reason for expensive houses is simply because there are not enough houses to meet the demand. Experts widely believe that the main reason for the housing shortage is the long-term insufficient construction of new houses. After the 2008 financial crisis, housing construction activity in the United States plummeted significantly.
Before the housing bubble burst, construction companies were building houses on a large scale. However, when credit tightened and unemployment rates rose, a large number of unsold homes flooded the market, leading to a widespread stagnation in new construction. The situation saw a turnaround after the pandemic, but housing construction has still not caught up with the pace of demand growth.
A study by the National Association of Realtors in 2021 revealed that from 1968 to 2000, the United States was building an average of 1.5 million housing units per year. Due to the real estate bubble, this number dropped to an average of 1.225 million units per year from 2001 to 2020, resulting in a total gap of 5.5 million units over 20 years.
So why haven’t builders sped up the pace of construction? One major reason is a shortage of labor.
According to data from the Joint Center for Housing Studies at Harvard University, the number of construction workers in the United States decreased by about 1 million from 2007 to 2024.
Furthermore, local policies and regulations have had a significant impact on housing supply. For example, when cities or towns enact policies that prohibit the construction of any housing other than single-family homes, or require new homes to have a certain number of parking spaces or comply with other building regulations, housing supply is constrained.
Studies show that due to local regulations, the United States has built approximately 20 million fewer housing units.
At the same time, in recent years, the proportion of investor purchases primarily for renting has been increasing. According to data from real estate data provider CoreLogic, in the years leading up to the pandemic, investor purchases accounted for between 15% and 20%, reaching a historical high of 29.8% in January 2024.
Of course, the main reason for rising house prices is still the continuous growth in housing demand. A key factor is the increasing housing demand from the millennial generation (those born between 1981 and 1996). In 2023, millennials accounted for 38% of all home purchases, making them the largest group of homebuyers by age.
Additionally, analysis from the National Association of Home Builders (NAHB) shows that during the COVID-19 pandemic, the rate of young people in the United States getting married and buying homes reached the highest level in ten years, further driving up housing demand.
In conclusion, high housing prices in the United States are mainly caused by a shortage of housing supply. Factors contributing to this “many monks, little porridge” situation include long-term insufficient construction of new homes, labor shortages in the construction industry, local policy restrictions, and increased investor purchases, among others.