The housing shortage has historically been an underlying issue across the United States. Unfortunately, with inflation happening in America and with the rest of the world slowly following, this has triggered economic instability. The housing shortage is not new to the world. The supply crisis has been around for a decade, partly due to the decline in the construction industry. While demand for construction workers is highly sought out, there are few skillful workers available for the job. The world is experiencing a decline in construction workers as the Millennial generation has turned to a much more lucrative and less labor-intensive source of income. In addition to the shortage of construction workers, the high demand, increased interest rates and prices have also impacted the overall market values of homes across America.
With housing prices continuing to climb, fewer people can and will have access to affordable housing. This spurs a snowball effect—forcing individuals to be evicted or unable to become homeowners in the first place. The latest update at the end of 2022 has shown that more than 1.8 billion people do not have a permanent home. The United States is short of 6.5 million homes that are necessary to solve its homelessness crisis. In comparison, the United Kingdom needs 4.3 million homes to recoup the backlog of people living in public housing facilities.
There are multiple variables that affect the fluctuation of prices of the housing markets in the United Kingdom, United States and Europe. However, the most critical factor is the demand for homes on the market today. With there being a surplus of buyers and shortage of houses, this triggers house prices to become and remain high. However, this fact is much more complex than it appears. It is a toxic combination of high mortgages, high interest rates, shortage of skillful construction workers, and in some cases, poor investment decisions. High housing prices have been evident since the height of the COVID-19 pandemic, and now future homeowners are facing a taxing increase in the popular 30-year fixed or amortized mortgage rate, which sits at 8% – the highest in decades.
Sheila Bair, who served as a federal regulator in the mid-2000’s during the 2008 housing crisis, claims that current housing prices seem to be “bubbly,”as the rise in prices reaches unsustainable levels. A housing bubble occurs when prices of homes reach unsustainable (high) levels, often caused due to speculative buying. This buying frenzy, or irrational buying habit of homeowners, leads to a surge in prices that increases the chance of owners defaulting on their mortgages. Which is when homeowners are unable to pay their monthly house payments. When the bubble has “popped,” housing prices drop to a point where many people owe more to their home than what it is actually worth. Bair is confident that although housing prices need to be corrected downward, it will not happen anytime soon. The shortage of homes will likely keep housing prices at their current price or potentially higher for the next 10 years.
In China, however, compared to the United States and Europe, it is somewhat of the opposite. Its largest property developer, Country Garden, is undergoing difficult times as they have difficulty selling their housing to investors and homebuyers. Years of overbuilding in China’s rural cities such as Shaoguan, have caused an oversupply of homes that Country Garden is unable to sell. Involved in 3000 property projects, the company faces approximately $186 billion USD in liabilities, most of which are due in one to two years. As news unfolded that the company was having trouble repaying its debt, people started to lose confidence in viewing houses as a safe investment. Chinese authorities are now attempting to boost housing sales by making it easier for people to buy homes, including first-time homeowners, and lowering down payment ratios. This may be a concern to real estate professionals as it shows a repeat of what first triggered the 2008 financial crisis in the United States. With growing fears about China’s troubled real estate market, this is a significant concern as foreign investments from East Asia, Southeast Asia and the United States may face the repercussions and losses if China’s real estate market continues to go downhill. While we might see a slowdown in the housing market, analysts and professionals suggest no housing crash in the next 10 years. Instead, a potential rise in prices is what we are expecting to see. As economic uncertainty and troubled assets are a concern for the health of the global economy, the solution to this housing crisis is ambiguous. Whether we should soften interest rates and down payments for homes in China or rely on Gen Z workers to develop construction skills in the United States and the United Kingdom, the future remains unpredictable.