Published: August 29, 2023 | Updated: August 24, 2023

Four million, give or take

Raphael Barta

Raphael Barta

With the housing market stuck in the doldrums, the media and pundits are focused on interest rates as the main culprit. The sharp increase in mortgage payments is for sure a real challenge to homebuyers, but an overarching factor is the shortage of homes for sale.

A shortage of anything produces scarcity pricing, and this has certainly been proven true over the past several years in housing. The general consensus is that the U.S. is short about four million new homes that are needed to meet the buy-side demand and population growth demographics.

It takes a minimum of two years from land acquisition through zoning and the construction process, so new homes can’t be brought on-stream quickly. And there are structural challenges in the industry that interfere with production capacity: skilled labor shortages, land ready for building where people actually want to live, homebuilder wariness about the market and the economy and supply chain disruptions for certain items.

For those homes that do get built there is a bias toward larger residences as overall size and bedroom count drive prices higher thereby generating a better return for the builder.

Looking at the Sandpoint area, for example, there are 60 homes listed from the lowest price of $320,000 to $600,000. There are another 60 between $600,000 and $1 million, and there are 80 above $1 million.

There is a similar distribution for the Coeur d’Alene area. If you think of anything under $600,000 as “affordable” then there are twice as many homes in that upper tier as in the more reachable affordable sector. That four million home gap is driving prices in all the price points.

The other interesting four million number is the current shortage of workers in the U.S. economy, according to a recent study by mega hedge fund BlackRock. I’m pretty sure the analysts from the housing industry who came up with the home shortage calculation did not confer with the analysts from BlackRock, but still there’s that darn coincidence factor.

The Federal Reserve strategy of raising interest rates (I’m being kind calling it a strategy) targeted two main areas of the economy: the housing market and the labor market. The Fed’s calculus was to blunt rising home prices by making housing unaffordable (good job!) while at the same time bludgeon the workforce to prevent wage gains.

An unintended consequence of this “strategy” is that there are now far more jobs than workers to fill them, so of course employers must pay more for good, reliable people.

The third four million metric is self-storage, which never seems to stop spreading. It’s way over four million; it’s more like 2 billion square feet.

Given Americans’ propensity to accumulate more stuff than they have room for, storage is the rare investment that performs well in both good and bad times. This practice is puzzling in that over time, the typical customer paying the monthly fee has paid out far more than the value of the stuff they are storing.

The business model is profitable because rents can be raised monthly and people hate to part with their precious junk. The industry statistics show that once a customer stays for a year, they end up staying for five years. The emphasis is on teaser rates to get the customer in the unit. After that, folks don’t clean out their storage to save a few dollars when those rate increases come through once the introductory offers expire.

The units themselves are easy and inexpensive to build and manage. And as long as consumerism is a religion, these will continue to be good investments.

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Raphael Barta is an associate broker with a practice in residential, vacant land and commercial/investment properties.