If no action is taken, the most expensive price in the housing crisis will be paid by the youngest
(Sustainabilityenvironment.com) – The pandemic from Covid 19 and the recent war in Ukraine have accelerated a process that was already underway: a deep global housing crisis.
“The world was already experiencing an acute housing shortage, both in the rental and sales markets , prior to the pandemic”, the WEF report begins.
A crisis that went to understanding both the sales and the rental market. The Covid-19 threw fuel on the fire, boosting demand for skyrocketing housing, for the need for more living space, but colliding with an extremely limited supply shortage. Added to this is a historically low interest rates. But the health emergency was only the beginning. With the recent war in Ukraine, many people found themselves fleeing to Europe. Over 5 million people will need a new home to live in.
The problem of housing affordability
Multiple studies have documented the impact of housing affordability on GDP. Most households depend on real estate prices, as their net worth is highly concentrated in real estate.
To give a glaring example, just think that the London metropolis has seen a reduction of 1.6 billion dollars a year precisely because of the lack of economic accessibility linked to the housing crisis.
And it is a phenomenon that involves the whole world. In China, a reported 70% of household wealth is held in such form.
The problem is the gap between financial availability and market prices. More than half of US households cannot afford a $250,000 house, yet the average domestic price exceeds $400,000. Roughly 11 million Americans spend over 50% of their income on rent, and worse for Hong Kong renters, world record holders.
On the supply side, land prices skyrocketed worldwide as lockdowns and construction bans created severe delays for developers.
Labor shortages, triple commodity prices, and supply chain problems did the rest, ensuring a global housing crisis.
To be convenient to the builder, the sale of a house built from scratch, the price must be increased to the point of making it inaccessible to most people. Those who have the house keep it, as a result, the inventory of houses for sale has collapsed by 48.7% from January 2019 to December 2021. Reaching a record low in the USA of just 753,102 units available for a country of 333 million.
The impact on younger generations
In unsuspecting times, before the pandemic, the housing market blamed the Millennials for preferring to buy a house. Unfortunately, the problem is not a lack of will, but a lack of liquidity. “They did not have the savings of past generations, some due to career starts impacted by the Great Recession. At a time, mortgages became less obtainable, as banks became more regulated and began requiring stricter terms, including minimum 20% downpayments”.
After Covid-19 housing policies have been reduced, increasing state economic aid and encouraging sales. Finally, the Millennials had the power to buy a house, but now the prices go up and cut out most of the population.
To avoid collapse, we must intervene now. Today is a critical juncture to reset decades-old housing and urban planning policies and rebalance the equation of supply and demand”, said the author of the study. “The cost of inaction could result in a deep social crisis due to dissatisfaction over living conditions for a large, multigenerational group of individuals – impacting younger generations the most”.
Five Policies to Address Global Housing Shortages
According to the authors of the study, 5 interventions aimed at safeguarding the real estate market would be enough.
1. Upzoning
Several governments have started responding by upzoning single-family areas, or the increase in housing density, diversifying units even within the same lot.
However, it is essential that upzoning is linked to well-defined spatial management policies. Upzoning was successful in Berlin, but it generated cost deregulation in Manhattan, where housing density could only develop in height, but with so limited ground occupancy areas that they lead to the construction of super high-rise buildings and super-expensive skyscrapers.
2. Less strict immigration policies
Immigration policies have an effect on the global housing crisis as the construction industry heavily relies on immigrant workers. As a result, more flexible immigration policies could reduce housing costs by reducing development costs and labor shortages.
3. Financial incentives on both sides
Stimulating both supply and demand. Low-interest loans and tax cuts are two valuable tools. Facilitate the renovation also through the transition from one category to another, such as the transformation of old and obsolete offices, into housing units or hotels.
4. Commercial retail space to create tax revenue
Metropolises around the world are multiplying pedestrian areas. The famous city of 15 minutes leads the inhabitants to prefer slow mobility, rediscovering the size of the neighborhood.
By increasing the number of small businesses on a human scale, tax revenues will also increase for the municipality, which in turn could redirect these funds into affordable social housing. The keyword is decentralization.
5. More mortgages for homebuyers 5. More mortgages for homebuyers
Finally, a financial suggestion closely linked to the banking regulations on loans could not be missing. Assistance and funding programs should be easier to obtain. Small down payments are easier to get to allow the middle class to buy home.
