"Welcome to the next housing crisis: chronic undersupply of homes for a growing country”
Paper due date
Introduction
The United States' market is on the verge of another housing crisis as the growth in the demand for houses for US citizens is not counterbalanced by an equivalent growth in the houses constructed every year (Yglesias 1). A fundamental principle of Economics states that the ratio of supply and demand for the objects acts as the natural market force for governing the price of those objects. The housing market is facing the impending crisis in terms of rising house prices due to this obvious principle coming into play. The rise in prices of the houses is obviated by a simultaneous undersupply of house constructions starting every year when the demand for the houses is eventually growing along with a gradually growing national economy (Yglesias 1). There has to be an underlying cause-effect relationship between the above-stated course of events and a detailed analysis of the entire discourse can definitely point towards the root of the issue. This essay aims at exploring various aspects of the demand-supply imbalance in American markets and trying to seek a possible solution for averting the overshadowing housing crisis.
Analyzing the economics of supply-demand imbalance in housing
Starting with the supply aspect, it is very critical to note that the federal housing plan was affirmed to start the construction at an average of 1.6 million houses every year. However, the construction started was almost half of the target figure with an average of 7, 88,000 per year for the last 7 years from 2007 to 2014 (Kelman 1). Even in the year 2015 when the housing industry was at its peak of growth, the corresponding construction started was only 1.1 million (Kelman 1). This lag in matching the policy figures for housing start is attributing to the issue of rising zoning laws which prevent a high-density construction. Cities like Seattle have suffered a serious shortage in supply of houses but the city council’s plans for developing high-density housing failed tragically due to resistance from the locals. The city of Colorado has suffered serious resilience from the residents who rallied against the changed zoning laws and were against the development of new houses in close proximity as they considered it a breach of their spatial freedom. Thus, in spite of government’s efforts to start more constructions, the overall rise in houses was not up to the desired levels and undersupply was an obvious result (Yglesias 1).
In terms of demand, the rise in prices of houses in America was 56% ahead of the base construction prices during the 3-year span of 2010 to 2013 (Kelman 1). Further, the rise in construction prices is actually attributed to short supply of houses because of decline in the number of house constructions started every year. The demand for houses is on a rise because people are looking forward to spending their disposable income on owning the houses and not on rents. The government is not in plans for making the low-income lending because they do not want to recreate the situations of the sub-prime lending crisis of 2008 (Yglesias 1). Therefore, in spite of growing demand for buying houses, the undersupply is creating barriers in matching the demand. Consequently, the high prices are posing a threat to affordable housing options for middle-income groups as well.
Conclusion
The essay has already discussed the issue of zoning laws causing the undersupply of houses. This can be sorted by developing socially supported solutions for starting more houses. Further, a rise in construction of houses will also give a boost to the economic concept of aggregate demand by creating more jobs (Yglesias 1). If the supply is regulated via this solution, demand will be matched accordingly along with a gradual rise in economic growth due to more jobs. Finally, prices for the houses will come down and housing will be more affordable for middle-income groups. This effect will ultimately end the possibilities of the housing crisis.
Works Cited
Kelman, Glenn. "Want to help the middle class? More houses please".2016.Web. March 28. 2016.
Yglesias, Matthew. "Welcome to the next housing crisis: chronic undersupply of homes for a growing country” .2016.Web. March 28. 2016.
