How the pandemic created the housing shortage and crisis.
Homelessness and housing affordability seem to be in the news almost daily. Rents are skyrocketing. Housing prices are skyrocketing. Politicians are scrambling to pass laws to address homelessness and housing affordability for tenants. It’s a mess out there folks, if you are a landlord. It is even messier if you are a property manager managing residential property in over 20 jurisdictions — many of whom are passing their own, individual ordinances.
Q: How did we get here?
A: Like everything else, COVID-19. Let’s take a look.
The problem — and as you will understand later, the solution — are simply the result of a simple supply-and-demand equation. Supply decreased while demand increased. The two effects happening simultaneously resulted in an overheated housing market — both brokerage and rental.
When the pandemic hit everything ground to a halt. Construction stopped immediately. Construction projects in the pipeline — especially the large apartment construction projects — stopped because planners and building code officials were not going to the office. For roughly the past 18 months, all new housing supply ground to a screeching halt.
Meanwhile, tenants were getting restless. They wanted to move closer to their family, or away from their job, or a myriad of other reasons.. But they couldn’t. There was a lot of pent up migration. Nobody wanted to move because everything was shut down. Nobody could move because everything was shut down!
Kids were growing up. Our own 24 year old son was planning to move out of the house right when the pandemic hit. For another 18 months, young adults just like him were chomping at the bit to strike out on their own. They were uncertain of the future, and stalled their decision mostly out of mostly of the unknown. In too many instances, people who would have moved out were laid off from their jobs right before moving out.
Then there is the third element — owners wanting to sell. Ordinarily this would not contribute too much tothe problem because it would take some of the pressure off the demand for housing. But with the shortage caused by no supply coupled with increased demand, prices skyrocketed. That priced many people into smaller homes, or into consolidated, multi-generational households. The net effect has been of minimal impact.
In summary, the housing crisis is the result of three forces at work: 1) stagnant supply during the pandemic in the face of growing demand; 2) increased demand from a population of people needing to move for a variety of reasons, and; 3) increased demand from new renters who had not entered the market before.
It is a simple case of supply and demand. Supply shrunk or stayed the same while demand grew.
What is the solution?
The solution, which this writer believes is being missed by our political leaders, is to match supply to demand. The best way to do that is to encourage development of housing. Not just low income housing, but housing of all kinds. This solution won’t happen overnight, but it is a permanent solution.
As soon as there is new housing (in significant quantity) entering the market then housing prices will stabilize and maybe even drop. Rents will start to ease as well, and become more affordable.
The problem with the current solution
In the greater Seattle metropolitan area, and really the whole state of Washington, the strategy has been to protect tenants’ rights. That is admirable, and this writer supports improving tenant rights. But it is putting a band-aid on the problem. More and more people are becoming homeless. None of these tenant rights laws address or protect the homeless. All they do is address a dwindling rental population as increasing prices pushes more people out of homes and on to the streets.
Furthermore, the legislation protecting tenant rights is aimed at all landlords. The legislation puts additional burdens on landlords. The problem is that landlords with four or fewer properties are typically small businesses. America needs to support small business by separating the small, mom-and-pop landlord from the large landlords — the ones with five or more units. The larger landlords are better capable of taking on the financial burdens associated with many of these laws. The smaller landlords — the ones with four or fewer units — need some protection from additional fianncial burden.