Commentary: Why One Analyst Believes the Housing Shortage is Overblown

By David M. Greenwald
Executive Editor

It’s important to read a number of views on issues like the housing crisis – even if you end up not agreeing.  Such was the case reading a Press Enterprise interview with John Burns, an Orange County real estate consultant.

Unlike others, Burns believes, “the nation is only 1.7 million homes short of what’s needed – a fraction of other housing shortage estimates.”

Why so small, he is asked, particularly given the explosion in home prices.

“Truthfully, it’s because they haven’t done their research,” Burns said. “They use back-of-the-envelope calculations: We normally build X number of homes per decade and last decade we only built Y. So we must be short 5 million homes. But that’s misses that we overbuilt the prior decade and we’ve got much less population growth. Most of those calculations have very little analysis behind them.”

It’s an interesting point.  But I think it misses a key problem – the increase in home prices.

That’s why I found the LAO definition so insightful.

“California has a serious housing shortage. California’s housing costs, consequently, have been rising rapidly for decades. These high housing costs make it difficult for many Californians to find housing that is affordable and that meets their needs, forcing them to make serious trade-offs in order to live in California. The state’s housing crisis is one of the most difficult issues facing state policy makers.”

It’s not just a shortage in housing.  It’s the confluence between supply and cost that makes it hard to find housing that is affordable and meets the needs.

Another key problem with his analysis, is that doesn’t take into account things like jobs and location.  More on that shortly.

But he does make other points that worthy of us considering for other discussions.

For instance, he notes the change in the market.

Burns explains, “Affordability and ‘What am I willing to sacrifice?’ They’re willing to give up the living room, the dining room. They’re really willing to give up the kitchen table and eat at a nice counter. They don’t need a big office. It’s about smaller square footage. But getting light into the house is absolutely positively critical. So there’s a lot of really cool things going on with window placement. That may not sound interesting but the homes being built are so dense it’s hard to get light inside unless you do things right.”

At the same time, while there are questions about working for home, “That’s been the game-changer. Even if it’s just 10% or 20% of people can work from home two days a week, that means that they will now live in places where they would not if I had to do that five days a week.”

He also address the need for starter homes: “It’s kind of a price thing. I guess you could call it builder greed. But it’s really if builders put a smaller home on some of these lots, they would need to pay less for the land. And land sellers are not going to sell it. So literally, it’s not financially feasible for builders to pay market value for land and put a starter home on it. So there’s no business model without subsidies – or you go to the really outlying areas where the land is much less expensive.”

This is of course a big part of the housing affordability problem – it’s not feasible economically to build starter homes without subsidies.

One of his solutions – change where people live.

He said, “California should have more of a growth orientation, where they accept growth. Like in the middle of California along I-5 or Highway 99. You could attract employers there and build cities there and focus on focus on areas where you don’t have to fight the NIMBYs.”

He also offers an interesting solution to affordable housing, “On the affordable housing side, building something new and affordable makes no sense to me. Taking that money and helping people rent or buy an older home that needs to be fixed up makes far more sense.”

Given the cost of building affordable housing, that makes a lot of sense.

At the end of the day, I think the issue of the housing crisis is complicated which is why I think focuses on different aspects of it, creates a different take.  I agree with Burns here that it’s not purely a supply issue.

Rather I believe as I have expressed it is the mesh point between jobs, location, supply, and cost that is driving the problem.  Looking at ways to convert older housing into affordable housing seems like an approach worth looking into.

I’m less optimistic about moving populations – even if remote work becomes more common post-pandemic – because you end up needing to have established job markets and don’t want to create more travel and transportation issues.