Commentary: Why One Analyst Believes the Housing Shortage is Overblown

Photo by Kimson Doan on Unsplash

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.


About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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9 thoughts on “Commentary: Why One Analyst Believes the Housing Shortage is Overblown”

  1. Ron Oertel

    As far as “affordable” housing goes, below is one article which “thinks outside the box” to some degree:

    But, wanting to prevent competition with the private sector, policymakers imposed income restrictions, which forced many tenants out of their units if they achieved higher wages and left public housing with a narrow and politically vulnerable population base. The federal government, having restricted public housing to just the poorest of the poor, eventually cut off funding for new projects altogether in the 1970s. Local authorities often didn’t have the resources to keep housing in good condition—and many projects became unfit for human habitation. Ultimately, the federal government presided over the demolition of hundreds of thousands of units.

    “Not wanting to compete with the private sector” is also the reason that those in prison have not been provided with adequate paths toward employment. As a result, taxpayers ultimately pick up the tab.

    Regarding income restrictions in public housing, this is the reason that public housing was/is a failure – income restrictions which trap and concentrate people with little income – thereby incentivizing them to remain that way. It would not be surprising if this was a far bigger factor regarding segregation and lack of home ownership for some populations than redlining ever was.

    Some domestic models have begun to reappear too. In Montgomery County, Maryland, the Housing Opportunities Commission quietly initiated a program to build mixed-income public housing that uses a cross-subsidy financing system: the market rents paid by more affluent tenants to subsidize affordable units in the same building.

  2. Ron Oertel

    And here’s another (Biden) program (which went into effect on May 1st) which charges higher mortgage fees for those with good credit, and lower fees for those with worse credit.  For the purpose of making home ownership more feasible for those (presumably) at the lower end of the socio-economic ladder.

    Joe Biden’s Plan to Raise Costs for Homebuyers Receives Surprising Support

    (Personally, I think the government should extricate itself to some degree from the mortgage business itself, as this is likely creating other negative impacts – e.g., inducing sprawl among all income levels).

    By the way, one of the things that Trump did (which was probably “good policy”) was to increase the standard income tax deduction (and reduce the tax incentives for costs associated with homeownership).  Which meant that tax breaks were more-evenly distributed between renters and homeowners than they had been before.  And yet, we heard very little about this impact – even from those who might (normally) be expected to support such a change.

    1. Keith Olsen

      And here’s another (Biden) program (which went into effect on May 1st) which charges higher mortgage fees for those with good credit, and lower fees for those with worse credit.  

      Unbelievable, so you do things right in order to get good credit and your reward is YOU GET TO PAY HIGHER FEES.

      1. Ron Oertel

        Keith:  It’s not unlike minimum wage, rent control, affordable housing, subsidized health care, stimulus payments, earned income tax credits, progressive income tax, etc.  All of which are an attempt to account for differences in wealth (many of which are income-based).  Though in this case, I believe it is based upon credit history – which is one of the criticisms of it in the cited article.

        Hey, I just noticed the word “progressive” in “progressive income tax” (in which your income is taxed at a higher percentage, as wage income increases).

        1. Keith Olsen

          In the upside down world of leftist Democrats one gets a better deal on their mortgage fees if they have bad credit.

          Can you imagine car dealers telling potential buyers “Come on down and get the bad credit discount”.

  3. Richard_McCann

    This analysis misses a key driver in housing demand in California, which is the rise in household size despite the decrease in family size. This indicates more adults are being forced to live together due to higher housing costs. The wish of those adults to live in separate houses creates latent demand that is pushing for higher prices. In addition, housing construction is restricted by governments in localities where the highest salaried jobs are located. The single most important driver of housing prices are proximity to jobs, and businesses agglomerate where the most important resources, usually a trained workforce, are located. That’s why it’s largely impossible to create a brand new city in the middle of nowhere. The lack of success in Merced with UC Merced is a good example.

  4. Ron Oertel

    Here’s another interesting article that I just came across:

    Residents have protested a $4.5 billion investment in Blackstone by the University of California. They staged a public town hall with San Diego’s city council president, and they lobbied state lawmakers to increase renter protections.

    Because California caps how much landlords can raise rents each year for current residents — by 5% plus inflation or, at most, 10% — housing advocates say large companies such as Blackstone will try to boost rents to that limit, hoping it’s high enough to compel current tenants to leave. Then companies can charge new tenants even higher rents.

    Two advocacy groups, the Private Equity Stakeholder Project and the Alliance of Californians for Community Empowerment, in March compared rent ranges Blackstone charged tenants in 2021 at 10 San Diego-area properties, with rental rates they sought from new tenants.

    The list rents for new tenants in each complex were, on average, 29% to 100% higher than the average rents tenants paid in 2021.

  5. Tim Keller

    I appreciate how fair you are trying to be on this question David, giving it the “both sides” treatment and all…

    But we have a .6% homeowner vacancy rate and economics tells us that for the home market, something closer to 3% represents a market that is in balance.

    We can debate whether we should be aiming for 2% or 4% instead perhaps…  Maybe that is up for debate…   but this simple, quantifiable, dispassionate indicator of the demand situation in our town shows us VERY clearly that we are in an acute shortage.   Full stop, no debate needed.

    Anyone who wants to argue about state population changes, or net construction levels nationwide are just wasting words, and are likely just trying to find something that supports their own pre-established world-view, so they can ignore the simple objective reality in front of them.

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