Last year, Freddie Mac estimated the nation’s housing supply deficit at 2.5 million units, up from 3.8 million units in 2018. Other analysts come up with different figures, but everyone agrees that the country is not building nearly enough homes to keep up. With interest, especially for middle and low income families. Failure to build those units has been a major contributor to the affordability problem that has spread from a few coastal towns to much of the country in recent years.

Freddie Mac Chief Economist Sam Khatter says there’s something ironic about what’s happening right now: The Federal Reserve is trying to kill inflation by raising interest rates, which is causing a pullback in construction, which will reduce housing affordability. The way. In other words, policymakers are solving the immediate cost of living (inflation) by making the long-term cost of living (housing) worse.

“It’s an unintended consequence,” Mr Cater said.

Because the housing market is built on debt, it has responded quickly to federal measures, making interest rates extremely low. Builders borrow money to build new homes, which they then sell to buyers, for the most part 80 percent or more of the home’s cost. As banks raise monthly loan costs, buyers and builders hold back on refinancing for a variety of reasons, including the fear that the property will be unaffordable and worth less than what they paid for. to rise.

If builders can quickly adjust to demand, a slowdown in homebuilding will not have such a significant effect on the nation’s overall housing supply if growth offsets the recession. But they can’t: Housing is a highly fragmented industry of mostly independent companies, including developers who spend decades turning raw land into parcels and subcontractors who hire hourly laborers. The system works well when demand is strong, but at the slightest sign of trouble it can falter and take years to restart, deepening the longer construction is delayed.

“It’s easier to turn it off than it is to turn it on,” Mr. Palacios said.

The collapse of the housing market during the Great Depression put many small home builders out of business and left those that survived very cautious. Housing starts fell from 2.1 million in 2005 to 554,000 in 2009, and have not recovered much since then, despite continued growth in demand. Only in the last couple of years have developers finally started building at anything close to their pre-bubble pace – only to put the brakes on it now as prices continue to rise.