“Gentrification and housing shortages are complex issues.”
Sarah Jeong, Journalist
Causes, Effects & Solutions for Housing Shortage
Housing shortage is a big problem in many cities around the world. This is especially true for affordable housing. In fact, many people with average incomes are no longer able to afford rents in their home town and have to move to cheaper regions or get into debt.
In this article, the causes, effects and solutions for affordable housing shortage are examined in detail.
Causes for Housing Shortage
- More people live alone in their homes
- Fewer people marry than centuries ago
- Population growth
- Cost of land increased
- Land speculation
- Construction costs increased significantly
- Permission for construction projects take quite a long time
- It takes quite long to finish a construction project
- Good job opportunities
- More people want to live in the city
- Cheap money
- Local shortages in construction workers
- Land is simply a scarce resource
- Minimum green space requirements have to be met
- Many housing projects focus on the luxury segment
- Competing land use
More people live alone in their homes
One cause of the housing shortage is that more people live alone instead of living with a partner compared to a few decades ago. In fact, single life has become quite attractive for many people who really enjoy their freedom.
Even people in relationships often live separately since people in our current state of the world just want to have their own space where they can do whatever they want without needing permission from their partner.
In extreme cases, people may even live alone in big mansions with many bedrooms where big families could live instead. Consequently, everyone of us needs more housing space on average.
In turn, this significantly contributes to affordable housing shortage since we currently use our living space in a rather inefficient manner.
Fewer people marry than centuries ago
Centuries ago, it was also the social norm to marry. While this is still true for some regions, people are no longer that eager to marry due to the many problems that come along with marriage.
In turn, this also leads to a state where more people stay single and live alone, which eventually increases the problem of a lack of affordable housing.
Another major factor when it comes to housing shortage is population growth. Scientists estimate that our world population will exceed 10 billion people until the end of the century. It is therefore quite logical that an increasing number of people will need housing.
However, with a rather limited supply of affordable housing space, you don’t have to be a genius to conclude that this will further exacerbate the housing crisis. Of course, regions will be affected quite differently.
While the housing shortage will be quite bad in big cities, rural areas will not suffer from housing shortage that much since most people want to move away from villages and want to live in big cities instead.
Cost of land increased
If we have a look at the past, land prices had been rather cheap just a few decades ago. However, this changed rapidly over the past decade, especially in big cities where the costs of land skyrocketed. Compared to 10 years ago, land prices more than doubled in many major cities and there is no reason why this should not continue in the future.
There are just many wealthy people on our planet and billionaires and multi-millionaires from all over the world can buy property in the most attractive cities of our planet.
Hence, even though the local population may no longer be able to afford rent, wealthy individuals or global investors will continue to buy property in those cities.
In turn, costs of land will likely increase even more in the future.
Investors sometimes even speculate on increasing property prices and just leave their properties unrented since they can get higher prices from selling unrented property compared to selling their flats and houses with tenants already living in them.
Consequently, fewer apartments and houses will be available for rent on the free market, which further increases the housing shortage problem.
Construction costs increased significantly
Another reason for the affordable housing shortage is that construction costs have increased significantly over time. There are so many requirements that have to be met before construction companies can actually begin to work.
Due to these requirements, it can take far longer to build a home. Since time is money, those homes will also be more expensive and the average family may no longer be able to afford buying or renting those homes.
Permission for construction projects take quite a long time
Also the permission phase for housing projects often takes quite a long time. Neighbors may not like the construction plans in their neighborhood at all and may interfere with the construction project whenever they can. Moreover, depending on the respective state, there may also be strict regulations for construction projects in place, which may lead to a further delay.
Thus, many construction projects take quite a long time to finish, which in turn implies an exacerbation of the housing crisis since the longer it takes to finish buildings, the fewer buildings will be available on the housing market.
It takes quite long to finish a construction project
Also the construction process itself can take a significant amount of time. Especially if construction plans are rather fancy, it can take several years to build an apartment complex from start to finish.
Combined with the extended time for planning and getting permission, those housing projects may take up to one decade until they finally get finished.
In turn, this also implies that people have to wait quite long until those housing opportunities will be available on the open market.
Good job opportunities
While good job opportunities and high wages are usually a good sign, those factors still drive the housing shortage problem since if people have higher salaries, they are able to spend more money on housing. In turn, housing prices tend to increase and persons with only average salaries will no longer be able to afford rent.
Thus, especially in areas where only a minority of people make really good money and the majority of people don’t, housing is a real issue since the average person will no longer be able to afford housing.
A prominent example of this is the Silicon Valley boom where a few big tech companies pay high wages, but the majority of people don’t profit from this boom at all.
In fact, many middle-class people are no longer able to pay rents in this area and some of them even end up homeless due to that.
More people want to live in the city
Housing shortage often is a local problem. This means that it is not prevalent in many regions, housing shortage often is only present in big cities and the surrounding areas while it is not a problem in many rural areas at all.
This is due to the fact that many people want to move from rural to urban areas. In turn, this leads to increasing demand for housing in cities.
With constant supply of housing, housing prices in cities increase and many people are no longer able to afford rents.
Housing shortage is also caused by the cheap money central banks around the world offer to banks. In turn, those banks are able to offer cheap housing loans to clients.
While this might be good for clients who can afford buying a home, it is bad for everyone else since due to the cheap money and low interest rates, the demand for property increases and so do the prices.
Local shortages in construction workers
In some areas, it is also difficult to find enough qualified construction workers who are able to finish large construction projects in time. This implies that construction projects often take quite a long time to finish due to labor shortage, which further contributes to the housing crisis since the supply of affordable flats and houses on the market cannot be increased sufficiently in time.
Land is simply a scarce resource
There is also no doubt that land is limited and that there is simply not much space for additional housing in most inner cities anymore. This means that the supply of housing in cities cannot be increased that much anymore due to a lack of space.
With increasing demand of people who want to live in the city and rather constant supply, this naturally also leads to higher housing prices and further exacerbates the housing crisis.
Minimum green space requirements have to be met
Some construction projects can also not be carried out as planned since there are strict minimum green space requirements in some cities that prevent those construction projects to be finished in an efficient manner.
In fact, every green space means a missed opportunity for affordable housing. Of course, it is understandable that people want to have green spaces in cities to relax. However, this still contributes to housing shortage.
Many housing projects focus on the luxury segment
Since land values have increased substantially over the past decades in many big cities, it becomes more attractive for real estate companies to plan luxury buildings instead of affordable housing. However, this also implies that the average person will have serious difficulties affording those luxury homes.
Migration can be another cause of housing shortage. If more people migrate to a country, the demand for affordable housing increases. However, with rather constant supply of housing, prices tend to increase. In turn, this means that more people will no longer be able to afford rent and that they simply have to leave their homes.
Competing land use
Land not only becomes more expensive due to the increasing demand for housing, land also becomes more expensive due to an increasing number of office buildings that are constructed in inner cities.
In fact, those office buildings compete with affordable housing space and if more office spaces are granted, this in turn means that fewer spaces are left for affordable housing.
Effects of a Lack of Affordable Housing
- Development of slums
- People can no longer afford rent
- People may no longer afford electricity
- Hard to find a home for people who want to move to big cities
- Lack of affordable housing for students
- High property prices
- Overall risk of poverty increases
- Unhygienic conditions
- Health problems
Development of slums
One effect of housing shortage is that people will have to leave their homes and have to move to cheaper parts of the city or the country. In turn, this often also implies that slums will develop where people have to live under rather poor conditions.
People can no longer afford rent
In general, due to a lack of affordable housing, many people are just no longer able to pay their rents. This is especially true for big cities where property prices and rents skyrocketed over the past decade. Consequently, the average person in those areas will struggle to pay rent and other things for daily life.
This may lead to a state where many people will lose their homes or have to get into debt since they are simply not able to afford those enormous rents with an average salary.
People may no longer afford electricity
In extreme cases, people may not even be able to afford electricity anymore. In fact, some people really rely on candles instead of electricity since they simply can’t afford electricity costs.
Thus, a lack of affordable housing can lead to a state where people have to live under quite poor conditions and often even don’t have enough money to supply themselves with power.
The housing crisis also implies an increasing number of homeless people. A prominent example of this is the Silicon Valley boom. While this piece of land has been relatively affordable just a few decades ago, housing prices skyrocketed over the past decade when the big tech companies have located in this area.
In turn, the average person who doesn’t work at one of those big companies will no longer be able to afford rent since even a one-bedroom apartment costs a few thousands of dollars a month in rent.
Consequently, those people will be kicked out of their homes sooner or later and often have nowhere to go. In case they don’t get support from their family members, they often end up homeless in the streets.
Hard to find a home for people who want to move to big cities
Apart from the horrendous prices, it is also just hard to find a flat to rent in many big cities. In fact, there are so many applicants who are desperate to find a flat to live in. This is especially true for smaller flats where landlords often get hundreds of applications.
Consequently, the housing shortage also implies that people will have to search for a new home for an extended period of time, which can be quite annoying if you still have a regular job and a family you have to take care of.
Lack of affordable housing for students
The housing shortage is especially bad for students. If they can’t get a dorm room, students often have to get student loans to finance their rent. However, these student loans have to be paid back at one point in time and students often underestimate the financial burden that comes along with it.
In fact, it can take students many years or even decades to pay back their student loans. Consequently, the housing crisis can also get students into financial trouble with which they have to deal with later on in their lives.
High property prices
Housing shortage not only leads to higher rents, it also leads to an increase in property prices. With an increasing demand for property in big cities and rather constant supply, property prices have increased significantly over the past years in many big cities and there is no reason why this should end in the near future.
Consequently, fewer people will be able to afford buying homes or may have to get huge sums of debt to do so.
Overall risk of poverty increases
Since people will have to spend more money on housing due to the housing crisis, less money will be left to spend on other things like cars, insurance or food. In turn, more people will end up in poverty since they will simply not be able to afford anything apart from the most basic things.
Due to an ever-increasing demand for housing in big cities, the population density increases as well. However, higher population density often also implies more garbage and more dirt, especially if the public infrastructure is not sophisticated enough to deal with it.
In turn, this could lead to a state where whole districts look like garbage dumps and the overall quality of life for people living in those regions will also decrease significantly due to that.
Housing shortage can also lead to rather unhygienic conditions. If people are no longer able to afford electricity, they will stop washing their dishes or stop cleaning their homes since they simply don’t want to do the manual work or just lost their hope and their motivation.
Moreover, if people end up homeless since they can no longer afford paying their rent, they may have no bathroom anymore. In turn, some parts of the city will suffer from a great lack of hygiene and diseases will be more likely to spread.
In general, if people have to spend more money on housing, they also have less money to spend on healthcare. In turn, many people will lack proper health insurance since they simply can’t afford it.
However, in case of serious diseases or accidents, those people will also not be able to pay their medical bills and may not get proper medical treatment due to that.
Thus, also overall life expectancy may drop as well as a result of the housing crisis.
Solutions to the Housing Crisis
- Social and public housing
- Building smaller homes
- Rent control
- Governments have to buy land and real estate
- Focus on the construction of affordable housing instead of luxury homes
- Limitation of land speculation
- Higher taxes on returns from real estate investments
- Government support for renters in case of financial crisis
- More efficient use of space
- Living in rural areas has to become more attractive
Social and public housing
One solution to the housing crisis is that governments around the world spend more money on public housing. Those housing projects are meant to provide affordable housing to people will low-to-medium incomes.
By introducing and expanding those projects, more people who currently struggle to pay their rent would become eligible for affordable housing, which in turn could greatly help those people out so that they would have more money to spend on other important things.
Building smaller homes
As we have seen before, an increasing number of people live alone and this trend will likely continue in the future. Consequently, we have to build smaller homes instead of big homes since the demand for smaller homes will simply increase significantly due to this trend of living alone.
Thus, by simply reducing the living space of flats and houses, we could provide more people with affordable housing.
It could also help to introduce rent control. Those rent control schemes aim to cap rents in a specific area so that landlords will no longer be able to rent their property for horrendous prices. In fact, those rent control schemes have many important advantages and could help to achieve more affordable living space.
However, rent control also implies some problems and also confines the freedom of property owners. Hence, it should only be applied in a thoughtful manner so that property owners are not harmed that much either.
Governments have to buy land and real estate
Another measure to get the housing crisis under control is that governments just buy plenty of land and real estate. In turn, governments could use those properties to rent them out at affordable prices to people who can’t afford paying free-market rents.
However, this would be pretty bad for government finances and not all governments around the world will be able to bear these significant costs.
Focus on the construction of affordable housing instead of luxury homes
Governments and municipalities should also make sure to grant more affordable housing projects and to reject more luxury housing complexes. By doing so, more affordable housing space would be created for the people who need it most in society.
Limitation of land speculation
There should also be regulations in place that aim to limit land speculation. This could mean that landlords should be forced to rent their properties after a certain period of time. In turn, fewer buildings would be unoccupied and more people would be able to find a home.
Higher taxes on returns from real estate investments
To limit real estate speculation, governments could also introduce higher tax rates for returns from real estate projects. For instance, if you buy a property just with the intention to sell it after a short period of time to make a profit, governments could tax your profit much more so that this sort of speculation becomes less attractive.
In turn, more homes would be rented long-term and the fear of people losing their shelter would be lower.
Government support for renters in case of financial crisis
Governments could also introduce schemes that aim to financially support people who can no longer pay their rents due to financial trouble. For instance, if you lose your job and are no longer able to pay your rent, governments could step in and provide you with a loan until you find a new job and can pay it back.
By introducing such a scheme, fewer people would end up homeless since they will still be able to pay their rent through government support.
More efficient use of space
In general, to overcome the housing crisis, we have to use our space as efficiently as possible. This means that future construction projects should aim to build as many small flats as possible on a given space and that we don’t waste any space for unnecessary luxury that the average person doesn’t need at all.
Living in rural areas has to become more attractive
Another way to solve the housing shortage problem is to make rural areas more attractive. In fact, if we get more people to move to rural areas, the demand for housing in cities would decrease and rents and property prices would become more affordable.
One way to do this is to provide better public transport and other important facilities in rural areas so that people no longer have an incentive to move to cities and rather stay in their home villages.
Housing shortage is a serious problem, not only in the US but also in many other countries around the world. There are many solutions to solve this issue.
Most importantly, governments have to set a proper framework so that the incentive to construct affordable housing opportunities increases significantly.
Only then can we provide enough affordable housing for the poorest among us who would end up homeless otherwise.
About the author
My name is Andreas and my mission is to educate people of all ages about our environmental problems and how everyone can make a contribution to mitigate these issues.
As I went to university and got my Master’s degree in Economics, I did plenty of research in the field of Development Economics.
After finishing university, I traveled around the world. From this time on, I wanted to make a contribution to ensure a livable future for the next generations in every part of our beautiful planet.
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