Key Topic: Home prices are high not because of interest rates, corporate greed, or other common explanations, but because there is a shortage of homes in the U.S.

Housing Shortage:

• Millions of housing units are needed to meet demand.
• The shortage is mainly due to restrictive permitting policies in many cities.
• In some cities, permit fees and regulatory requirements can add $300,000–$400,000 to the cost of building a new home.

California's Example:

• In California, permitting issues are a major reason behind the affordability problem.
• The state failed to build enough homes during the 60s and 70s. During the last housing boom, only 100,000 homes were built, far below the demand.

The Housing Deficit:

• Estimates of the housing shortage range from 4 to 7 million homes, with some suggesting as many as 35 million homes are needed.
• The deficit continues to grow because the rate of new housing construction doesn’t match the increasing demand from population growth, college graduates, and immigration.

The Impact of the Housing Slowdown:

• The current housing slowdown and higher interest rates are causing builders to reduce the number of homes they build.
• In 2023 and 2024, fewer homes will be built in California due to the high costs of impact fees and lengthy permit approval processes.

Cost of Permitting:

• In California, permit fees for a typical single-family house range from $200,000 to $250,000 and can take 2 to 3 years to secure, adding additional carrying costs.

Conclusion:

• The high price of homes is primarily due to supply and demand—there simply aren’t enough homes to go around, creating competition and driving prices up.
• Even with higher interest rates, there are still enough buyers with the income to afford higher prices, leaving many still without homes.