Could America's Homeowners Be Making The Country's Housing Crisis Worse?

America's housing crisis has several causes, but it's generally accepted that a lack of inventory in the nation's population centers is one of the main factors driving up prices. 

While pundits nationwide fret about the crisis, real estate developer Bradley Rohrs cites America's homeowners as major contributors to the lack of affordable housing options and desperately needed new inventory.

Developers Vs. Homeowners?

Rohrs heads The Rohrs Team, a real estate development group that has operated in the Baltimore, Maryland/Washington, D.C., corridor for years and participated in projects as far away as Africa. In a recent interview with Newsweek magazine, the real estate veteran noted that resistance from area homeowners is often one of the biggest obstacles he and his contemporaries face when they try to add housing to an area.

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The kick-on effect of this resistance is to keep the area's inventory low, which drives up property values for existing homeowners. The basics of supply and demand would seem to indicate that he's right. It's no secret that cities like Los Angeles are popular, but the lack of new home construction inside the city limits or metro area has pushed L.A.'s median home price to almost $1 million. 

Low Inventory Is Keeping Home Prices Sky-High

In the late 1990s and early 2000s, $1 million homes were largely limited to L.A.'s most exclusive enclaves. These days, a $1 million house in Los Angeles is more likely to be a 1,100-square-foot fixer-upper in mid-city. That's great news for anyone who already owns a home in mid-city or has equity on a mortgage they locked in at a low interest rate. It's not such good news for anyone looking to buy in mid-city.

Prices in other major metropolitan areas like New York, Boston and Chicago aren't much better. The fact that little to no new inventory is coming online only exacerbates the situation by raising prices. Rohrs believes that one reason he and his fellow developers face so much resistance from area homeowners when they pitch new projects.

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Rohrs thinks many homeowners have calculated that an abundance of new inventory coming online could diminish the value of their homes. In that sense, it's a matter of perspective. What homeowners see as protecting their economic interests, Rohrs sees as shortsighted greed that will have long-term ramifications on America's economy.

Is it Simply A Question Of Greedy Homeowners?

Rohrs was blunt in speaking about the issue to Newsweek.

“The reason I say that they are greedy is that they support both directly and indirectly policies that restrict the amount of housing which directly benefits them in terms of increased equity at the expense of affordable housing, particularly for the next generation and poor people who are of lower incomes,” he said.

Rohrs is also cognizant of the fact that the net worth of most Americans is inextricably tied to the market value of their real estate. Despite that, he is correct in pointing out that as long as the supply remains low, the result is overpriced housing that millions of Americans believe they will never be able to afford.

“Desire to purchase houses has not changed, but there has been a little bit of a chilling effect on first-time homebuyers, where it’s seen as something where purchasing a home is seen as something that is an insurmountable challenge,” he said.

Rohrs is strident in his belief that new construction would be beneficial because it would also alleviate the lock-in effect keeping so many baby boomers in their homes.

More Than One Factor In Play 

It's encouraging that Rohrs does not see America's housing market as broken beyond repair. He summed up his thoughts to Newsweek by saying, "The issue is still always going to be supply. If we were just building houses, this would be absolutely nothing.” 

While there is no doubt that Rohrs has a valid point, it might be worth taking at least some of his assessment with a grain of salt. 

America's housing crisis was a long time in the making, and like any national crisis, it has many root causes. While it's true that adding new inventory would ease the problem to some extent, issues like high interest rates would remain a significant stumbling block for prospective homebuyers. High rates also limit developers' access to capital and diminish their ability to add new housing inventory in sufficient quantities to lower home prices.

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