The demand for housing is growing exponentially, and so are the associated costs.

This article looks at the effects of rising rents and supply & demand.

We'll also discuss the current struggles of the millennial generation to afford a home.

These trends seriously affect our nation, and we must consider ways to solve the problems.

What Will Happen When No One Can Afford Housing?

First, there will probably be more homeless families than ever. So, this could push our country to the boiling point. Also, rising rental rates are a big concern when it comes to unaffordable housing. Then there is student loan debt, which millennials say is a major factor when it comes to them and homeownership. Finally, until we get more homes on the market than there are home buyers, which is the main problem, housing will remain unaffordable. Below I’ll delve deeper into these three issues.

Supply & Demand, or Demand for Supply

Rising Rental Rates

Millennials, Can They Afford to, or do They Even Want to Own a Home  

Supply & Demand, or Demand for Supply

When it comes to housing, the demand side of supply & demand is basically the number of households or people that want to buy a house.

On the flip side, supply just refers to how many houses are available for them to purchase.  

So, in saying that, one of the major, if not the main reason for the recent spike in prices, which is making housing unaffordable is the issue of supply & demand.

When you have high demand and low supply, obviously, this is going to cause the prices within the housing market to rise!

The lack of houses on the market will also contribute to bidding wars, which usually means prices will climb exponentially from there.

Also, when you have rising prices, the lack of available homes usually starts showing up in the ones at the lower end of the price spectrum first.

Since more and more people who would normally be buying higher-end homes can no longer afford them.

So, now they have to adjust and scale down when it comes to their house hunting, in order to fit their budget.

This starts to make housing unaffordable for most low-income and even some middle-income households too.

Since, before too long, the cost of housing can become even higher than the median wage for low-income workers as a whole.

The effect that this has is that lower-income people are then priced out of the housing market altogether.

Also, under normal circumstances, if there is a shortage of affordable housing in a city, there is probably also a shortage of jobs that pay well there too.

Another thing, if there is a housing shortage in the city, it can be a sign that states have not made the necessary changes to the zoning laws that would help meet the growing demand.

For example, under Mayor Michael Bloomberg's housing program, 14 housing projects focused on those with higher income limits, rather than those at the other end.

However, if policymakers make sound choices when it comes to the tools they have available to them, they can make a real impact as far as reducing prices in the housing market.

Like, eliminating a lot of the unnecessary regulations on home builders, which adds to the increased prices of new homes, would probably be a good start.

Although, most economists agree that the only comprehensive way to decrease prices is to increase the supply of houses in the market.

Then you can hopefully turn the problem on its ear and get more houses than there are buyers, which will put us on the path to making housing affordable again.

Rising Rental Rates

A one-bedroom apartment in Williston, N.D., recently went up to $2,100 a month, resulting in rental prices outpacing home prices.

Federal Home Loan Mortgage Corporation states, "rent will continue to rise through 2022".

But rents do not necessarily rise in tandem with home prices, so one indicator may not affect the other.

If one market has a recession or increases, the other may not be directly affected.

However, Several factors contribute to the rising prices of rental units.

Increased mortgage rates and supply constraints are affecting the housing market in a major way.

So, with rising home prices, small landlords who continue to purchase rental properties will most definitely be raising the rents on those houses in order to compensate for that increased purchase price.

Also, when you have the amount of inflation that we’re facing right now, that is certainly going to contribute to the raising of rents as well.

Since, as their costs rise, landlords are forced to raise their rental rates to compensate for those higher expenses too.

Another factor contributing to rising rents is low vacancy.

This brings us back to the concept of supply & demand.

If there is a low vacancy rate everywhere, especially if most places are 100% occupied, you can bet that there are more people looking to rent than there are available rental units.

Therefore, tenants planning to move soon might want to consider staying in their current rental longer if possible, unless they know rents are going to go up higher there than in the new place they’re planning to move to.

Because in states like Florida, I know there is no limit on the amount or how often a landlord can raise rents.

However, my partners and I do business in Florida, and we won’t raise rents more than $50 a year, and even then, only until we reach market rates.

So, if you have a landlord who is persistent in raising your rent above market, first off you should probably move, but if you can’t, you could try and get a multi-year lease.

Then you can secure a stable housing budget for a few years at least.

However, if rental rates continue to go up, instead of leveling off, we’ll eventually see a change.

Since rates will get so high that people will quit being able to afford it.

When that happens, renters start becoming late on their payments.

Then landlords start to evict.

Although, if prices are higher than people can afford, they can’t replace the renters whom they evicted.

After that, their properties start to sit empty.

Which, most landlords can’t let that go on for too long, especially smaller mom-and-pop ones.

So, that’s when things start to reverse, where you have more supply than demand.

Hence, rents will start to decline at that point and will eventually make rental housing affordable again.

Millennials, Can They Afford to or do They Even Want to Own a Home

Although the government backs 70 percent of mortgages, these programs do not always work as intended.

A lot of millennials report that they can't even save for a down payment on a home, since the cost of living is so high.

So, one reason for the high cost of living that’s affecting everyone is all the recent money printing that’s been done by our federal government, which is the primary reason for the inflation which is causing the price of everything to skyrocket.

Also, as I stated in my last article, the biggest obstacle most millennials see when it comes to owning a home is student loan debt.

A survey conducted by Legal & General found that most respondents advocate for a national student loan forgiveness program.

But if this does happen, how many will actually use that extra money they’re given in order to buy a house?

So, while the qualifications for a mortgage have been a constant as of late, Millennials' desire to own a home has changed.   

Since, unlike previous generations, most of them value freedom and more to the point geographical or locational freedom over the stability and responsibility that comes with owning a home.

This data indicates that Millennials' seeming lack of desire to buy a home signifies a change in home buying patterns from years past.

So, some might conclude that their generation can’t afford housing right now.

Nonetheless, even though a great many of them don’t own homes, according to a recent study by Zillow, 47% of millennials now live in the suburbs.

This trend isn't surprising since many cities’ housing market is more expensive.

However, this shift could also be related to their preference for larger homes.

In urban areas, however, a third of millennials remain in the city.

Although, the shift to the suburbs could have interesting implications for the housing market in most cities.

Also, this change from cities to suburbs is probably because of the housing unaffordability that already exists within these cities.

Another thing, making this move will likely make housing more affordable for those millennials who decide to do it.

However, a great many millennials are less likely to own a home than baby boomers or the general population altogether.

Most people blame it on housing unaffordability, along with personal preference.

In Conclusion

The rising price of rental rates is making housing unaffordable. You also have burdensome regulations adding to the problem when it comes to homeownership. Then when we combine all that with the high asking price for homes altogether, it’s just a recipe for disaster and unaffordable housing too. Not to mention student loan debt, which millennials say is putting homeownership out of their reach. But the main reason for high housing prices rests with low supply & high demand. So, until we get that position reversed, housing is going to continue to be unaffordable, especially for people with low incomes.