According to the Wall Street Journal article, “The Next Housing Crisis: A Historic Shortage of New Homes,” the United States is facing what appears to the next housing crisis (https://www.wsj.com/articles/american-housing-shortage-slams-the-door-on-buyers-1521395460?mod=searchresults&page=2&pos=9). This housing crisis is not similar to the last housing crisis, which contributed to ‘The Great Recession’ in 2008. The last housing crisis was the result of a large decline in the price of houses after the housing bubble collapsed which lead to mortgage delinquencies and home foreclosures. However, this housing crisis stems from fewer homes being built per household in the United States compared to almost any time in history. Home construction per household remains close its lowest level reported.
This housing crisis has many perplexed since the economy is booming and jobs are plentiful. While the demand for housing is stronger than it has been in recent years, land and construction costs have substantially increased since the last housing boom. Many homebuilders have shifted their focus from starter homes to higher-end properties. Millennials, which make up the largest generation since the baby boomers, are now looking to be homeowners and seeking to purchase starter homes. Therefore, the large demand for starter and/or mid-priced homes is not being matched with supply. Construction is not meeting the rising demand for starter homes. Furthermore, the overall inventory of new and existing homes for sale recently reached its lowest level on record. This shortage of homes has driven up the prices of homes and has led to bidding wars. In addition, there is a mismatch between where houses can be built and where people want to live. Here, is a visual representation from the article of the mismatch in housing inventory and housing demand. In most cities, the supply of houses does not reach the normal levels of houses available.
Housing inventory is more difficult to manage than a retail company’s inventory. Homes take months or even years to build. In addition, housing developers and construction companies have limited land to build on. In general, inventory is one of the most expensive assets of a company. Furthermore, having vacant homes is costly to developers. Therefore, developers would rather have a shortage of homes than an excess of homes since maintaining an excess inventory of homes puts great financial strain on the company. While retail companies generally have a steady supply of materials to produce their products, the house industry replies on the inventory on land, construction workers, and construction materials. Therefore, as the demand increases for particular products, retail companies can manage that demand and produce more products. However, the number of construction workers and land availability limits the housing industry in its ability to produce homes. Another difference between the two industries is the housing market is more volatile than retail industry, which impacts the ability for developers and construction companies to predict the demand for houses. It is easier for retail companies to forecast their demand and manage their inventory based on their expectations.
The goal of inventory management is to satisfy product demand while maintaining an efficient stock supply. The housing industry has many limitations that affect its ability to properly manage its inventory. Inventory needs to match what the consumer’s wants, needs delivery time, and proper work. In the past, it was easier to manage housing inventory since houses were cookie cutter and building supplies were micro managed even down to the number of nails per roof. Homes are now being customized so inventory is not managed until the completion of the design of the home. The inventory management systems used in most companies cannot be applied to the housing market due to the limitations of the housing market and the variable demand and variable leadtime nature of the housing market. However, the main goal of those inventory management systems of satisfying the customer is still valid. The housing industry has major effects on the overall United States economy. Therefore, changes need to be implemented in the housing regulations so the housing demand can be meet.
Here, is article that discusses the low housing inventory in Richmond (http://www.richmond.com/business/local/economy-looks-great-but-housing-inventory-too-low-economist-tells/article_3920df67-de37-5220-83ce-8dc8c04f7b57.html).