In efficient free market economics, the market will fill voids created by unmet demand. Demand drives the creation of supply. Aside from food, shelter (i.e., housing) is arguably an economy’s most necessary product, yet the production of housing in the US has not kept pace with housing demand, leading to a significant and growing gap between high demand and consistently low supply. Since the 2008/2009 Global Financial Crisis specifically, housing production across the country has not kept pace with household growth, which has created a historically large housing shortfall, now estimated to be between 3.8 to 6.8 million units.
While this trend began with the GFC, it is secular rather than cyclical, and has now become ingrained in the US economy and, barring a structural change in the functioning of the residential construction sector, shows strong evidence of persistence in the long-term. Unmet demand of this magnitude creates a market opportunity. Whenever supply consistently lags demand, as new supply becomes available, it is likely to be quickly consumed. Rapid consumption of new supply significantly de-risks new production and, thus, the possibility of investment principal loss is mitigated. The purpose of this White Paper is to assess: 1) The gap between housing supply and demand; 2) The contributory factors thereof; 3) Their impact on the housing market going forward; and 4) How capital can be prudently allocated to capitalize on the supply/demand mismatch in the housing market.
