The Great Rebalancing of 2022 - Leonard Steinberg
I think we're in the midst of the GREAT REBALANCING where all markets that seemed to have spiraled too far too fast based on unprecedented demand and under-estimated preparedness - combined with excess cheap capital to fuel this demand - are finding their new, more calm, more balanced footing. The process can be messy and turbulent.
During COVID, our first example of shock-driven artificial surge-demand was the paper towel and toilet paper episode where the minute many people started assuming COVID might cause them to have a reaction we'd all rather prefer not to discuss, others scrambled to stock up causing major shortages, rationing and price-gouging: this was the best pre-cursor for what was to follow. The almost identical pattern followed in so many other parts of the economy, where unrealistic, exaggerated demand was met with 'normal' - and often reduced - supply causing shortages that fueled even greater demand.....and sharply higher prices (along with the vultures who price-gouged because free markets allow that and hey, why not?)
Now, as savings start to wane as consumers have to pay more for almost everything, combined with an energy crisis fueled by the Ukraine-Russia war, and higher interest rates, the demand side of things is pulling back already. Used car prices that had surged are scaling back. Even contractors are returning calls. I have begun to see more 'special offers' at retail.
There is only one aspect of the economy that probably won't change soon: the housing sector. For over a decade, the US has been under-building. BY millions. The effects of the GREAT RECESSION of 2008/9 are still with us. So while the rest of the economy is re-balancing, we urgently need to re-balance housing and this could take several years. Housing is a big driver of inflation. EVERYONE needs a place to live. I cannot think of an area that needs more immediate, actionable solutions right now. Sadly, ramping up building is not fast or easy and will take many months and years. Here are my proposals for REAL solutions, as opposed to merely whining or complaining which is so much easier:
1. Ramp up the workforce in local building departments so that inspections/sign-offs are accelerated. The process is too long.
2. Simplify and streamline regulation. Much of it is important and necessary, but clarify requirements to be simple and easy to follow, and eliminate unnecessarily complex and gray areas without delay.
3. Remove all tariffs completely for 2 years on all building products to bring down costs of lumber, copper, steel, etc. (Trade tariffs on Canadian Lumber are around 18%).
4. Enact a temporary visa program for foreign skilled workers to replenish the shortage of skilled labor. Promote education and apprenticeships in the trades.
5. Create financing instruments for credit-worthy renters to become owners more easily.
6. Banks should ease financing for smaller builders to encourage them to build more.
7. Government should step in to monitor price-gouging and impose steep fines for doing so.
8. Government should provide tax breaks for companies to build prefab housing components that reduce the need for expensive and skilled labor.
9. The tech sector needs to ramp up building innovation: like the brokerage profession, technology that fuels human efficiency is the key.
10. Land is expensive: governments own lots of land. If government is serious about easing the housing shortage, they should sell/donate land for development. Encourage land donations for estate tax breaks.
11. Zoning needs to be refined to meet new demands. No, building mid-rises in single-family neighborhoods is not the solution. But some areas can and should be up-zoned. Some areas should not restrict home sizes. A home with a guest cottage/mother-in-law suite above the garage is practical. Intelligent, balanced zoning laws that retain neighborhood character and vibrance can and should adapt to new needs. And no, the workers who maintain our neighborhoods and buildings and service our police and fire departments and schools cannot commute 2 hours for affordable housing....that is unsustainable.