That's the explanation from Kyle Wingfield, president and CEO of the Georgia Public Policy Foundation, a libertarian-leaning think tank based in Atlanta.
If you've been following housing trends in Georgia, you've likely seen institutional investors being blamed for making prices unaffordable for many households.
A new report by the Private Equity Stakeholder Project gives Georgia the worst possible score. The report cited statistics showing that between 2018 and 2022, one in six homes was purchased by “medium, large, and mega-investors,” with the share increasing by more than 62% over that period. quoted. With sophisticated systems for tracking new listings and all-cash offers to home sellers, these large investors are in a better position than many other home buyers.
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But focusing on this particular group (which, to put it less alarmingly, is not responsible for 83% of Georgia home sales) emphasizes the symptoms rather than the disease.
The problem is that we aren't building enough housing.
As prices rose sharply, buying housing on an institutional scale became profitable. Prices in this case, like most things, reflect supply and demand. And in Georgia, supply was lower than demand well before 2018.
About 397,000 new homes were built in Georgia in the 2010s, less than half as many as in the previous decade, according to Census building permit data. Meanwhile, a Pew Research Center review of other census data shows that more than 435,000 new households (that is, families or other groups living together) were formed in the state in the 2010s. ing. That's a nearly 10% supply gap, and it doesn't take into account people moving into the state for new housing or homes that may be demolished and never replaced.
It also does not take into account the possibility that even if there were more houses, more households could have been formed. This is what I mean. In recent years, we have all heard stories of young people living with their parents because they could not afford to leave home on their own. Some of that is due to their wages, but some of it is because there are no affordable places to move. Again, this trend existed long before he was in 2018.
It is therefore very likely that demand outstripping supply will put even more upward pressure on house prices than the nearly 10% gap would suggest.
This is a market where institutional investors are buying.
Now, in a normal market, you would expect supply to increase accordingly. And it became a reality. Housing construction in 2018 increased by nearly 16% over the previous year. Then, after falling in 2019, home construction rose again from 2020 to 2022, reaching its highest level since 2006, but fell by 18% last year.
However, this response was insufficient. Even that number for 2022 remains almost 30% below his previous peak in 2005, which actually occurred.
Put another way, between 1995 (the first year of the Census dataset) and 2006 (the year before the impending Great Recession caused a sharp decline in housing construction), Georgia built approximately 1.1 million new homes. A house was built. Only 625,000 units were produced between 2012 and 2023.
The question is, why has this decline remained so stubborn when there are so many incentives in the market to build new homes? There is no one answer, but one of the biggest culprits is government regulation.
Regulations are costly and time-consuming to build, and they constrain housing construction by requiring new homes to be larger and made of more expensive materials. Some of this burden will occur at the federal and state level, but the bulk will likely fall on local governments.
Again, there are other factors such as material costs. But while local officials may not be able to lower the price of lumber or concrete, they can change laws and streamline the approval process.
What about those who simply want to focus on institutional investors? What better way to do that than to undermine the value of investment by encouraging more housing construction and lowering prices.
