The article summarized here is titled “Labour shortages threaten housing supply,” written and published by The Economist author unknown in September of 2021. The thesis of the article is that while demand for new homes is high, there is not enough labor in the form of supply to build them, resulting in the market being not in equilibrium.
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Across the country, but particularly in states where population is growing rapidly due to natural birth rates and migration, housing demand is rapidly increasing. Usually, house demand in these conditions represents a healthy economy and market, and generates significant revenue for firms that build and then sell real estate. However, now these firms have to artificially limit sales due to shortage of supply, both physical materials such as lumber, and labor. As a result, housing prices are continuously rising, being 18.6% higher than year before. The industry is currently lacking approximately 300,000 workers, and although wage growth is accelerating as well, the shortage can be seen around the world in developed nations.
Partially, this is due to COVID-19 which wiped out 15% of the workforce, but this is part of the general trend seen across the developed world. Industries of various types, largely jobs that have high manual labor or require significant socialization. People are reluctant to return to work, some concerned with safety while others are enjoying the benefits of unemployment pay. However, there had already been a pattern of American nationals transitioning away from manual labor jobs.
Sectors such as construction rely heavily on migrants and seasonal workers, both have been shunned by border crossings and travel being limited alongside political protectionism. There are also a range of macroeconomic and long-term factors impacting workforce shortage particularly in construction. Partially, until recently the market had still not recovered from the 2008 recession, so there was no effort to build it up again, at the same time, there is increased aging leading to retirement of skilled workforce. Unfortunately, as home demand increases as well as EU countries begin transitioning to retrofitting net-zero, there is expected to be even a greater shortage.
The main economic theory seen in this article is the theory of supply and demand. It is one of the most fundamental economic theories explaining the interaction between sellers and buyers, defining the relationship between price and willingness of people to buy it. Supply and demand ties into all economic principles in some way, it represents the balance of the economy. For any given item, good, or service, no matter how popular or unknown it is, there is a supply and there is a demand. In turn, the price for that good is known as the equilibrium consistently shifts as demand and supply change until there is a relatively stable equilibrium established.
In this scenario, the demand is for housing, while supply is represented in the labor force. Of course, in a market such as real estate, there are multiple influencing factors, but at the most basic, there is demand for homes at the current rate, meanwhile the supply of existing homes is low. The supply of the labor force is a secondary factor which influences the supply of homes because if there is a shortage of labor and materials to build the homes, logically they will be built at a very slow pace. Meanwhile, the equilibrium price for a home shift as demand and supply varies. As demand goes up, and supply goes down, the price will shift upwards as seen with current home prices now. The house market is very good representation of the general economy and is usually considered one of the most stable commodities.