I listened in on a housing forum discussion today and in the chat a question appeared: “Why are developers not building more housing?” Below is a graph representing the nationwide trend. The trend follows here in Minnesota.
As you can see during the recession of 2007 the industry went from a production level of 2,200 to 500 (thousand). Or the production dropped by over 75%. And still hasn’t recovered a decade later.
The story of why can be told by thinking through what that drop between 2006-2008 meant for thousands of individuals whose assets and livelihoods were tied up in new construction. It’s common for land developers to spend several years of work, from conception to approval to shovel in the ground, before collecting earnest money checks for a new-build that takes another six months to close. The recession left thousands of projects half done with foreclosure notices piling up at the county. Development is a high risk, with a lot of upfront costs, type of business. Once you fall off that bronco, it’s hard to climb back in the saddle.
Others were bit too hard to forget that time period. Building requires all types of workers from framers to concrete contractors to plumbers, electricians, and finish carpenters to name just a few. If three quarters of the jobs closed down, then just as many workers were caught unemployed. This meant looking for jobs elsewhere. Many from the Twin Cities went up to work on the oil fields up in North Dakota. This tore families apart who were already reeling from financial pressures.
Maybe an industry could get back on top of these objections after four or five years. People forget about the past and remember what it was they liked about their previous occupation. And new construction permits have gone up mostly lead by large national builders. Undoubtedly another constraint is the annual upping of regulatory requirements. Builders have to explain these extra costs to the consumers and simultaneously know that they are often framed as greedy, profiteers. That probably gets old.
The public may not remember the wind-swept developments with foreclosure signs, but I’m sure the investors do.