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The Next Housing Crisis is Already in the Works

By Edited Oct 24, 2016 0 0

A Shortage of Skilled Trade Workers May Cause the Next Crisis

Housing Crisis
Housing Market Meltdown


The U.S. and world economies have struggled to regain meaningful and consistent growth since entering a recession back in 2007.  The U.S. is finally growing again, albeit weakly, and other countries in Europe are still in or near recession.  The causes of this difficult period were many but are often attributed to the impacts of easy credit on the housing sector. 

Easy access to low-cost mortgage loans drove two low quality behaviors in the purchases of homes.  These were a) speculation in housing (i.e. buying houses with the intent of reaping capital gains from ever-increasing prices rather than simply to live in), and b) the purchase of homes by people who couldn’t actually afford to buy homes.  These behaviors were possibly only as long as house prices continued to go up.

When house prices stopped going up, the house price bubble burst and caused widespread havoc as house prices plunged.  When house prices are falling and are predicted to continue falling, it becomes difficult to sell houses.  No one wants to buy an expensive asset that is going down in price for the foreseeable future!  Therefore, falling prices beget further falling of prices.

In general, houses for sale come from two sources: new houses built by builders and the resale of existing homes.  During the pre-recession period of housing speculation, more new homes were built than were actually needed to house residents.  When the bubble burst, the economy then had more homes available than people wanted.  Given falling home prices and lowered demand for housing, homebuilders greatly reduced the number of homes they were building.  Less building activity led to fewer jobs for people working in the building industry, so there were far fewer jobs available for plumbers, electricians and the like than there had been previously.

Construction Plumber
Where are the Workers?

You may see where this is going.  When plumbers and electricians find that they have little work for years ahead of them, they find other professions or retire, and younger people stop going into the trades since the near to intermediate-term job outlook is poor.  Unfortunately, surveys done in the U.S. and labor market statistics validate that this is happening.  The looming housing crisis, therefore, is that when the U.S. housing market recovers, there will not be enough skilled workers to meet the renewed demand.  We could actually go from there being an excess of housing stock in the pre-recession period to a shortage of housing post-recession!

Interestingly, the very fact and “news” of a looming shortage may bring people back into the trade.  In the U.K., news reports in recent years of a shortage of plumbers caused too many people to enter trade schools to become a plumber.  Now there are way too many people graduating.  In fact, the number of plumbing graduates far exceeds the number of current job openings!  The U.K. now has a mini-crisis consisting of many unemployed plumbing school graduates who cannot get a job in the trade and have school debt they cannot afford to pay for an education that will likely prove worthless. 

This has been an unfortunate and painful demonstration of how one crisis can cause another, which can cause yet another.  Over time, and with reasonably constant growth, these fluctuations can even out and “normalize” at a more constant trend.  In the meantime, watch out for the effects and plan accordingly.

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