Effects of the pandemic and the Great Recession are among key factors contributing to the sharp spike in housing prices seen across Idaho in recent months, according to University of Idaho economist Steven Peterson.
“I have not seen a housing market ever like this,” he said. “I’ve seen many booms, but not like this, not this kind of price spike.”
In simple terms, Peterson said a handful of variables have led to a surge in demand for housing, while supply and new construction have struggled to return to where they were before the financial meltdown in 2007 that led to one of the worst recessions in U.S. history. He said that episode sent shockwaves through the national economy still being felt today.
“It badly damaged the housing market, it disrupted the supply chain and if you look nationally at housing starts following the Great Recession, they have been substantially below average,” Peterson said. “We’ve been building far fewer houses and apartment units than what we historically have been, so there’s a huge backlog in the supply — I think that’s the first big factor.”
Peterson said the economy was slowly recovering, prompting a gradual increase in demand over the last decade when the pandemic struck, bringing with it a host of unanticipated consequences. For one thing, he said people who were suddenly working from home would abruptly realize they had a need for more space.
He said the broad distribution of federal relief dollars to families was another factor that is helping drive demand for housing. While many families were hurt by the pandemic and subsequent recession, Peterson said many wealthier families came out ahead — and still received stimulus checks, adding to pent-up demand for housing.
“You’re stuck at home, for one thing, and if you think about it, you’re not spending any money, so your savings are going up anyway,” Peterson said. “And then you’re receiving funds from the government on the other hand, and you get to thinking ‘I could use a better house,’ or a bigger house.”
Peterson said the pandemic also sent a shock through the supply chains that slowed development. He said the cost and availability of everything from bicycles to computer chips to essential building materials like lumber have gone up dramatically, making it more expensive to build.
All of this factored in with Idaho’s position as one of the fastest growing states in the country creates a recipe for a swell in home prices, Peterson said, though he said it does not resemble the conditions surrounding the subprime mortgage crisis that led to the Great Recession.
“I think we’re in a bubble, but I think it will be like slowly letting the air out of a balloon — it won’t be popping it,” Peterson said.
“One of the troubling issues with the whole housing boom-slash-bubble has been its effects on rent, and that will continue,” he added. “The concern I have with all of this is the workforce housing availability — I think it’s the thing that policymakers should keep close eye on.”
To support workforce housing and help to deflate this bubble, Peterson said legislators in Idaho should try to make the process for builders to acquire land as straightforward as possible, and minimize the barriers for development. For example, he said many areas around the country would benefit from allowing more multifamily and mixed-use residences in their communities. He said this kind of development could help to deflate the cost and demand for housing geared toward low- and middle-income groups.
He said state governments — but also cities and communities would be well advised to ensure there is an adequate supply of workforce housing or risk a host of economic consequences.
“If they don’t do that, it will ultimately alter the character of the community — you only need to go out to the very large cities where the average price of a home is $800,000 or above,” Peterson said. “In some communities, they become a haven for very wealthy individuals and families, and the middle class gets squeezed out.”