How do you invest in a housing shortage?

Question

An article came out in my local newspaper saying the community where I live will need to double it's new home building rate between now and 2025 or face a major housing shortage.

http://www.kentucky.com/news/business/article15242...

Obviously prices will continue to rise.  What is the best way to capitalize on this kind of market?  Is it just to rack up as much single and multi-family units as you can now, or is there a less obvious way to take advantage of the market moving forward?

Thanks!

Levi T. · Answer

Rentals or flips

Jade S. · Answer

In my area, land costs have definitely gone up, making it much harder for builders to build cheaper starter type houses and see a rational margin of profit (not to mention brisk investor competition).  In my county, I'm seeing some townhouse construction and costlier housing options coming online.  Any current housing stock priced at or below below $150,000 are moving rather fast.

David Faulkner · Answer

The question in my mind is this: Is the housing shortage temporary (less than 5-10 years) or persistent? In most markets, it is temporary and prices fluctuate a bit above then a bit below inflation as builders over and under build to try to adjust supply to match demand. In some rare markets on the down side, there is a persistent outflow of residents so supply is perpetually higher than demand and housing prices don't keep pace with inflation. At the other extreme, in even more rare cases like coastal CA for example, demand is high and supply is persistently limited. In this case, prices and rents go up well in excess of inflation. If Lexington is like most markets, there is available land to build on, there are trades people to build them, and building regulations aren't crazy restrictive so builders are able to build ... I don't know for sure, but this is the norm and if this be the case, and demand stays strong, then I'd expect the market to average out with inflation with ~10 year cycles of over and under building so it fluctuates a bit above and below inflation but averages out. On the other hand, if you have conditions like CA, where there are no more empty lots, you are "boxed in" on multiple sides by ocean, mountain, river, etc., and/or building regulations are insanely strict so that even if you wanted to build and could find the land the government won't let you or will put up as many roadblocks as possible ... these are the type of conditions that produce persistently limited supply ... couple that with persistently high demand from good weather, good jobs, etc. and prices and rents can and do skyrocket over extended (multi-decade) duration. So which type of market is yours? That's the first question ... there are strategies to make money in any of these types of markets, but those strategies will be different ...

David Dachtera · Answer

@Robbie Taylor,

Buy the kitchen sink!

Some other options to explore might be to find failed developments from the crash where the land has been improved but no houses built or building stopped. Buy up those lots, connect with a modular homes builder and fill in those unfinished developments with new housing.

Modular homes are NOT trailers! They are stick-built homes assembled in "pieces" - modules - in a factory, then the modules are shipped on flatbed trucks to the home site where are fitted together on a poured foundation. Once the foundation is ready, a house can be under roof in days instead of weeks and the whole house can be finished in two to three months. Once completed, they are indistinguishable from homes stick built entirely in-situ.

Nichole Stohler · Answer

@Robbie Taylor, sounds like there will be some great opportunities.  Question... what type of real estate are you involved in today?

How do you invest in a housing shortage?

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