A decrease in housing supply, coupled with high demand for houses during the crisis, has pushed housing prices up

Earlier today, the Wallstreet Journal reported the following,

The pandemic has aggravated the housing market’s longstanding lack of supply, creating a historic shortage of homes for sale.

Buyers are accelerating purchase plans or considering homeownership for the first time, rushing to get more living space as many Americans anticipate working from home for a while. Many potential sellers, meanwhile, are keeping their homes off the market for pandemic-related reasons.

Result?

At the end of July, there were 1.3 million single-family existing homes for sale, the lowest count for any July in data going back to 1982, according to the National Association of Realtors. In the week ended Sept. 12, total for-sale inventory was down 29.4% from a year earlier at the lowest level since at least late 2017, Zillow Group Inc. said.

……

The shortage has pushed home prices higher, stretching the budgets of many middle-class and first-time home buyers. The median existing-home price crossed above $300,000 for the first time ever in July, up 8.5% from a year earlier, according to NAR.

The housing crisis is due to a low supply of housing

People rarely draw a connection between the housing crisis and a lack of supply. For instance, when a survey by the LA Times and researchers from the University of Southern California asked 1,200 California residents what they consider to be the biggest cause of the housing crisis, only 13 percent blamed the lack of housing supply. Instead “lack of funding for affordable housing,” as well as “lack of rent control” were cited as big causes.

Unfortunately, this same attitude is also often displayed by legislators. When solving the affordable housing crisis, legislators most often exclusively suggest increased funding or rent control.

What they seem to ignore, however, is that the housing market is like that of any other goods. If the housing supply falls down to a level lower than that of demand, prices are going to go up, and vice versa. The current rise in housing prices due to the downward COVID-19-induced supply shock is a testament to that phenomenon.

As it turns out, the housing market is not immune to the laws of demand and supply.