Housing is critical infrastructure for Indiana’s economic development
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While uncertainties have clouded the national economic outlook, 2022 has produced a steady stream of positive news for Indiana through July – new business attraction and expansion projects worth nearly $17 billion (a record-setting pace), unemployment below 2.5%, personal income growth outpacing the U.S. by nearly 20% over the past year-and-a-half.
A number of factors will fuel continued economic momentum, including the size and skill of the Hoosier workforce – and closely related, the housing market for these workers.
It’s been said, “Houses are where jobs sleep at night.” Communities can’t compete (and companies can’t hire) if their residents and recruits can’t find affordable, appealing places to live. Lack of housing forces workers further from jobs and creates a tougher climate for growing employers.
In recent years, Indiana’s housing market has been pressured by population and economic growth. Our average monthly inventory of homes for sale has dropped 80% over the past decade, while new building permits dropped to half the level of the 2000s.
At the same time, the state’s population grew by nearly a half-million, including net migration of more than 50,000 new Hoosiers since 2018, while gaining 250,000 total jobs. The growing imbalance between housing supply and demand drove home prices up at a faster rate from 2013-2019 than the ‘bubble years’ preceding the Great Recession.
It’s not surprising that the 2020 IACIR survey of local officials identified “quality and affordable housing” as a top concern by 74% of respondents – only public health issues ranked higher, as the questionnaire was distributed as COVID restrictions took hold across Indiana.
Over the next two years, more Hoosiers entered the housing market in pursuit of fewer listings, pushing prices even higher. But recently, demand has cooled from the scorching pace of 2021.
June brought 12,042 new listings – a 5.8 percent increase versus June 2021 – and monthly inventory reaching 10,550 homes, the first month inventory has broken 10,000 since December 2020. Over the first half of 2022, new listings are 4.7 percent above 2021.
But more homes are available in part because some buyers have been relegated to the sidelines by rising mortgage rates and inflation. Indiana’s housing gap hasn’t been closed, it’s just been temporarily obscured by lower demand and slower sales.
Inflation will fall and the Federal Reserve will ease interest rates, and the housing market will readjust to match economic and demographic trends (around mid-2023, according to the mainstream consensus of national economists). When it does, limited capacity could put a ceiling on Indiana’s future growth…unless we stay focused on supply-side solutions.
The Indiana General Assembly has created a statewide Housing Task Force to study these issues and make policy recommendations for consideration during the next legislative session. Indiana REALTORS are active participants in these discussions and are prepared to advocate for its findings.
Indiana isn’t alone in our struggles with housing inventory, so we’re also hopeful the state will benefit from the Biden Administration’s Housing Supply Action Plan. It would allow remaining COVID relief funds to be used for a wider range of housing development, prioritize construction supply chains and build pro-development incentives into federal funding formulas, among a multitude of other proposals.
Senator Todd Young’s ‘Yes in my Backyard’ (YIMBY) Act aims for greater transparency on local zoning and land use policies that tend to restrict residential growth, an approach that could highlight the most common hurdles to new housing and create momentum for reform.
In many cases, local policymakers may not be aware of all the financing options and incentives already available to promote new housing. Indiana REALTORS are working closely with city and county officials to highlight existing resources while advocating for a better-stocked development toolkit.
In short, rebuilding residential inventory should be an economic development priority worthy of a full-court press of state, federal and local action.
After all, housing is critical infrastructure for successful communities with ambitious plans for attracting people, employers and investment. Inadequate housing discourages growth – we may be moving into a more balanced housing market, but we still need to fix our longer-term imbalance in housing supply.