The infamous home price bubble and financial crisis of 2008 is easily blamed on 1) subprime borrowers, 2) Collateralized Debt Obligations (CDOs), 3) financial derivatives, 4) tricked-up ARMs (adjustabe rate mortgages) like pay-option ARMs, 4) lack of regulatory oversight (The Fed claimed that is wasn’t their job!), etc.
But what generally overlooked is the supply response by developers and homebuilders to the sudden decline in interest rates (following the Fed Funds target rate). A construction boom occured in the early to mid-2000s until The Fed decided to raise rates rapidly again in 2004 that helped result in a crash of 1-unit housing starts that never really recovered. True, subprime borrrowers disappeared (or shifted to FHA-insured loans), and tricked-up ARMs have been discouraged by the Elizabeth Warren brainchild The Consumer Financial Protection Bureau (CFPB). So, now we have increasing 1-unit housing starts at a lower level (fewer borrowers relative to the 2000s) and an over-supply of houses that the US is still trying to work through.
Multifamily (5+ unit) starts collapsed in 2008 following the foreclosure wave that put thousands of homes on the market, generally at reduced prices. But as wage growth slowed following The Great Recession, the demand for apartments increased (generally more affordable) and the rental vacancy rate is near the lowest level since 2000. Low vacancy rates, rising apartment rates = affordability crisis.
Why don’t developers and homebuilders (apartments) put up more supply? If some areas, like Northern Virginia, they have responded. But rents in Washington DC and NOVA remain high. (Check out Rent Cafe). But national rents continue to rise as well.
Another compounding factor is tight land use controls in most major cities, preventing a supply response. This essentially forced some households to the suburbs for more affordable housing (some DC workers actually commute from West Virginia to DC or Virginia cities like Front Royal (great apple cider doughnuts at the Apple House in nearby Linden VA).