Understanding the Real Estate Shortage in Greater Baton Rouge

Introduction to the Housing Crisis

The Greater Baton Rouge real estate market is currently navigating through uncharted waters for the last few years. A noticeable shortage in housing has been making headlines leaving many to wonder: Why is this happening, and what can be done about it?

The Surge in Demand

Population Growth

The Greater Baton Rouge area has experienced a stead increase in population since the 1950's. The grown in the Baton Rouge area is not as intense as other areas of the country, but a steady grown continues to bring individuals and families looking to purchase a home in Baton Rouge. This steady increase in population is just the tip of the iceberg as to why we are experiencing a housing shortage.

Source: MacroTrends.net

Financial Constraints on Builders

Material & Land Shortages

The 2008 financial crisis left a mark on the construction industry that's still felt today. Many builders found themselves in a financial chokehold, with banks tightening their belts on lending. This credit crunch meant fewer projects getting off the ground, setting the stage for the housing shortfall we're now dealing with to this day. For the past 16 years, we have seen fewer new homes constructed than in years prior to the 2008. This new construction shortage has proved to be a major component in today's housing shortage.

It's not just about the number of homes constructed, though. The quest for buildable land in Greater Baton Rouge has become a modern-day gold rush, with prices skyrocketing and availability dwindling. And let's not even start on the rising costs of materials. From lumber to labor, the construction industry's wallet is being squeezed dry, further complicating the path to increasing the housing stock.

Economic Factors

The COVID-19 Affect

Prior to the COVID-19 pandemic, the decade between 2010 and 2019 saw interest rates range from 3.31% - 5.21% and the Greater Baton Rouge Market sold an average of 10,274 homes per year. During the pandemic rates dropped to historic levels and everyone leading to many more people becoming buyers in the real estate market. Between January 1, 2020 and December 31, 2022, home sales in the Greater Baton Rouge increased to an average of 12,863 homes per year. During this time interest rates plummeted and even reached a low of 2.65%. Any homes that were on the market were absorbed by the demand.

Source: https://money.usnews.com/loans/mortgages/articles/historical-mortgage-rates

Rising Interest Rates

Higher interest rates have cooled some of the demand thus increasing the amount of inventory, but higher interest rates have also made borrowing more expensive, affecting both buyers and builders. The combination of higher interest and lower inventory have created a perfect supply and demand storm keeping housing prices high because of high demand and still allowing enough buyers to enter the market to keep inventory from increasing. These factors have all contributed to the existing housing shortage that we are currently experiencing.

Conclusion: Navigating the Housing Shortage

The real estate shortage in Greater Baton Rouge is a multifaceted issue, rooted in both predictable and unforeseen challenges. As we look towards the future, it's clear that a combination of innovative solutions, policy adjustments, and community resilience will be key to overcoming this crisis.