What is a “healthy” housing market? 

If you’re buying, it may mean having a few options – and a real shot at putting in a successful bid. If you’re selling, it may mean fetching a solid asking price – and having somewhere to move after closing. If you’re us, it means that there is enough inventory to maintain suitable vacancy rates, prevent overcrowding, decrease cost burdens, and accommodate the ebbs and flows (mostly flows for at least the next several years!) of the population’s needs.  

In its comprehensive “Indianapolis Metropolitan Area Housing Affordability Report,” the Common Sense Institute (CSI) provides a realistic, fact-based estimate of the number of homes needed in the Indy metro area to create this healthy market. What does recently updated housing permit data tell us about our prognosis?  

Actual Homes vs. Homes Needed

CSI looked at data from ten counties in and around the Indianapolis metro area, specifically to learn if we are making progress in creating and maintaining a healthy market given two different scenarios:   

  1. This scenario is based on a low estimate of homes held off the market (i.e. unavailable for purchase by the local population) to determine a housing deficit or surplus.
  1. Here, CSI researchers calculate a housing deficit or surplus based on a high estimate of homes held off the market.

Housing Permits: Are We Balancing the Equation?

Economics is a highly complex field – but we all understand the idea of supply and demand. When a commodity is in low demand with high supply, prices drop. When it’s in high demand with low supply, prices climb. We’re at a place in the housing market where demand is not only high but sky high and supply is at near-historically low levels. This creates an environment in which buying (and affordability) is exceptionally challenging.  

Housing prices have increased between 72% and 105% from 2015 to 2023, and the average wage-earner has to work nearly twice as many hours to afford the median monthly mortgage payment. Not only that, CSI data from January 2023 indicates that the housing supply deficit ranges from 18,852 – 61,238 units.  

Are we making any progress towards closing that gap – and in helping more Hoosiers find home? 

New Housing Permit Data from CSI

Housing permits are a good indicator of progress (or lack thereof) in terms of the supply deficit and the overall health of the market.  

According to CSI, we may be headed in the right direction. Maybe. 

To close the housing deficit completely by 2028, we need to chip away at the gap by at least 16.7% (average) each year.  Now, average monthly permitting in the Indy metro area has dropped from 1143 in 2022 to 964 in July 2023 (a decrease of 23%). If we can pick the pace back up to the level we saw from January to July 2023, we could decrease the deficit by 21.2% – 21.6% by the end of the year and make up some ground.  

If average monthly permitting stays at the slower rate of 964, we can still hit the target of 11,050+ permits needed per year – under scenario 1. Scenario 1, of course, assumes a low estimate of homes held off the market. At the slower pace, however, we would not have sufficient permits issued to close the deficit (and address new growth of approximately 7500 new households) under scenario 2, in which there is a high estimate of homes unavailable for purchase. Here, we would require over 19,000 annual permits.   

Bottom line: The metro area needs an additional 66,299 – 115,803 permitted units by 2028 – or 11,050 – 19,301 per year – to eliminate the supply deficit and meet new demand.  

If the number of houses held off the market remains high, it becomes more and more challenging to close the supply gap and meet new demand. 

Towards a Healthy Housing Market

In the Indianapolis metro area, it can feel like one step forward, two (or three) steps back when it comes to the housing market. We continue to face a deficit, and in many counties insufficient permitting, while coping with a growing population.   

While these challenges seem insurmountable, the Hoosier State has a number of advantages, including a strong – and growing – economy, forward-thinking leaders and communities, and, above all, the drive to address housing issues with fair, balanced, and equitable policies, initiatives, and actions on the state and local levels. To create a healthy housing market, all of these stakeholders need to collaborate. This begins with conversations. Chime in at Build Indiana Roots.