America’s Housing Shortfall

“Everyone knows” that massive overbuilding of housing during the boom years is a crucial contributing “structural” factor to current unemployment, but Scott Sumner looks at the actual data and finds little evidence of housing oversupply:

YearSingle-FamilyMultifamilyTotal2010470,900116,700587,6002009445,100108,900554,0002008622,000283,500905,50020071,046,000309,0001,355,00020061,465,400335,5001,800,90020051,715,800352,5002,068,30020041,610,500345,3001,955,80020031,499,000348,7001,847,70020021,358,600346,4001,704,90020011,273,300329,4001,602,70020001,230,900337,8001,568,70019991,302,400338,5001,640,90019981,271,400345,5001,616,90019971,133,700340,3001,474,00019961,160,900315,9001,476,80019951,076,200277,9001,354,10019941,198,400258,6001,457,00019931,125,700162,0001,287,60019921,029,900169,9001,199,7001991840,400173,5001,013,9001990894,800298,0001,192,70019891,003,300372,9001,376,10019881,081,300406,7001,488,10019871,146,400473,8001,620,50019861,179,400626,0001,805,40019851,072,400669,5001,741,80019841,084,200665,3001,749,50019831,067,600635,5001,703,0001982662,600399,7001,062,2001981705,400378,9001,084,2001980852,200440,0001,292,20019791,194,100551,1001,745,10019781,433,300587,1002,020,300

Source: U.S. Census Bureau

Here’s my assumption. Housing construction normally seems to fluctuate between one and two million units. Let’s take 1.5 million as roughly the trend rate which keeps up with population. Yes, it’s true that we exceeded that number every single year from 2002 to 2006, and the total excess production was about 1.87 million units. That’s a lot. But over the next four years there was a shortfall of about 2.6 million units. So why do we seem to have a hugely excessive number of homes, if we are actually 730,000 short?

Now of course some of these units are mislocated relative to demand. And severe regulatory restrictions on density mean that lots of this investment is non-optimal. But there are plenty of people in this country who, given decent aggregate demand conditions, would be forming new households and occupying this housing stock.