Housing Demand and Supply in America

In a nation as large as the USA, many markets exist and these markets will have variations in their supply and demand matchups. Some will be tight markets with low vacancy levels, some will be soft markets with high vacancy levels, whilst still others will have a good balance between supply and demand creating healthy levels of vacancy. However, the national numbers do tell an overall story of housing market conditions and this story is one of soft markets with too many vacant or off-market units. By most standards, US markets are generally soft, that is, vacancy rates (the proportion of unoccuppied homes) are above what economists and investors would see as healthy. This statement runs contrary to what is the conventionally accepted view of housing markets. It is commonplace to hear of talk of the housing shortage or of tight markets.

Household formation and housing production in the USA, 2000-2013 (Source

Fig. 6.1 Household formation and housing production in the USA, 2000-2013 (Source: US Census Bureau, 2009-2013 5-Year American Community Survey, US Census Bureau, 2005-2007 3-Year American Community Survey, US Census Bureau, Census 2000)

Part of this problem is the result of rates of new housing production which continue to outpace the rate of household formation, despite having reduced sharply in the years following the GFC (Fig. 6.1).

During the period when the housing bubble inflated, 2000—2007, the nation grew by 6.1 million households, but the nation’s housing stock grew by 11.0 million units. This is a ratio of 180 units added for each 100 households formed. It is true that the housing market should grow more units than households form, so as to maintain an ample supply of vacant units. However, if the normal vacancy rate is about 3 %, the effective housing stock increased by 174 units for every 100 housing units needed.

It is interesting that after the bubble burst, the overbuilding did not come to a halt as is commonly believed. Note that from 2007 to 2013, the nation added 4 million households. Given the surplus of housing, the stock

Table 6.1 Household tenure and housing supply in the USA, 2000-2013

2000

2007

2013

Households

Owners

69,815,753

75,072,666

75,075,700

Renters

35,664,348

36,536,963

40,534,516

Total

105,480,101

111,609,629

115,610,216

Housing units

Owner occupancy

71,020,071

77,469,102

77,366,310

Renter occupancy

38,279,000

40,317,576

44,364,523

Seasonal or migratory farm

3,604,216

4,242,824

5,157,011

worker housing

Off-market

2,298,919

4,208,382

5,169,960

Total

115,202,206

126,237,884

132,057,804

Sources: US Census Bureau, 2000, 2005-2007 3-Year American Community Survey, 2009-2013 5-Year American Community Survey

should have expanded by something less than 4 million units in order to house the new households but also to absorb some of the surpluses. This did not happen. Rather, the nation’s homebuilders continued to expand the stock at a pace greater than the pace of household formation by adding 5.8 million housing units (Table 6.1).

The segregation between dwellings and tenure make it possible to track patterns in housing supply and vacancy by tenure. As shown in Table 6.1, both the supply of owner occupation and rental accommodation increased markedly between 2000 and 2007, but only the supply of rental units increased in the post-crisis period.

Abundant supply should, in theory, bring down housing prices and resolve affordability problems faced by lower-income groups. The nation certainly has enough housing units to house all of the population. As a nation, the USA contains 132 million units to house its 116 million households leaving 16 million vacant units. Not all of these units are for rent or for sale. Some are seasonal units. Some are for migratory farm workers. Some are simply off of the market, not occupied but the owner is not actively seeking to sell or lease the unit.

The overall vacancy rate in the USA is 12.5 % across all units. If the seasonal and migratory farm worker housing is omitted from the calculation, the vacancy rate for all housing is nearly 9 %. High vacancy rates should moderate price increases and dampen the rates of new production. These conditions should help to reduce the problems of housing affordability in the USA. But this has not happened. In addition to ongoing housing construction, house prices have continued to rise, following the short lived slump in the GFC period.

 
Source
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