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July 3, 2008
Arnold Kling
A few weeks ago, Lawrence B. Lindsey wrote,
There are 129 million housing units in the United States, comprising owner-occupied, rented, and vacant units. Of these, 18.5 million are empty. This vacancy rate is 2.5 percentage points higher than it has been at any point in the half century the data have been tracked, translating into at least 3 million too many empty housing units in the country.
Wow. At typical rates of household formation, I think it would take at least two years to fill the excess inventory, even if builders were to completely stop building new homes.
Kevin Hassett writes,
The vacancy rate for homes built before 2000 has ticked up only a smidgen, to about 2 percent. That level is about the type of inventory one would expect to see in a healthy housing market. But the vacancy rate for newer homes has skyrocketed, and now stands above 10 percent.
Builders tend to be highly leveraged. I've got to believe that there are some banks out there that aren't going to get their money back on a lot of their construction loans.
On the other hand, maybe the banks already own most of the vacant properties. Maybe speculators accumulated them during the boom, and they had to unload them in the past year, when prices stopped going up. They unloaded them on the mortgage lenders, who in turn call this the "subprime mortgage" problem because the lenders want taxpayers to bail them out.
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But couldn't there be an effect such as: the homes now vacant are out of style, everyone wants the new type of house over there with the such-and-such latest gizmo. It would just mean that the house market has hit a stage of extreme product differentiation.
Over 14% of residences in the US are empty? Really? That number seems awfully high, not that I have any real evidence to dispute it.
Something does seem odd about these figures.
If the vacancy rate for pre-2000 homes is 2%, and the vacancy rate for homes as a whole is 14%, that would make the vacancy rate for post-2000 homes insanely high (possibly over 100%, depending on the ration of pre to post-2000 homes).
But WHERE are the vacant houses? I met a guy on a plane who told me about a town in Indiana where he worked where there were blocks and blocks of vacant houses. The town was just shrinking, jobs were going away, there was nobody to live in them. An inventory of vacant houses in Gary, Indiana doesn't have to be filled before builders can start expanding in Fairfax.
Of course, the obvious response when a housing surplus is leading to a building bust and a recession is to let in more immigrants. But since decent, rational people support more immigration anyway and nativists seem to be indifferent to the economic costs of their program, I'm not sure who to try to persuade with that argument.
It would just mean that the house market has hit a stage of extreme product differentiation.
Quite. Indeed, I have the impression that a lot of the new building is done on lots previously occupied by other (smaller) houses. I'm guessing Kling's speculation that the banks may already own most of the vacant properties is on the right track.
But, But, But
It was just two years ago that you claimed all these houses were a sign that we were a lot better off than the government data showed.
The author at All Three Rings in a related article titled "Housing Inventory," writes:
Over at EconLog, Arnold Kling refers to an article by Lawrence B. Lindsey on excess housing inventory and writes:
Wow. At typical rates of household formation, I think it would take at least two years to fill the excess inventory, even if builders were...... [Read more]
Posted July 5, 2008 03:30 PM
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