Housing Vacancy Still Waaaaaay Too High

• We built more housing than we needed. 
• We still have too much housing. 
• We're not working off the excess very fast. 

(Underlying data released today here.)

Current vacancy of non-rental  housing units is 2.8 percent.  To my eye, a generous estimate of "normal" vacancy is 1.7 percent.  That difference, on a base of 78 million housing units, translates to 0.86 million too many non-rental housing units.  (On the chart, changes from thick to thin lines show changes in definition by the Census Bureau.)

Current vacancy is 9.6 percent; normal is 8.0 percent, on a base of 40 million units, for an excess of 0.64 units.

Total excess housing units in the United States:  1.5 million units.  (That's not a high precision estimate, but the true number, if it could be determined, is at least 1.3 million units, I think.)

Annual demand for new housing from population growth, change in family size, and second homes: about 1.4 million units (my estimate).  Average number of "losses," which includes tear-downs:  0.3 million units.  The losses are very volatile, but let's be generous and say that we need 0.3 million just to replace deteriorated housing stock.  Annual new demand for housing is 1.7 million units.

If homebuilders took 10 1/2 months off, we'd have supply-demand balance nationally.

I know, it's not a national market but rather a bunch of local markets, and you cannot move housing from areas of excess to areas of demand.  However, we obviously have too much housing in total, and that means that much of the country must also have too much housing.  The recent declines in new housing construction are not enough.  Look for another year of falling new construction and falling prices.

Now, would you like to hear some good news?  . . . .  I'm still thinking.  . . . . nothing yet . . . . well, how about this: the rest of the economy will not necessarily go into the tank along with residential construction.  Sorry, that's the best I could do.

Comments

[LJR]

Looks like the y axis of the first graph is mislabeled. Shouldn't that read "percent of all houses"?

[Bill Conerly]

LJR, good eye. That y label for the upper chart should be percent of all non-rental housing.

Thanks, Bill

[Tom Canavan Pelham, NC]

"and you cannot move housing from areas of excess to areas of demand. "

actually you can and should. On the subject of tear downs, according to the EPA there are about 300,000 a year, each has a median value of $225,000 (apppx) for a total wasted opportunity to recycle, create jobs and help the housing market recover of over $67 Billion.

Contact The Benefactor Project. We want all of the houses America wants to tear down to create jobs and homeownership opportunities for those without them.
Thanks
Tom Canavan
www.thebenefactorproject.com

[Wayne Pruner]

I agree that inventory of housing needs to be reduced before prices stabilize. Interest rates dropped below 5% today. That should help move some houses. I hope there are some smart investors taking advantage of this opprotunity.
I appreciate your stab at some good news. It's still pretty bleak out there.

[Laurence Hunt]

Bill Fleckenstein has a nice analysis of this problem. 1. Central bank profligacy created a housing bubble. 2. Too many people bought homes they can't afford. 3. In many cases, home equity is now declining; not uncommonly it is negative for homes purchased at the peak of the bubble. 4. Prices will adjust to what people can afford to pay - that will be lower, and much lower in some regions. 5. Homebuilding will not be a good business for probably many years to come.