Monday, March 4, 2019

Housing: Part 344 - Square Footage over time

Here is an interesting piece on housing supply in England. (HT: TC)

There are two graphs in the piece, shown here.  And, the author, Ian Mulheirn, argues that data on home size shows that there isn't a supply shortage.

I have posted on a previous post of Mulheirn's where he makes a similar argument.  His previous post was somewhat persuasive to me, although astute readers pushed back in the comments on my post.  On this new post, I think Mulheirn might be betraying a bias toward his conclusion a little more clearly (at least for me to see).

The charts show that in England as a whole, floor space per person has increased by about 4% since 1996, although that all came in the late 1990s, from one data point.  For London, floor space has been level since 1996, and has declined since 2000.  He interprets this as evidence that there is not a supply constraint nationwide, and only a small constraint in London.

There is a similar story in Manhattan.  Population in Manhattan is about 25% lower than it was in 1910.  But, over that century, a lot of square footage has been added in Manhattan.  So, two things are going on at the same time.  We are getting richer, so we don't sleep 6 to a room in tenements anymore.  And, building hasn't been able to keep up with that change in standards.

So, benchmarking to an unchanging floor space size is not a neutral way to benchmark.  This is obvious looking at the very long term in Manhattan.  The irony is, units could have been added vertically to provide that extra space in Manhattan to maintain a stable population.  All that building wouldn't have added any new strains to the things like the city's transportation infrastructure.  One would hope that, over a century, the transportation infrastructure would have become more efficient so that the population could have even grown.

But, even over the shorter timeframe to the mid 1990s, one can imagine changes in norms, such as siblings being less likely to share bedrooms or households having fewer members, on average.  Since 1996, per capita real GDP in the UK is up 36%.  Now, I don't expect floor space to increase 1:1 with real incomes.  But, even there, some of the reasons we wouldn't expect floor space to increase would be because of local supply constraints that make it difficult and also because richer households might spend less of their incomes on shelter.  So, there is some combination of factors at work.  Either floor space should have increased by 36%, or there are supply constraints, or rents should have declined as a portion of household income.

Outside of London, according to Mulheirn's previous post, rents have declined as a portion of incomes, and here he shows that floor space is up slightly.  That does suggest that supply is not particularly constrained in those areas.  This could be because of looser building policies or because of less demand for living in those places.

In London, it appears that the 36% growth in real incomes has led to about 36% growth in rental costs for slightly smaller units.  That suggests that rent inflation is significantly higher than general inflation in London, which is similar to what is going on in American Closed Access cities.  That seems like the sign of a constrained asset class that collects economic rents for exclusive ownership rights.  I'm not sure that supports Mulheirn's position that there isn't a supply problem as much as he thinks it does.


  1. Adair Turner has pointed out that larger fractions of British commercial and institutional landing are on extant real estate. Property value sword and consumed a lot of capital. I do not know what this means.



    The above article is interesting, especially the chart. It indicates that commercial real estate has a larger price plummet in the Great Recession than even residential, but now has more than fully recovered.

    Is this the Hyman Minsky market feared by the IMF? The market in which foreign capital inflows bloat asset prices?

    You have done peerless work on residential housing values.

    But something else must be afoot on the commercial side. Maybe you will sink your teeth into this. You are a non-PC sort of guy (left- or right-wing) , and I would relish the results.