Sunday, August 2, 2020

Trends in Housing Supply

Here's a little sneak peak into some work I've been finishing up.   This graph shows the number of permits issued for single family homes and multi-unit projects (duplexes on up to high rise condos).  The measure is the number of units as a percentage of existing homes.  In other words, what is the gross percentage growth in the housing stock, due to single unit and multi unit building.  The black lines are the averages among all large metros.  The red lines are the averages among the "Closed Access" cities - New York City, Los Angeles, Boston, San Francisco, San Diego, and San Jose.

I find several interesting items to note here:

1) Of course, the Closed Access cities build single family homes at much lower rates than anywhere else.  Also, there was absolutely no supply response in the Closed Access cities in the single family market due to the subprime lending boom.  The rate of single family building was lower in 2005 than it had been in any year since 1996.  I have heard anecdotal defenses of the housing bust, claiming that even cities like LA had excess supply where single family homes were being built in the suburbs, where there wasn't really demand for them.  That idea is belied by the data.

2) However, as prices increased, there was a tremendous supply response in the Closed Access cities in multi-unit projects.  In spite of the horror stories of the local hoops one must jump through to build apartments, the Closed Access cities really are building many more apartments than they had before 2003.

3) Since 2004, in fact, the rate of multi-unit building in the Closed Access cities has matched the national average.  In the end, the regulatory obstacles create higher prices.  Potential residents push prices up until it is worth the trouble to build units.  The regulatory obstacles now are raising prices rather than pushing down new supply, relative to other cities.  This suggests that demand is inelastic.  Agglomeration effects, etc. are strong.  This is, in fact, bad news.  This suggests that the regulatory limits to multi-unit housing are more widespread than just the Closed Access cities.  As bad as the regulatory environment is in the Closed Access cities, other cities are not building multi-unit housing at a rate significantly higher than they are.

4) The deep cuts to mortgage lending since 2007 have cut into single family building in the Closed Access cities just as much as they have in other cities.  Building in the Closed Access cities has nearly recovered to pre-crisis levels, but that's all multi-unit.  In the 1970s and 1980s, it was common for multi-unit building to be double or triple what it is today.  To get anywhere close to that today would require a wholesale regulatory overhaul across the country.

Fortunately, the political center seems to be moving in that direction.  We have a long way to go.

I am finishing up a paper with much more detail on housing supply before the crisis, and another with much more detail on the influences on home prices.

9 comments:

  1. Interesting post. Yes, my understanding is that the land for single-family housing in Los Angeles has been built out, there is no more. There is construction in downtown LA -Hollywood etc. Of course it is multifamily.


    "In the 1970s and 1980s, it was common for multi-unit building to be double or triple what it is today. To get anywhere close to that today would require a wholesale regulatory overhaul across the country.

    Fortunately, the political center seems to be moving in that direction. We have a long way to go."

    I applaud your optimism.

    From what I can see, the political center today is between Donks who love BLM and 'Phants who hate BLM, with hostilities as fanned constantly by left-wing and right-wing media.

    Good luck!

    ReplyDelete
    Replies
    1. Ha! Things have gotten a bit crazy.

      You are probably right that it is harder to find undeveloped acres there. I suppose Riverside is where it can happen today. Yet, the drop in single-family starts after 2005 surely is due to the same headwinds affecting all cities, rather than land constraints.

      But, yeah, the fact that the housing boom building expansion was all in multi-family in the Closed Access cities suggests that infill is what will be needed for those cities to grow as much as they should be.

      Delete
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  2. Striking data. It's hard not to have strong normative feelings that policy should be seeking overshots of those 70s and 80s numbers. Important for mental health to try to stay merely descriptive, though, or risk banging one's head against immovable anti-developmentalism

    in Seattle and a few other places upzoners have tried for years to organize reformist energy around anti-racist motifs, and it seems to work ok. lots of Donks here so it's a welcome opportunity to signal serious virtuousness (which, if you're signaling, and we're signaling, isn't the worst thing to signal). WA's legislature passed an ADU legalization bill for all towns with 5 digit populations or better, if I remember correctly, that will remove parking requirements for ADUs near decent public transit service by 2021. One of the authors of the bill is the main progressive candidate for Lieutenant Governor, I think, with a special election for Governor thought to be likely if Joe Biden nominates Governor Inslee for a cabinet position

    MA appears to have passed a bill that would permit city legislatures to change zoning without super-majorities. hopefully most of the changes will be upzones!

    I hope if construction is more conducive to adequate social distancing (and more outdoors) than restaurants that politicians see it as a budget-boosting way to create blue collar jobs in our weird predicament

    ReplyDelete
    Replies
    1. Yeah. We tend to take growth for granted, but housing regulation really does give a direct view into how easy it is for a society to devolve - to put fetters on itself and then debate passionately about all the reasons (except the fetters) that things aren't going well. It really is possible to lose cultural and political capacity.

      But, as you point out, it really does seem like the pendulum has started swinging in a better direction.

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