America’s Attached Home Shortage

Christopher Mims has some interesting survey data on the changing real estate market:

Only 43 percent of Americans prefer big suburban homes, says Chris Nelson, head of the Metropolitan Research Center at the University of Utah. That mean demand for “large-lot” homes is currently 40 million short of the available stock — and not only that, but the U.S. is short 10 million attached homes and 30 million small homes, which are what people really want.

I don’t think there’s much evidence for the popular notion that we “overbuilt” housing in the 2000s, except in a few specific markets. In the rest of the country, we had a bubble in real estate prices, not home-building.

However, this is interesting. The implication is that we could end up with a housing glut not because we overbuilt in general, but because we overbuilt a specific kind of home that turns out not to be as in-demand as home builders thought.

This would be what people mean by a “structural” change in the economy. We made a lot of one thing, and then people decided they didn’t want so much of that thing, because they wanted something else. If this theory were true, we’d expect to see a big glut in large-lot homes, paired with falling multi-family vacancies and rising rents. Not an overall lack of demand for housing, but a shift in preferences, from one kind to another. And indeed, that is what we are starting to see as growth starts to pick up.

Extrapolating trends from the past into the future is a great way to make bad predictions, but I think if you look at the fundamentals of the housing market, you’d be hard-pressed to say where the demand for a bunch of new large-lot homes is going to come from. Even if you think Millenials will eventually end up abandoning urban areas for kids and a yard, how much of the existing suburban housing stock will be vacant by that point? I would imagine that a lot of Baby Boomers will opt for smaller homes as their kids grow up. How much of an eventual Millenial migration to the suburbs will just be about replacing Baby Boomer households in the existing suburbs? I have a really hard time seeing where the demand for a new exurban boom would come from.

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