There Are Plenty of Houses in America
The state of the housing market in the U.S. has led to a lot of speculation over the past few years. Much has been written about why prices have increased so dramatically, and about how (or whether) this period of unprecedented unaffordability will end. I find the market perplexing, if not paradoxical, and the data in today's article will help to explain why.
The most common explanations of why houses are so unaffordable right now usually go something like this:
- Low interest rates and pandemic-induced remote work caused many people to seek larger homes outside of urban areas, increasing demand (and prices) in suburban and rural areas.
- A large number of millennials are at peak home-buying age, contributing to increased demand.
- There is a shortage of houses caused by a number of factors, including local zoning laws and building regulations, as well as rising construction costs.
- Institutional investors and even ordinary people are speculatively buying houses in search of profits as they expect prices to continue to rise.
All of these arguments distill down to the same bottom line: demand has increased and the quantity of houses for sale has decreased, leading to sharp price increases. What's interesting, though, is that the stock of housing units in the U.S. has never been higher. I'm not referring to houses for sale; I'm referring to the number of housing units that exist in the country. The chart below shows the estimated number of housing units per person over the 2000 - 2024 period:
According to these data, there are more housing units per person now than there have been in the past 25 years. In the following chart, I use more Census Bureau data to calculate the number of completed housing units per net new inhabitant. This is simply a measure of how many new housing units were built in a given year, compared to the net increase in population from the previous year.
The sharp increase in 2021 is a result of the pandemic - Census data show a net population increase of just 567,500 that year, which is well below usual values (the average from 1969 - 2024 was more than 2 million net new inhabitants per year). It is apparent that new construction, when compared to population growth, is also at a high point.
What Does This Mean?
Given that the stock of houses is as high as it's been in a quarter century, and that prices have generally risen everywhere across the country, I think the most plausible explanation for the current state of the market is my last bullet point from above: speculation. If we were simply dealing with geographic mismatches (there are houses for sale, just not in the areas where people want to live) or housing type mismatches (there are lots of condos for sale, but people want single-family homes), there would be pockets of the market where prices reflect these realities. However, prices have (generally) gone up everywhere and for all types of housing units. This leads me to believe that speculative demand is the most likely culprit for the unaffordability crisis the country is facing.
About the Data
The Census Bureau and HUD jointly release monthly New Residential Construction data, including data on housing completions. The bureau also produces regular population estimates in years between the decennial census. It is important to note that these sources get revised periodically, sometimes significantly.