Housing supply is one of those topics that a lot of people can’t seem to agree on. Some people, including annoying city bloggers from Toronto, will tell you that we’re not building nearly enough new housing. While others will tell you that, no, everything is just fine. We are totally building enough to meet demand.
So today I am going to encourage all of you to read Brian Potter’s latest Construction Physics article. In it, he answers the question: Is there a housing shortage or not? But just in case some of you don’t feel like doing that, here is the tl;dr:
- You can’t look at construction rates alone and infer whether or not you have a housing shortage. There are so many other factors to consider, including household size (see above chart). A drop in household size alone, for example, means that you need more housing, even if nothing else is going on.
- The US is probably short at least several million housing units right now.
- Vacancy rates, within a market, are pretty useful for predicting housing cost increases. When vacancy rates fall, prices go up. This is one reason why housing supply matters.
- Looking at the gap between population increases and housing supply increases is “hilariously non-predictive” if you’re trying to determine whether or not you need more housing. We’ve all seen this before: This city added X people, but only constructed Y new homes.
- Finally, there is an extremely strong correlation between housing supply restrictions (i.e. land use restrictions) and home prices. It turns out that the harder we make it to build new homes, the more expensive they become.
So yeah, Potter’s article is definitely worth a read when you get a moment.
Chart via Construction Physics