Real estate industry observers may tend to look at the same data everybody else does. But that doesn't mean they all reach the same conclusion.
Here's a view that housing markets are more at risk of a glut than a shortage. The assertion here is that a so-called housing shortage--looked at as a cause for spiraling prices on both the for-sale and for-rent fronts of residential real estate--is trade association propaganda.
"Don't believe the hype," writes Forbes contributor Pete Saunders, an urban planner/academic and some-time freelance writer. Saunders thinks that looking at historical benchmarks for employment-to-permits as validation or basis of a claim that too few homes to buy or to rent have been built represents "faulty," "shoddy," and "dangerous" logic.
Saunders cites four grounds for his argument that there's plenty enough housing to go around, thank you very much. Here they are:
- New jobs simply aren’t providing the income necessary for home buying. One of the constant and consistent themes of the presidential campaign has been the slow growth of wages and its impact on the economy.
- Debt, particularly student debt, may play a significant role in delaying home purchases by younger potential buyers. Many young adults are leaving college with student debt that is equivalent to — or even more — than a mortgage, and are electing to pare down debt before making any future home buying decisions.
- Perhaps the 1.6 employment-to-permits ratio that NAR touts was an unsustainable historical anomaly. It’s likely no coincidence that the 1990-2002 period that NAR cites as the basis of the study is also one of the periods of greatest single-family home construction over the last 60-70 years, and provides an inflated sense of housing demand.
- Despite what NAR says, perhaps we still haven’t worked our way completely through the glut of housing produced in this nation, at least at the metro level. Look below to see what I mean.
The first point we'd come back with as a challenge to Mr. Saunders' thinking here is this. What about rent trends? What about the fact that half of American households--whether they own or rent--pay more than 30% of their wages on monthly housing payments, and a very large share of that percentage who rent pay more than 50% of their incomes on rent payments?
The point is, when not enough housing is built, it puts a damper on people who'd put their existing homes on the market for sale, and the domino effect of lower available for-sale inventory impacts those who have to pay more to rent, who then save less for down payments.
The key area of focus for Saunders' argument is American Community Survey data on national and market by market housing vacancies, compared with National Association of Realtors estimates on housing shortfalls in a same selection of markets.
Proof of Saunders' statements, he says, is in the data in the accompanying table. He writes:
Here, some metros have either housing vacancy deficits relative to the NAR’s projected shortfall (San Jose, San Francisco), or razor-thin margins that could justify more housing construction as well (Denver, Seattle, San Diego). As for the rest, many could plausibly address housing concerns through better integration of existing inventory.
Comparing the data, Saunders asserts, there's more risk of a glut than truth of a shortage. A shortage is just NAR hype intended to con people into "to getting our nation into the same housing predicament that led to the housing market collapse and the Great Recession."
That Saunders should have turned, ironically, to a data source, the Census' vacancy surveys many housing economists regard with justifiable suspicion, is the least of the issue.
What's wrong here is that Saunders fails to see the mismatch between what inventory is available, vacant or not, and what people can pay. If more were built, prices would come down to earth. It's a lack of supply that's inflating prices to the point where they've de-coupled with household incomes. That's where the dangerous thinking is.