Too Many Homes, Certainly; How Many Too Many?

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Submitted by jg on February 13, 2007 - 10:57pm

When I read that 30% of San Diego homes for sale are vacant; when I see homes and condos on whom construction has stopped mid-stream for months, now; I say to myself, we are way overbuilt.

How overbuilt are we?


Source: U.S. Census Bureau

Currently, we have 2.38 folks per housing unit (home, apartment). In 1980, the ratio stood at 2.56; in 1970, the ratio stood at 2.96.

In a separate analysis of consumer spending and savings (http://piggington.com/depression), I came to the conclusion that consumption started running amok in the early '80s. Thus, 1970 and 1980 may be good back of envelope markers for 'normal' times.

If our housing density 'should be' 2.56 folks per housing unit (1980 standard), we have 9.2MM 'excess' housing units, today. If our housing density 'should be' 2.96 folks per housing unit (1970 standard), we have 14.7MM excess housing units, today.

Historically, the number of homes and apartment units built annually runs ~2.0MM. Given an 'overhang' of 9.2-14.7MM housing units, we would require no new housing units be built for 5 to 7 years.

Simplified analysis, certainly. But, I think it gives a ballpark sense of what we could face.

Repent, rent, save, and arm.

Submitted by jg on February 13, 2007 - 11:06pm.

Arithmetic error:
If our housing density 'should be' 2.96 folks per housing unit (1970 standard), we have 24.8MM excess housing units (not 14.7MM), today.

Thus, we have an overhang of 9-25MM housing units, requiring that no new housing units be built for 5-12 years.

Gulp.

Submitted by no_such_reality on February 13, 2007 - 11:10pm.

JG, good work, one thought, families and singles are much more fragmented now than in 1970s.

People stay single much longer than previously, well into prior adulthood.

Families also are shrinking, less children per couple.

I'd guess that the divorce is higher now than in the 1970s since women have more economic options.

All these things point to a lower capita per unit.

Submitted by juice (not verified) on February 14, 2007 - 12:14am.

no_such_reality:

Don't you think that some of those trends are offset by large Mexican immigrant families buying homes? Also, I have seen many Asian families (growing demographic) who bring in extended family, parents etc. from places like China. Not trying to stereotype here, but these are trends that even the builders have taken into account when offering homes.

Submitted by PerryChase on February 14, 2007 - 12:56am.

As always, great info, JG.

no_such_reality, we should also keep in mind children living with and taking care of elderly parents.

Submitted by jg on February 14, 2007 - 9:13am.

nsr, you are right on all of your counts. But, my sense is that the loose money and increased consumption of '81-'06 accelerated the fragmentation of the family.

I think that times are going to be tough, given the huge household debt overhang (e.g., today's flat consumer spending numbers for January). As consumption slows, incomes will lower. As incomes lower, families will pool their resources and revert to historical norms of taking care of their parents (and not shipping them off to nursing homes), not getting that divorce (there will be fewer jobs, so women will be less apt to divorce and live on their own), etc.

We are going to have a huge inventory of unfinished homes and buildings that will have no use given our changed economic situation. They will be an eyesore.

It's going to be different. But, I think it's going to be a 'better' different, once we purge our society of its excesses.

Submitted by FormerSanDiegan on February 14, 2007 - 9:19am.

The reality is that, according to these statistics we have 2.38 people per housing unit. These may be flawed in undercounting illegal immigrants, etc. But these are the numbers. Assuming that they should revert to what they were before consumption spiked may be flawed.

Assuming that the "proper" number should be 2.96 is equivalent to relocating about 20% of the population. So, what you are telling us is that 60 million people living in this country are going to move in with other people.

As usual your analysis is solid. I just don't buy the premise in this case.

Submitted by 4plexowner on February 14, 2007 - 9:38am.

I am expecting a trend towards higher household occupancy.

This will be part of America's lower standard of living as globalization takes the global wage to less than $10/hour.

Both house prices and rents will decline as household occupancy increases and the supply of 'excess' housing grows.

Submitted by Bugs on February 14, 2007 - 9:49am.

A 5-year breather in new home construction is common during economic downswings. Very few homes got built between 1991 and 1998 when compared to the periods before and after.

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