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Wednesday, December 14, 2011

The Excess Vacant Housing Supply

by Calculated Risk on 12/14/2011 11:48:00 AM

Over the last few days, there has been some more discussion on the current number of excess vacant housing units in the United States.

There are always a large number of vacant housing units - this includes second homes, housing units for rent, homes sold but not yet occupied, and several other categories. The key is the "excess". Once the excess is absorbed in a local area, then new construction will pickup (we are already seeing an increase in apartment construction in many areas).

Here is the recent discussion, first from an article by Catherine Rampell over the weekend in the NY Times:

Household formation has slowed dramatically since the recession, as cash-strapped families double up and unemployed recent college graduates are unable to leave behind their parents’ couches. To judge just from demographic statistics, more than a million households that should have been formed in the last few years weren’t, according to Mark Zandi of Moody’s Analytics.

The tally of missing households is approximately equal to the country’s current surplus of vacant homes.
Dean Baker responded: Mark Zandi and the NYT Hugely Underestimate the Number of Vacant Homes
The NYT cited Mark Zandi as saying the number of vacant homes is roughly 1 million, which he puts as equal to the gap in household formation that resulted from the recession. According to the Commerce Department, if the vacancy rate was back at its pre-bubble level, there would be 3 million fewer vacant units.
Unfortunately Dr. Baker is using the Census Bureau's Housing Vacancies and Homeownership (CPS/HVS) survey, and there are serious questions about this survey. See Be careful with the Housing Vacancies and Homeownership report and Lawler to Census on Housing Data: "Splainin" Needed Not Just on Vacancy Rate. The HVS is based on a fairly small sample, and does not track the decennial Census data. Dr. Baker's estimate of 3 million excess vacant housing units is probably far too high.

Using the Census 2010 national data, Tom Lawler estimated "a number in the 1.6 to 1.7 million range seems about right.” (as of April 1, 2010) and "probably in the 1.2 to 1.4 million range on May 1, 2011."

Using the Census 2010 state data, I estimated that the number of excess vacant housing units was above 1.8 million on April 1, 2010 (the date of the Census). See: The Excess Vacant Housing Supply. The number of excess units is lower today - even with sluggish household formation - because the builders are completing a record low number of housing units this year.

Lawler's most recent estimate was as of May 1, 2011. We can walk that forward to today. The decline in the excess vacant housing units is equal to new households formed, minus completions, minus scrappage (demolitions). Completions are still at record lows, and the excess vacant housing supply has probably declined conservatively by another 200 to 300 thousand units over the last seven months - so the excess vacant housing supply is probably close to 1 million or so as the NY Times reported.