Trulias Kolko Vacancy Rate to Blame for Weak Construction Growth

first_img While builders and industry analysts say lot shortages, labor issues, and supply constraints are holding housing construction back, “”Trulia””: chief economist Jed Kolko posits his own theory for why new construction is moving so slowly: Perhaps the “”housing shortage”” isn’t one at all.[IMAGE]In a company “”blog””:, Kolko analogizes housing stock as a bathtub that drains as vacant homes are occupied and fills up as new homes are built.””There’s no magical level of bathwater that’s perfect, but too little water in the tub means a housing shortage, and when the bathtub overfills, that glut of vacant homes might cause a price crash,”” Kolko explained. “”In the long run, to keep the bathwater from being too high or too low, the “”right”” level of new construction depends on BOTH the vacancy rate (how full the bathtub is) AND on household formation (how fast the tub is draining).””With that in mind, he says it is important to draw a line between “”inventory shortage””–from which the housing industry is currently suffering–and “”housing shortage””–which, as vacancy data from the Census Bureau suggests, is not currently an issue. (While listed inventory is low, there are still plenty of vacant homes not listed that are waiting to be unleashed into the market.)Meanwhile, household formation is lagging. According to the Census, annual household formation was 746,000 as of the end of the second quarter, and formation since 2007 has averaged 560,000 annually–about half the normal rate–as young adults struggle to find their own homes. In total, Trulia estimates there are 2.4 million “”missing households,”” defined as “”people of all ages who should be heading up their own households but are instead living with parents, roommates, or others.””””In short,”” Kolko says, “”household formation is low, so the bath is draining slowly.””His theory does have one upside: Most unemployed young adults won’t stay that way forever, and their opportunity to strike out will eventually come, pushing household formation up to (and then above) its normal long-term rate and signaling builders to “”turn up the faucet.””””And only when that happens might we need to start worrying about a future housing shortage,”” he concluded. “”Until then, let’s be more concerned about missing households than about missing homes.”” Trulia’s Kolko: Vacancy Rate to Blame for Weak Construction Growth September 19, 2013 394 Views in Data, Government, Origination, Secondary Market, Servicingcenter_img Agents & Brokers Attorneys & Title Companies Census Bureau Homebuilders Housing Starts Investors Lenders & Servicers Processing Service Providers Trulia 2013-09-19 Tory Barringer Sharelast_img

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