The Housing “Recovery”

April 16, 2014

New housing starts for March are out today. Rather than focus on the short-term movements, it’s worth looking at the long run. Here is the graph from



It’s really quite an amazing graph. We are now five full years from the end of the recession (if you buy NBER dating). And housing starts are still below any level we’ve seen since the early 1990s!

So who out there thinks we are ever going to get back to the 1.5 million annualized rate? When?

It may be time to start taking seriously the idea that the boost to the economy from new residential construction in the long-run may be much lower than it was in the 10 years prior to the Great Recession. The anomaly is not the weakness now, but the strength in the late 1990s and early 2000s.

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9 Responses to The Housing “Recovery”

  1. Phil Perspective on April 16, 2014 at 9:37 ami

    I’d bet you’d see better numbers if students were given a debt jubilee. How can you expect people, or in this case recent college graduates, to buy or rent when, in the words of Charles Pierce, they have no jobs and they have no money?

  2. Jane Walerud on April 16, 2014 at 10:03 ami

    The graph seems to show that a large proportion of the units built in the 1990′s and 2000′s were single family homes. I think that trend may reverse. There probably is more demand for apartments now, both because consumers are pulling in their horns and because it is more fashionable to live in walkable city centers.

  3. Jane Walerud on April 16, 2014 at 10:07 ami

    I’m a bit curious about the inflation debate. Although CPI and the billion price index do not show much inflation, some costs have risen much faster than wages, like college education and health insurance. People are paying more for the same or inferior service. That feels a lot like inflation.

    Given that fixed costs have risen so quickly, are households less able to handle adverse shocks than they were? I think Elisabeth Warren, in her previous life as a professor, has shown that American households are more financially fragile than they were.

  4. tew on April 16, 2014 at 12:12 pmi

    Population growth drives new construction.

    Yes, incomes matter as do changes in culture: Higher incomes can mean larger homes. Changes in culture could mean more units (singles vs. families) or impact home size (preference for smaller or larger homes). Yes, the distribution of incomes matters: high inequality means less income for large numbers of people and the mega mansions probably don’t make up for the gap. Yes, demographics matter – higher population of the elderly does not drive housing generally, while working age population growth can drive household formation and higher demand for housing.


    But population growth is still the big number.

  5. josap on April 16, 2014 at 2:01 pmi

    Populations with no or little income don’t buy houses. Populations with high cost of food, fuel, education debt, rents don’t buy houses.

    • Rwrangler on April 17, 2014 at 1:57 pmi

      People still need a place to live. They may not own where they live, but population does drive housing growth.

  6. Frank on April 17, 2014 at 5:22 ami

    You have to look back 50 years to put 1.5 mm homes in perspective. It is a natural demand level and it’s not a market that will get there today because lending is still tight. But maybe that’s the healthiest way. I contend that the last three decades of volatility have been induced by government monetary policy driven by a few wealthy interests. Volatility gives people the opportunity to make more money, especially if you’re on the policy influencing side. So if the recovery in housing is slow, and steady towards that 1.5 mm mark it’s probably the right thing for everyone. But we need to be careful to scare potential new home buyers with more and more impatient doubt that the numbers are really getting better. Regards, Booth01

  7. sherparick on April 17, 2014 at 6:52 ami

    Actually, except for two very short bottoms, followed by rapid recoveries in 1982 and 1991, this is the lowest rate of home construction in absolute numbers since WW II.

    Regarding the demographics, it is true that the “Baby Boom” generation drove a burst of mutli-household construction in 1970s and 80s, and single family in the nineties, but in absolute numbers, since the U.S. Population has grown from 200 million to 315 million, there should be, all things being equal, a demand at least equal the that which existed in 1970s and 80s for housing. Of course, things are not “equal” as household formation has slowed due to debt burdens, lower real wages, and unemployment for the 18-35 age group.

  8. Ying on April 18, 2014 at 8:14 ami

    It very much depends on the relative greediness of home builders and home sellers from my personal experience in buying/building a home 2009-10.