US housing supply shortage raises prices more than incomes can match

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Published: April 30, 2018 3:03:35 PM

According to a recent research by the Brookings Institution, the housing prices are rising faster than incomes in the US as housing supply is not expanding at the required pace.

Housing prices, Housing loans, property loans, Housing stockThe report says that nearly 70 percent of the new housing stock comes from new construction.

The housing bubble of mid-2000s was a real estate crisis of such an extent that it affected over half of the US states. During this period, the housing prices peaked and then started to decline to new lows all of a sudden. Since then, the US has managed to recover substantially. Now, when the US real estate sector appears to stabilise, another concern in form of housing inventory shortages has surfaced. According to a recent research by the Brookings Institution, the housing prices are rising faster than incomes in the US as supply is not expanding at the required pace.

The researchers at the Brookings also clarify that housing construction is only part of the entire story because if the policymakers really want to truly effect change, they need to look beyond construction statistics. The report says that nearly 70 percent of the new housing stock comes from new construction, the other 15 percent of new housing stock enters the market through “reconfigurations of existing buildings.”

The three reasons for declining housing inventory are: demolition, reconfiguring existing buildings to include lesser units and relocation of mobile homes. The experts also take into account churn rates – the percentage of additions and losses to housing inventory in every major region of the US. In the US, churn rates are falling from 7.5 percent between 1985 and 1987 down to about 2.5 percent between 2011 and 2013. A major part of the fall in churn rate was driven by the slow rate of additions to the housing stock, the report says. Between 1987 and 2013, the suburbs accounted for most of the growth in housing inventory.

The Brookings report calculates size of the housing stock, rates of churn and relative size of additions and losses across different geographical areas in the US. The report states that suburbs account for the biggest share of housing in the US during the time period of study. The share stands at 46 percent of all the housing units. The central cities amount to 30 percent of housing units. The remaining housing units are 25 percent outside metropolitan areas.

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