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United States House Building Below Replacement

“United States House Building Below Replacement”

Hugh Pavletich
Performance Urban Planning
New Zealand

April 17, 2009

U.S. Housing Starts Fall; Permits Drop to Record Low (Update3) -

United States building permits on an annual basis have fallen a further 9% to 513,000 – which with its population of approximately 305 million – represents a residential building permitting annual rate / per thousand population of a meager 1.68 / 1000.

At the “bubble peak” housing starts on an annual basis in the United States peaked at 2.27 million units in January 2006 – and based then on a population of 300 million – this represents a build rate per thousand population of 7.56.

As the bubbles were inflating – this fueled much “bubble building” – where inappropriate and grossly inflated new stock was created –not the affordable new stock that would be created within normal affordable markets – such as Atlanta, Dallas Fort Worth and Houston.

Economists generally have confused this “bubble stock” as normal oversupply, when it clearly is not. Much of it will be grossly inflated and inappropriate new residential stock.

The total residential stock in the United States is approximately 127 million units – around 75 million owner occupied, some 32 million rentals and 10 million “other” (second / holiday homes etc) – so that conservatively – at least 0.5% - or 635,000 units of this stock (depending on age within specific markets) should be replaced annually.

This represents a replacement build rate of 2.08 / 1000 population annually. The generally accepted replacement build rate is between 2 to 3 units per thousand population annually – again depending on the overall age of the housing stock within specific urban markets.

So – the United States overall is currently permitting below its replacement rate.

If other countries were permitting at the current United States rate of 1.68 / 1000 population – the situation would be as follows –

1) Australia – with a population of 21 million and a residential permit rate the United States is currently experiencing of 1.68 / 1000 would only be permitting 35,280 units – not the current 120,000 or so. The Australian “housing bubble is the worst in the English speaking world – where this years Demographia Survey illustrated that its major urban markets Median Multiple was 6.3.

2) New Zealand – with a population of 4.3 million and a residential permitting rate the United States is currently experiencing of 1,68 / 1000 population per annum – would only be permitting 7,224 units annually. February 2009 permits were 1000 – suggesting that permits through this year could be in the order of 12,000. At its “bubble peak” mid 2004 – it had exceeded 30,000 on an annual basis. Its current Median Multiple for its major urban markets is 5.7 – just behind Australia.

3) Republic of Ireland – with a population of 4.4 million and a residential permitting rate the USA is currently experiencing of 1.68 / 1000, just 7,392 units would be permitted on an annual basis. At its “bubble peak” – Ireland was permitting near 90,000 units annually and may only permit 20,000 units during 2009. Unresponsive planning and extremely poor quality governance at the national and local level, triggered the Irish housing bubble. Essentially – while the American companies drawn their by tax incentives, created the wealth – the Irish themselves “blew it” with poor quality and too often corrupt governance, by getting a massive housing bubble underway.

4) United Kingdom – UK Government estimates are that the United Kingdom, with a population of approximately 61 million will likely only put in place around 100,000 units this year ( build rate 1.63 / 1000) according to Government estimates – while industry estimates are much lower at 40,000 units (0.65 / 1000) this year. With respect to housing – the United Kingdom is the “basket case of the developed world” – even worse than California. Building costs are astronomical and the average size of new residential builds in the UK has fallen to 76 square metres – slightly smaller than the East German Soviet era slab developments, where it is estimated around 1.5 million of these units have been vacated, since the reunification of East and West Germany.

At the Annual Demographia International Surveys (2009 5th Edition) clearly illustrate – and as explained within my articles Getting performance urban planning in place and Housing Bubbles: Learning from Houston – new starter housing stock of an acceptable quality (depending on the median household incomes of specific markets) should be going in place on the fringes at 2.5 times the median gross annual household income of specific urban markets.

The fringes act as the supply or inflation vent of an urban market. Strangling fringe supply – puts in place the scarcity foundation for housing bubbles to form.


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