Housing Bubbles And Dumb Denial
Housing Bubbles And Dumb Denial
Performance Urban Planning
February 20, 2010
The wild production swings of housing bubble markets create havoc and poor performance within the housing development / construction sectors – turning disciplined commercial cultures in to “bubble and bust” cowboy ones.
Last year for example, new residential construction for California was in the order of 37,000 units for a population of 37 million – a build rate per 1000 population per annum of 1 / 1000. If the US with a population of 307 million was producing residential stock at this rate, 307,000 new units would have been produced.
The US has a total residential stock of near 130 million and at a minimum 0.3% of the total stock (and higher depending on average age in local areas) should be torn down and replaced annually – suggesting in the case of the US, a minimum of 390,000 replacements per annum. Added to this, population growth and reducing people per household due to increasing affluence.
The “supply issue” has yet to be discussed in California, which is odd, as the California housing bubble was the epicenter of the Global Financial Crisis. It seems certain California is on track to “repeat the mistakes of history” and create another housing bubble.
The “supply constraint” foundations are still in place for this to happen.
Propertywire recently reported on the looming shortages of new housing stock in the United States - Economists warn of severe shortage of property in US as construction dives | North America | News
The Irish have experienced the same “wild swings” with their housing bubble, where, with a population of around 4.4 million, at the bubble peak annual production hit near 90,000 units (build rate 20 / 1000) and annual production has now slumped to an annual figure in the order of 10,000 units – or a build rate of about 2.2 / 1000.
Again - the Irish haven’t started in to discussing these serious structural issues.
This year’s Demographia Survey made it as simple as humanly possible, so that the Australians could understand the differences between the dysfunctional markets of Sydney and Melbourne on the one hand and the normal functioning markets of Dallas Fort Worth and Atlanta on the other.
The normal response to this glaring evidence should be of course – what can we learn from Dallas Fort Worth and Atlanta?
In response, the New South Wales Planning Minister made the preposterous statement that there is sufficient land supply on the fringe of Sydney (refer More land won't mean more houses: Kelly).
The Australian media has yet to ask Mr Kelly and other State Planning Ministers exactly where the $30,000 to $50,000 new lots are on the fringes of Sydney and other State capitals, to allow affordable housing to be built.
And most importantly – ask Mr Kelly and his fellow Australian State Planning Ministers, when they intend to start dealing with the regulatory and infrastructure barriers, to allow affordable fringe lots to be provided at these price levels.
Dumb denial will not solve the problem.
The New Zealand Government is “learning” and has an Urban Task Force in place to report with recommendations on these issues by the end of March.
The ‘law of supply and demand” is obviously a difficult concept for some to grasp, including unfortunately, too many economists (refer Housing Bubbles & Market Sense).