Monday, September 11, 2017

Housing: Part 256 - Your Occasional Reminder. It's Housing.

This is your occasional reminder that the stagnation we are experiencing is housing.  Investment outside of residential fixed investment is basically normal.  Residential investment could be 1% to 2% more of GDP for a generation than it is right now.  We are currently in a regime where people are talking about macroprudential moderation because housing is getting too hot.  So, stagnation will continue for the foreseeable future.

Investment outside of residential investment will probably continue to be normal, and total investment will continue to move along the bottom of the long term range.  And, we will continue to have the "mystery" of low interest rates until this ends.


  1. Yes, but housing is not a macroeconomic issue.

    House prices can explode to 20 times income, and the Heritage Foundation will still rate Hong Kong as nirvana on Earth.

    And liberals will love government control of commerce, including property development, even if low-income people are impacted the most by expensive housing.

    So US housing starts are permanently depressed?

    Is that bad for homeowners? Lenders?

    What is the problem?


    a small ray of light

    1. Yes. Not the only one. The zeitgeist is moving.

    2. It seems that way to us. But we are obsessed, and grasping every op-ed or study. I hope you are right, but I fear the groundswell might be a molehill.

      Remember, the macroeconomic mainstream remains nearly entirely apathetic about housing or property zoning.

      The political impetus for an end to property zoning and the elimination of the home mortgage tax deduction, and for higher property taxes to spur development, on a scale of 1 to 10, must be about a minus 3. Or maybe minus infinity.

      The Fed highlights "labor shortages" in every Beige Book. Not housing shortages, even though it is the supply of housing that is artificially restricted, not labor.

      The Heritage Foundation is ecstatic about Hong Kong, where zoning results in the world's most expensive housing.

      The big-name economists rarely address the housing issue, even as the minimum wage, taxes, health care, the federal deficit or interest rates are every-day topics.

      Property zoning is probably the largest structural impediment in the US economy today, unless you want to say income taxes.

      Both need wholesale reform. Looks unlikely for taxes, and impossible for property zoning.

      Still, Kevin Erdmann is more right than anyone else on the topic. Who knows, maybe the tide will shift. I suppose stranger things have happened.

  3. I think household formation is slower now due to demographics. I could only find data on FRED thru 1/1/2016, but in the 8 years to that date, household formation was about 0.9% per year. Whereas household formation in the 10 years from 97 to 2007, it averaged 1.4%. Eyeballing your graph on Private Residential Inv (red line), it looks like the % of GDP for that 10 year period was about 5.5% (probably 5% for the first 8 years and then two really good years at the end). The last 8 years have averaged about 3%. So while I agree that the construction bust was overdone and our reactions have been wrong in the way you've described, I'd suggest that the current level of building may be close to a new normal.

    1. I think there is causation running the other way on household formation. To form a household, you need a house. Household size has been rising among renters, but not owners. The have-nots are economizing.

    2. I think there is some truth to what you wrote. But US population growth has also slowed from 1% to 0.7%.