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A Skeptical View of Housing

Adam R.'s picture

Posted January 5, 2009

The Atlantic Monthly says that the United States will have an oversupply of around 22 million single-family homes by 2030.  The estimate comes from conclusions made by various demographers and planners.

If our supply of housing stock were to remain constant, then this prediction says that two in five single family homes will be empty.  It is a statement that suggests a catastrophic impact upon the urban landscape.

One possibility suggested by this prediction is an end to suburbia.  James Kunstler has already imagined what this might look like in his book, The Long Emergency, but that conclusion is driven by a shortage of a different sort.  In that case, it is a lack of fossil fuels.  Here, the oversupply stems from another force - demography.  Perhaps it is all the more troubling that the scenarios are not mutually

exclusive of each other.

The imbalance comes from the impact of our boomer cohort.  In the next two decades, many of those households will cease to need a single family home.  Many will retire to assisted living or nursing homes.  Certainly many will pass away.  The problem for housing is that there is not a large enough generation of 35-54 year olds who can adequately pay for all of the homes that have already been built.

Demographic forces that will impact housing supply and housing values include:

  • fewer households with children
  • More households headed by immigrants
  • Lower earning capacity among younger households
  • population growth in the South and West, contraction in the Northeast and the Upper Midwest

The massive oversupply in single-family homes would seem to suggest that many homes will go unsold.  Home prices will drop.  Equity will vanish.  With that, the logic of home ownership as a tool for building assets has to be re-examined.

One saving grace that softens the blow left behind by the aging of the boomers is new demand created by immigrants.  US population projections suggest that our country will grow at a rate faster than that of European countries, but only because of immigration.  These families tend to be disproportionately younger than other cohorts.