March 29, 2009
I use 1987 as the base year simply because that is the year that the Case-Shiller index started tracking home prices. I use the national home price index and nationwide Census statistics simply because they are easily available. Anyone can recreate this graph for any particular housing market, but I suspect the pattern will be similar regardless of geography.
Surprisingly, the growth in housing stock has only marginally outpaced the growth in population since 1987. By 2006, both had grown between 23% and 24%. During that same time period, the value of that housing stock shot up over 200% (thats more than tripling your money, an incredible return on any bet).
Even before the bust, as prices soared, growth in vacant housing units outpaced overall growth in housing stock. By 2006, vacant units had grown by about 44% compared to total unit growth of about 24% and (not displayed on the graph) only about 21% for occupied units.
Not surprisingly, growth in vacant units picked up after the price bust, accompanied by media stories about ghost-town subdivisions and entire urban neighborhoods that have lost nearly all of their legitimate residents. The politically correct solutions coming out of Washington are to fix the falling prices and get builders building again. For years we've been using statistics like "housing starts" and "new home sales" as signals of economic progress, but at what cost?