Was there a supply overhang before the housing crash?

Kevin Erdmann has a revisionist take, namely no:

How bad was the supply overhang? Surprisingly, the answer may be that there never was one.

We can think about this in terms of stock (the number of homes in the United States) or flow (the rate at which new homes were being built).

In terms of stock, the Census Bureau maintains estimates of both US population and the number of housing units. As shown in figure 1, the ratio of homes to adults in the United States rose in the 1980s as a result of factors such as changing marriage norms. The ratio then declined in the 1990s. The relative number of housing units increased somewhat from 2000 to 2005 but remained below the previous peak level. After the crisis, the decline continued.

…The Census data provide surprisingly little support for the claim that there were too many homes in 2005…

Contrary to Chairman Bernanke’s assumption, at the national level there was no overhang of housing supply that needed to be worked off in 2011. Indeed, even in 2005 there was no national oversupply of housing. Rather, the American economy was burdened by a shortage of housing, especially in the Closed Access cities.

Not surprisingly, three of the worst six “closed” cities are in California (San Francisco, San Diego, and San Jose).

Here is the full study.


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