The Paradox of High Prices and High Vacancy Rates in U.S. Housing Markets

Kirk McClure

ERES from European Real Estate Society (ERES)

Abstract: Housing markets in the United States continue to adjust from the effects ofa housing bubble, its collapse, and the slow recovery from that collapse.This paper will employ data at the tract level from the American CommunitySurvey for the 383 Metropolitan Statistical Areas of the United States. Theresearch finds that both the market for owner-occupants and the market forrenters experienced growth of the supply of units that outpaced the demandfor those units. The problem of excessive supply has abated somewhat inthe last five years, but the problems of surplus housing continue to be aproblem for most markets. Vacancy rates remain at high, perhapsunhealthy, levels. There is a paradox in the market in that, despitesurpluses of housing, prices continue to rise faster than inflation and fasterthan the incomes of the households. With prices rising faster than incomes,housing affordability problems are expanding. The problems of high vacancyrates varies widely across the metropolitan areas of the nation and acrossthe various submarkets of housing defined by price strata. Most marketssuffer from shortages only in rental markets at the lowest price levels. Theprocess of filtering non-viable units out of the system does not appear to beworking well. Vacancy rates are above optimal levels in most neighborhoodsbut are highest in the most distressed neighborhoods. These marketdynamics call into question some of the policies and programs of the federalgovernment which seek to expand the supply of low-cost rental housingwhen many of these markets are in surplus.

JEL-codes: R3 (search for similar items in EconPapers)
Date: 2016-01-01
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