The Beveridge Curve in the Housing Market: Supply and Disequilibrium

Brian Peterson ()
Additional contact information
Brian Peterson: Indiana University Bloomington

No 2009-009, CAEPR Working Papers from Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington

Abstract: There is a long-run `Beveridge Curve' in the Housing market given by the negative relationship between the vacancy rate of housing and the rate of household formation. This is true in the owner-occupied market, the rental market, and the total market for housing irrespective of ownership status. The Beveridge Curve represents a long-run supply condition that can be explained by assuming that (1) the cost to produce a new house is decreasing in the growth rate of the housing stock and (2) the probability to sell a new house is decreasing in the vacancy rate. Short-run deviations from the Beveridge curve represent a measurement of oversupply. Using a years of supply metric, for the total housing market irrespective of ownership, in 2007-2008 there were 0.995 years of supply, more than three times the previous peak of 0.285 years of supply in 1973-1974. Comparing the rental market to the owner-occupied market, oversupply generally shows up in the rental market, not the owner-occupied market and the oversupply in the rental market is twice as volatile as oversupply in the owner-occupied market, implying that a large part of the market adjustment to housing supply occurs in the rental market. Interestingly two-thirds of the oversupply in 2007-2008 resided in the rental market as opposed to the owner-occupied market. Using FHFA data for house prices, 46% of the movements in oversupply in the owner-occupied market since 1975 can be explained by house price movements. The last result suggests that at short horizons (4-6 years) house prices are not determined by supply. Rather, house prices drive supply at short time horizons, permitting bubbles and oversupplies of housing to form.

Pages: 33 pages
Date: 2009-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://caepr.indiana.edu/RePEc/inu/caeprp/caepr2009-009.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inu:caeprp:2009009

Access Statistics for this paper

More papers in CAEPR Working Papers from Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington Contact information at EDIRC.
Bibliographic data for series maintained by Center for Applied Economics and Policy Research ().