Housing Shortage in the Cards?

Underproduction in the past three years may lead to a housing shortage in future years.

June 1, 2010

In the current market, the idea of a housing shortage may be hard to accept. There are simply too many For Sale signs and delinquent mortgages threatening to turn into foreclosures to make a housing shortage seem like a serious possibility.

But the big drop in home construction over the last few years suggests that it could become a real issue.

Home builders must add 1.6 million to 1.7 million housing units each year to accommodate typical U.S. population increases and replace demolished homes.

During the boom years of 2003 to 2006, production far exceeded the historical average, with builders producing a cumulative surplus of 1.3 million units.

That overproduction remained hidden, though, because investors flush with easy money were gobbling up property. Once the easy money dried up and prices headed down, investors were forced to dump properties.

Today, there might be as many as 700,000 empty units above normal levels.

Still, the great underproduction in the past three years is an issue that will need to be reconciled, especially if the trend continues. Once we start seeing new household formation again, a housing shortage is something we won’t be able to dismiss too quickly.

Lawrence Yun
Chief Economist and Senior Vice President of Research at the National Association of REALTORS®

Yun oversees and is responsible for a wide range of research activity for the association including NAR’s Existing Home Sales statistics, Affordability Index, and Home Buyers and Sellers Profile Report. He regularly provides commentary on real estate market trends for its 1.3 million REALTOR® members.

Dr. Yun creates NAR’s forecasts and participates in many economic forecasting panels, among them the Blue Chip Council and the Wall Street Journal Forecasting Survey. He also participates in the Industrial Economists Discussion Group at the Joint Center for Housing Studies of Harvard University. He appears regularly on financial news outlets, is a frequent speaker at real estate conferences throughout the United States, and has testified before Congress. Dr. Yun has appeared as a guest on CSPAN’s Washington Journal and is a regular guest columnist on the Forbes website and The Hill, an “inside the beltway” publication on public affairs.

Dr. Yun received his undergraduate degree from Purdue University and earned his Ph.D. from the University of Maryland at College Park.