Wednesday, September 13, 2006

Are we building more housing than the City needs?

The pace of housing construction should match the pace of population growth.

Homebuilders in Lawrence appear to be building more housing than we need. From 1990 to 2000, the population rose by 22%. During the same time period, the housing stock grew by 27%, 5 percentage points than the amount needed to support the population growth. Note that the 27% growth in the stock is net growth, new units minus units demolished. Thus, the surplus growth was beyond the growth needed to cover losses of older units.

Current statistics suggest that the population growth rate is declining. The Census Bureau believes the City's growth rate has slowed from 2.0 percent per year to less than 1 percent per year. Yet, current building permit data suggest that housing is still being built at a rapid pace.

What is the harm?

Widespread vacancies lead to reduced investment, especially in rental properties. Older neighborhoods lose population as households leave older neighborhoods and move to new, unneeded subdivisions. Neighborhood schools close. Property values fall. The new investment in maintaining homes in older neighborhoods declines.

What is the benefit?

There a benefit from overbuilding. Home prices and rents fall or fail to rise as fast as they might otherwise. This is helpful for homebuyers and people who rent. However, everyone has an interest in the overall stability of the community. Once a household buys a home, that household has an interest in price stability rather than price decline. Similarly, renters have an interest in the long-terms health of the rental stock. If rents are held too low for too long, landlords reduce maintenance expenditures, lowering the quality of the rental stock.

Everyone--both owners and renters--have an interest in price stability. This means allowing the housing stock to grow at a pace that is sustainable, a pace that matches the population growth.

Achieving this is not hard. It simply means monitoring the growth in population and pacing the rate at which new subdivisions are approved. It is clear that depending upon the developers to set this pace will lead to long-term oversupply of homes. This is what was done all through the 1990s and into the current decade. Now that population growth appears to be slower than experience in the past, it is important that we reign in the pace of growth of housing development. Out goal is to have it match the pace of growth of population so as to not harm existing neighborhoods and to channel some of the growth back into existing neighborhoods.

2 comments:

Joshua Rosenbloom said...

I am no fan of rampant development, but even if there is a problem, the solution proposed is nonsense. Builders and developers are betting THEIR money that there are people who would prefer to live in the houses and apartments they build rather than in the existing housing stock. Should we really let a city official or group of city officials look at the data and say no? The builders are able to look at the same trends that city official are. Sometimes they guess wrong.

Yes, the city should help to control and direct growth by planning the addition of new land, and encouraging zoning and other rules that encourage more compact residential settlement and functional neighborhoods. And in doing so they can prevent the cost of new development being artificially depressed. But once they get these incentives right--so they reflect community preferences--they should get out of the way.

At that point we should let the people who are investing their own money take their own risks.

L. Ron Drunkard said...

"Their" money? As if the economy exists in a vacuum that only the developers are part of? As explained, an overstock of housing depresses housing values for existing owners and effects the quality of rental properties -- all people who are NOT developers. The risk, and potential harm, does not simply fall onto the developer and HIS money. Its OUR community and we ALL share the risk, and costs. In fact, it is this very externalization of the true costs that allows developers to continue to take these risks. Some of the true costs to their actions will actually be borne by others and not them, thus increasing their profit margin at the rest of the community's expense.