Wednesday, December 30, 2009

Did California Overbuild its Housing Stock?

It all depends on the relevant time frame. If we look at the 00's in isolation, California overbuilt.

But California has grew by 7 million people between 1990 and 2008 and added about 2.43 million housing units (all data are from US Census-- assume that 98 percent of units permitted are actually built). The average household in California has 2.9 people (which is the second highest in the country, and compares with 2.5 nationally), which means that even without removals from the stock and no change in household size, the state needed 2.41 million new housing units. So if we look at the 18 year horizon, California did not overbuild--there we almost surely more than 20,000 demolitions over an 18 year period.

What if we go back to 1980? California grew by 13 million people and added 4.4 million housing units. At 2.91 people per unit, California demanded 4.46 million units. Again, it is safe to assume 60,000 demolitions over 28 years, so it is hard to make a case for long-run overbuilding.

Certainly, some housing was built in the wrong places, or was the wrong type of housing for the place (Lancaster and Beaumont come to mind). But it is hard to make a case that in aggregate California now has too many housing units.


wcw said...

The Census tracks vacancy rates, too. CA's homeowner rate for 2008 was a historic high. Through 09Q3 [XLS] it had come down smartly, from 2008's 3.1% to 2.1%. That's a nice drop, but still at a high level versus the history.

That hasn't come from household formation, though, but by converting renters to owners and for-sales to for-rents. Rentals vacancies spiked less dramatically through 2008, but through 09Q3 [XLS] jumped from '08's 6.4% to 8.4%, also historically high.

Household size here is misdirection, and misses the story. Californians have voted with their wallets not to create households. There are historically high levels of both rental and home vacancies. Sure, eventually we'll grow into that empty space, but that doesn't mean it wasn't overbuilt.

Farrar said...

Yes, California did overbuild ! Houses too big for 2.9 people, too expensive, too ugly, too far out in the suburbs, and too many single family buildings.

In the humble opinion of a native Californian, who has moved far away.

Anonymous said...

CA over built McMansions, and under built modest, affordable homes. They tried to gentrify the whole state to maximize the property tax, but the bottom 60% can't afford a McMansion. They never will be able to.

RealEstateInvestor said...

The three prior comments are in effect agreeing with your conclusions: no over build; not always the right type or location.

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Michael Roberts said...

I saw similar statistics for the DC area while the bubble was happening.

It was statistics like this that helped persuade many (including me at the time) that it wasn't a bubble. (Yeah, I was one of THOSE people...sorry)

But it does make one wonder what will happen to the housing market long run when the economy recovers given low housing starts and a large inventory of wrong-sized homes in the wrong places.

Unknown said...

Great discussion - wonder if the wrong types of houses were also being built in urban centers...lived in metro LA for the last 10 years or so, and it seemed like everybody was betting too hard on high-end condos, when what was needed was more and higher-quality rentals. Can that be inferred or not from existing data?

wcw said...

Real Estate Investor, no I didn't. My conclusion should have been beyond misinterpretation: vacancies are still at historically high levels. Ergo, we overbuilt in the aggregate. QED.

Where we overbuilt and exactly which units is an interesting question. I could see why a real estate investor cares a lot about answering it. But defining overbuilding more closely doesn't make it go away. It simply characterizes it better.

The Census data could offer some insight there, but I am not going back to them until we can agree that the data show historically high vacancy rates. I can't talk to people who tell me the sky would be green, if only it weren't for the scattering characteristics of all those darned blue wavelengths.

Sam Penrose said...

I'm not sure the distinction between "overbuild" and "right amount by wrong type and/or location" is useful. For a passionate argument that type and location matter more, see .

House and lot for sale said...

I think California has more houses than people and imagine how high the leasing and rental prices are. The trend is people prefers to a much wider space and less crowded neighborhood.

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