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The Long-run Demand for Housing, the Housing Glut, and the Implications for the Financial Crisis

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  • James E Mcnulty

Abstract

I estimate the long-run demand for housing to be, at most, 1.6 million units per year. This compares to housing starts of two million in 2004 and again in 2005. This overbuilding is the primary cause of the current housing glut, which I estimate to be between 1.24 and 1.72 million units. It will thus take several years for the excess vacant units to be fully absorbed. This housing glut needs to be quantified because it is the primary cause of the downward spiral in housing prices. I argue that overbuilding aggravates economic instability considerably. I suggest that Federal Reserve forecasters develop estimates of the long-run demand for housing, and that these be considered in implementing monetary policy.

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  • James E Mcnulty, 2009. "The Long-run Demand for Housing, the Housing Glut, and the Implications for the Financial Crisis," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 44(4), pages 206-215, October.
    • Handle: RePEc:pal:buseco:v:44:y:2009:i:4:p:206-215
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    Cited by:

    1. Satyajit Chatterjee & Burcu Eyigungor, 2015. "A Quantitative Analysis of the US Housing and Mortgage Markets and the Foreclosure Crisis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(2), pages 165-184, April.
    2. Nuno Paixao, 2018. "Housing Prices and Consumer Spending: The Bank Balance Sheet Channel," 2018 Meeting Papers 1017, Society for Economic Dynamics.
    3. Murray, Cameron & Ryan-Collins, Josh, 2020. "When homes earn more than jobs: the rentierization of the Australian housing market," OSF Preprints 8f67h, Center for Open Science.

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