Michael Hicks: ‘Housing crisis’ is a neighborhood problem


Every time I’ve sat down with economists over the past few months, we have lamented the dismal state of the housing policy discussion.

Against stiff competition, it is easily the most poorly informed policy debate in America. Maybe a few facts will help.

The first matter to consider is that we’re on the flip side of the most acute economic interruption of modern times: The COVID-19 pandemic. In a matter of weeks, we experienced Great Depression rates of job losses across the globe. Then most of these jobs came roaring back. Millions of Americans retired earlier than planned, and 44 million American workers found themselves working remotely, half of them full time. These events all changed future housing plans.

At the same time, mortgage rates plummeted, just as tens of millions of Americans wished to relocate. COVID virtually stopped home construction in early 2020, and supply chain disruptions further reduced new construction thereafter. All of these factors drove up prices in almost every housing market.

All of this is transient disequilibrium. It is not a crisis, and it will pass without any government intervention. Home prices are already in retreat, and new home construction is planned for next year across much of the country. Across the nation, there are empty office buildings in every major city, offering the opportunity for residential conversion. And population loss in major cities has prompted broad review of restrictions on new housing. Markets work, and housing markets work better than most.

Second, for the past 50 years, we’ve been building homes at about the same rate the population has risen. However, we’ve been eliminating older homes at a tiny pace. That means today, there are some 16 million unoccupied homes in the U.S., or more than 11% of the full housing stock. Indiana’s share of unoccupied homes is close to 300,000. That is sufficient to fully house all of the growth of population in our state so far this century.

The problem is that this glut of homes is located in the places that people don’t wish to live. These don’t make it into the MLS listings because neither the owner nor Realtor is willing to pay the cost of listing. That has nothing to do with the quality of the home or its level of disrepair. Realtors and owners don’t waste time trying to sell homes in many neighborhoods. Most of the 300,000 vacant homes in Indiana that don’t make it into the MLS would sell for several hundred thousand dollars if they could only be moved to Chicago, Boston or Albuquerque.

For these homes, we don’t have a housing problem, we have a neighborhood problem. This isn’t an abstract problem. There are more than a million homes in Indiana alone that would be worth more disassembled and stacked on a rail car than they are currently assembled in the towns in which they’re located. Growing communities have a different problem.

Midwestern cities with large numbers of single-family homes are thriving, much to the chagrin of many urban planners. My rule of thumb is that if a local police officer and schoolteacher cannot make a life together in your city because of housing costs, you have a problem.

There is legitimate concern about the plight of low-income renters. These are the folks most likely to face a real budget crunch when we have home price spikes like we just experienced. However, this is not technically a housing issue. Low-income families have few housing choices because they are low income, not because there are few housing choices. In these cases, the problem is either in labor markets or in educational attainment. Trying to fix these problems through housing markets might offer temporary relief, but it won’t solve the underlying problem.

The simple fact is housing markets in the Midwest operate smoothly and efficiently. When you hear someone say there’s a housing crisis or housing shortage, they are mistaken. What they should really say is that there is a neighborhood problem that starts with a lack of quality schools and public safety, not housing.

Michael J. Hicks is the director of the Center for Business and Economic Research and an associate professor of economics in the Miller College of Business at Ball State University. Send comments to [email protected].

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