The Housing Construction Morass.

• Author: Brannon, Ike
• Position: BRIEFLY NOTED

It is hard to say objectively how much society should invest in housing. Economists do not conceptualize a standard ratio of housing units to population. Such a metric--if it existed--would crucially depend on family sizes, and family size depends on the cost and availability of housing, so there is an interdependence at work.

For instance, in places where housing is costly, children leave home at later ages, divorced couples are more likely to cohabitate, and grandmothers are more likely to live with their offspring. As our economy grows wealthier, we spend money on an increasing variety of goods, and one of those is more housing: in essence, we use our affluence to get away from our family.

However, it is hard to look at the post-Great Recession economy and not conclude that something is amiss in the housing market, and that our aggregate output of housing may be suboptimal. In the last dozen years, we have built much less new housing than in the decades before the 2008 housing market collapse. In fact, we have to go back to 1966, when the U.S. population was two-thirds what it is today, to find a year when we were adding as little new housing to our economy outside of a recession as has occurred each year since the Great Recession.

The depth and length of the decline in housing construction in the last dozen years cannot merely be attributed to a snap-back to conditions prior to the housing investment bubble in the early 2000s or a dissipation of residential construction overhang. In the last decade, the average number of new housing starts has averaged just two-thirds of the 1992-2007 average.

In other words, a fundamental change occurred after 2008 that has created a new regime for housing construction. It is worth investigating the factors that have caused this change.

Constraining supply / There are myriad hurdles that have added to the cost and difficulty of building a new home. First, people are increasingly moving to places where it is costly to create new housing. In most cases, local government regulations create barriers to construction, and these locales show little interest in making anything other than cosmetic reforms. Of course, politicians in major metropolitan areas love to talk about reducing economic inequality and improving their low-income constituents' access to affordable housing. But talk is cheap and housing is not.

State governments could remove those local obstacles, but they seldom do. For instance...