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There’s More to the Inventory Story Than New Construction

Inventory shortages have been making headlines nationally and in many housing markets across the nation. According to a recent research by the Brookings Institution, “It’s not your imagination. The U.S. really is adding less housing than it used to.”

However, while the conversation here usually turns to housing construction, researchers at Brookings say construction is only part of the story. If policymakers want to truly effect change, they need to look beyond construction stats.

About 70 percent of new housing stock comes from new construction, so construction definitely merits attention, the report said. However, another 15 percent of new housing stock enters the market by way of “reconfigurations of existing buildings.” Restorations, conversions of non-housing buildings into housing units, and mobile homes are also sources of new housing inventory; and the importance of these more minor contributors varies by region and urban status.

The researchers at Brookings advised policymakers, “If we want to understand and correct housing shortages, we need to look below the national level.”

To gain a full perspective of housing inventory across the nation, Brookings looked at churn rates—the percentage of additions and losses to housing inventory in each major region and in urban, suburban, and non-metro areas.

Nationally, churn rates are down considerably, declining from 7.5 percent between 1985 and 1987 down to about 2.5 percent between 2011 and 2013. Brookings noted, “Most of the decline in churn was driven by the slow rate of additions to the housing stock.”

The suburbs accounted for most of the growth in housing inventory between 1987 and 2013, although the pace of growth is on the decline, following the national trend. In fact, the suburbs are experiencing a steeper decline than urban or non-metro markets.

In the suburbs, new inventory is most often the result of new construction. Fewer than one in 10 “new” homes are added to suburban markets through “reconfiguration of existing structures,” and other sources of inventory also play insignificant roles in these markets.

On the other hand, in central cities, about one out of four homes are added to the market by reconfiguration, which includes dividing a single-family home into an apartment or adding an apartment over a garage. In non-metro areas, mobile homes play an important role, adding more to inventory than reconfigurations or restorations.

Regionally, the Northeast has the lowest percentage of new construction and a higher rate of reconfiguration as a share of new inventory than any other region. New construction accounts for a larger share of additional inventory in the West and South than in other regions.

Mobile homes played a larger role in inventory gains in the South than in other regions, contributing to 10 percent of growth, compared to just 4 percent in the Northeast.

With inventory growth on the decline across the nation and with a noticeable steep decline in the suburbs, the researchers at Brookings say, “Land use regulation and property taxes badly need a 21st-century makeover.”

Zoning laws, property taxes, and building codes generally favored low-density, single-family housing; and that needs to change, according to Brookings. “Suburbs could learn from their urban cousins on how to accommodate more housing growth through mechanisms beyond new construction,” according to Brookings.

About Author: Krista Franks Brock

Krista Franks Brock is a writer and editor who has covered the mortgage banking and default servicing industries since 2011. Previously, she served as managing editor of DS News and Southern Distinction, a regional lifestyle publication. Her work has appeared in a variety of print and online publications, including Consumers Digest, Dallas Style and Design, DS News and DSNews.com, MReport and theMReport.com. She holds degrees in journalism and art from the University of Georgia.

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