The lack of a strong recovery since the 2007–08 financial crisis has been a central theme of many economic discussions over the past decade. We might normally expect an especially deep economic contraction to be followed by an especially strong recovery. Why was this recovery different? One of the more widely cited causes of the slow recovery has been a surplus of homes left over from the boom.
In his memoir, former Federal Reserve Chairman Ben Bernanke wrote, “Normally, a rapid rebound in home construction and related industries such as realty and home improvement helps fuel growth after a recession. Not this time. Builders would start construction on only about 600,000 private homes in 2011, compared with more than 2 million in 2005. To some extent, that drop represented the flip side of the pre-crisis boom. Too many houses had been built, and now the excess supply was being worked off.”
What Supply Overhang?
How bad was the supply overhang? Surprisingly, the answer may be that there never was one.
We can think about this in terms of stock (the number of homes in the United States) or flow (the rate at which new homes were being built).
In terms of stock, the Census Bureau maintains estimates of both US population and the number of housing units. As shown in figure 1, the ratio of homes to adults in the United States rose in the 1980s as a result of factors such as changing marriage norms. The ratio then declined in the 1990s. The relative number of housing units increased somewhat from 2000 to 2005 but remained below the previous peak level. After the crisis, the decline continued.
Read more: Housing Was Undersupplied during the Great Housing Bubble