The Supply Side of the Housing Boom and Bust of the 2000s

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes.You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an OpenContent Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. www.econstor.euThis paper presents preliminary findings and is being distributed to economists and other interested readers solely to stimulate discussion and elicit comments. AbstractThe boom and subsequent bust in housing construction and prices over the 2000s is widely regarded as a principal contributor to the Financial Panic of 2007 and the subsequent Great Recession. As of this writing, housing market activity remains at depressed levels as the economy slowly resolves the legacy of excess supply and sharply lower prices. Over 2.6 million foreclosures have been completed since 2008 and 1.9 million foreclosures are in process. Much has been written about the demand side of this pronounced housing cycle, in particular, the innovations in mortgage finance and the loosening of underwriting standards that greatly expanded the pool of potential homebuyers. In this paper, we take a closer look at developments on the supply side of the housing market. Following a short literature review, we begin with a descriptive review of housing production, sales, and prices at the national, regional, and state levels. We then look at developments in the homebuilding industry over this period. We also take a closer look at land markets using a quarterly price index for metropolitan statistical areas with both elastic and inelastic housing supplies across the United States. An important question is to what extent the supply side of the market contributed to the boom/bust dynamics. A second question is whether the significant changes in the industrial organization of the homebuilding industry exacerbated or ameliorated this supply impact. The boom and subsequent bust of housing construction and prices over the 2000s is widely regarded as a principal contributor to the Financial Panic of 2007 and the subsequent "Great Recession". As of this writing, housing market activity remains at depressed levels as the economy slowly resolves the legacy of excess supply and sharply lower prices. O...

Arrested Development: Theory and Evidence of Supply‐Side Speculation in the Housing Market

“…25 Consistent with Propositions 2, 7(a), and 7(b), these land acquisitions far exceed land needed for new construction. Annual home sales increased by 120,000 homes 24 Our analysis complements Haughwout et al (2012), who empirically study the home building industry and present similar facts based on different data. 25 During this period, these firms bought back $400 million of equity on net, equal to approximately 0.7% of total assets in 2005.…”

“…During the boom, home building was extremely competitive. Haughwout et al (2012) document that the largest 10 home builders had less than a 30% market share throughout the boom, with firms outside the largest 60 constituting over half of market share. Although some consolidation occurred between 2000 and 2006, these numbers portray an extremely competitive market.…”

Navigating the Turbulent Economic Waters of the 2007 Great Recession and the Crash of the Housing Market

“…The resulting excess demand and ensuing bidding wars that followed caused rapidly increasing prices as the market sought a new equilibrium. In addition, studies have shown that to meet the artificially increased demand the housing industry produced nearly 3.5 million excess units nationally during the boom years (Haughwout et al, 2012). The lag time for land acquisition, development, and construction of new homes explains why the industry continued to oversupply the market with more units even after the bubble burst.…”

“…Authors identified factors that contributed to the bubble, including the excess supply of housing units during the boom, changes in demographics, quality of housing, and restructuring of the housing industry. Haughwout, Peach, Sporn, & Tracy (2012).…”

“…Shiller (2012) added his "Irrational Exuberance" theory, saying it was the "heightened state of speculative fervor" of all players in the marketplace that created the housing bubble. Haughwout et al (2012) explored the impact of the excess supply of housing units generated by the housing industry. They concluded that the consolidation and growth of national builders contributed to the oversupply of units in a major way since they were already committed to projects in their pipeline well before price declines and tightening of the credit markets.…”