Association for Public Policy Analysis & Management

The most economically successful cities in the US have been running a deficit of housing construction since the 1980s, and residents are paying the price. The sharp downtown in construction after the housing boom and bust of the 2000s has only exacerbated the affordable housing crisis. Since the nosedive in housing construction, people seeking homes have relied more and more on existing housing. Yet as people remain longer in their homes and move less often, fewer existing housing units are released onto the market. With fewer new homes built and fewer existing homes released onto the market, the amount of housing available for sale or for rent has barely expanded, and has even declined in some areas. In these constrained and increasingly expensive housing markets, demand for housing has grown considerably, despite declining immigration and domestic migration, reduced household formation, and stagnant incomes. Sustained growth has been fueled by natural increases from a larger young generation growing up and entering the housing market, and by older adults living longer and aging in place.

In this paper, I examine the underlying sources of demand growth and housing supply constraints in US metropolitan statistical areas from 1990 to 2015, using IPUMS microdata for the 1990, 2000, and 2010 Censuses and the 2006-2015 American Community Surveys, as well as CDC National Vital Statistics System mortality data and IRS SOI Tax Stats migration data. I observe the various sources of growth in housing demand, including natural increases in the adult population through larger generations and longer life expectancies, in addition to the more commonly-studied migration, household formation, and changes in income. To understand sources of supply constraints, I measure the number of housing units available on the market within a year, whether recently built or recently turned over. I analyze changes in housing turnover and construction, taking tenure conversions into account to compare changes in the number of units for sale and for rent. I then assess the severity of the housing shortfall in different types of metro areas across the US, comparing the contributions of internal demand growth, migration, declines in housing construction, and reduced mobility to the housing affordability crisis. I find that demand growth from natural increases and fewer vacancies of existing homes play important roles in the housing shortfall. Though largely invisible, internal growth from natural increases and the inertia of people remaining longer in their homes have placed tremendous pressure on urban housing markets.