If housing inventory is so tight, why are so many homes vacant?


Earlier this year we talked about how limited housing supply was helping to drive accelerating house prices across the country. In such an environment you would expect to see housing vacancies decline. Indeed, if you look at the rate of rental or homeowner vacancies you see a substantial reduction.

The chart below shows the homeowner and rental vacancy rates reported by the U.S. Census Bureau in their quarterly Housing Vacancy Survey. You can get the data via the Census webpage, but I found it easier to work with the FRED database from the Saint Louis Federal Reserve bank. I may do a follow up post to explain the data wrangling.

During the Great Recession homeowner vacancy rates spiked, and gradually came back down. Rental vacancy rates did not spike nearly as much, but also came down in recent years as housing markets have gotten pretty tight.

Nothing about these charts are particularly surprising, but if we look a little closer at the housing inventory data something curious emerges.

Decomposing the vacant housing stock.

The rental vacancy rate is the proportion of the rental inventory which is vacant for rent and the homeowner vacancy rate is the proportion of the homeowner inventory which is vacant for sale. See the Census definitions (pdf) for details. But not all vacant properties are available for sale or rent.

Some properties, such as beach cottages, are used seasonally. Others are vacant year-round, but are not currently on the market. Let’s look closer at the year-round vacant housing units.

The chart below shows the vacancy rate (as a percent of the total housing stock) for various subcomponents of the year-round vacant housing stock.

The top two panels show the vacant for rent vacant for sale units that make up the rental and homeowner vacancy rates. The bottom right panel shows year-round vacant units which have been rented or sold but the new renters or owners have not moved in yet (as of the day of survey interview). That has a pretty clear seasonal pattern, matching the rhythm of the U.S. housing market, but remains constant at a little under one percent. The bottom left panel shows the share of housing units that are vacant and held off the market.

The vacant for rent and vacant for sale shares have fallen and the vacant being rented or sold has held constant. But these have been more than offset by an increase in the share held off market. What’s going on here?

We can decompose the Census data to look at trends in various subcomponents of the year-round vacant held off market category. The chart below shows those trends.

The year-round vacant other category has increased almost a full percentage point since 2005. Just to be clear, that’s a lot of housing units. A one percentage point increase corresponds to over one million housing units.

Why has this share increased?

The U.S. Census Bureau began tracking a breakdown of the other category since 2012. You can find the details in Table 18 (.xlsx) from the HVS release. The chart below shows the breakdown of the percent distribution for the second quarter of 2017.

The largest component, taking up about a quarter are those units vacant due to personal/family reasons. This includes situations where the owner is in assisted living and not occupying the unit.

This distribution has shifted since 2012. The chart below shows a small multiple time series plot comparing trends in the percent distribution of explanations for why a housing unit is vacant.

The share vacant due to foreclosure has declined quite a lot since 2012 when the U.S. housing market was still early in recovery. Those foreclosed housing units have largely moved through the system. Several years ago there was a worry that this “shadow inventory” would dampen the housing market recovery. I even wrote a (wonky) paper about it.

Might the units that are vacant due to personal reasons come onto market soon? Perhaps. But back in 2013 Jed Kolko then Chief Economist at Trulia wrote an article published in Forbes on this topic. Jed wrote:

Many of the vacant homes now being held off the market won’t stay off the market forever. Homes under repair or being prepared to be sold or rented could come onto the market. These homes would then be added to the active inventory, which would slow down or even reverse price and rent increases while giving house hunters more housing options.

Well forever hasn’t happened yet, but nearly three years later we still haven’t seen these units come on the market. It seems to be a long lasting shift of housing units out of the for sale and for rent market. Why might that be?

Click the icons on the bottom right to share this.