One Big Thing
As you can see from the Chart of the Day Below, we are finally back to 1970 levels when it comes to housing production in the United States (h/t Taylor Grant). Hooray, I guess. While things are certainly better than they were a few years ago, this is not exactly a milestone to be celebrated. A look below the surface of these numbers shows that housing production has fallen far more dramatically than the chart indicates.
First, let’s take a look at the low hanging fruit. The US population in 1970 was +/-205MM. Its +/-331MM in 2020. If you just look in population terms, this means that we are producing 38% less housing than we were in 1970. Most housing analysis seems to stop at this number which looks bad on its own.
But households have not stayed the same size over time and the average American household has shrunk substantially since the 1970s. In 1970, the average household consisted of 3.14 people. Today its down to 2.53 people. Taking the above into account, there were approximately 65.3MM households in the US (205MM divided by average household of 3.14 people per household) in the 1970s versus +/-130.8MM households today (331 million divided by 2.53 people per household).
So the growth in households has actually outpaced population growth since households are shrinking. For context, it took 318 residential units to house 1,000 people in 1970. Today, it would take 395 residential units to house that same 1,000 people.
In 1970, we were building 21.5 residential units per 1,000 households. In 2020, we built 10.7 residential units per 1,000 households. That is a decrease of just over 50%, not the 38% decline corrected for population that is often referenced. The problem is likely to get worse as Millennials continue to enter their peak household formation years. If you were wondering why we seem to be in a mode of perpetual housing shortages where bidding wars are the norm, this is a good place to start.
What I’m Reading
Fuel on the Fire: In its proposed fiscal year 2022 federal budget, the White House allocated $600B in funds to support the creation of U.S.-based manufacturing jobs. If successful, this will create even more demand for industrial space in the US. Bisnow
Repurposed: Even as the remote-work era clouds the future for offices, one segment of the business is drawing cash from investors including Blackstone Group Inc. and KKR & Co. That segment is life sciences and large investors are allocating billions to buy underperforming office buildings and reposition them for this use. Bloomberg
Narrow Exit: CMBS delinquency rates are continuing to fall but questions remain about the ability of owners to refinance with 12% of lodging loans and 19% of retail loans maturing in the next few years. Globe Street
Awash: The Fed’s Distributional Financial Accounts shows that liquid assets held by households jumped by $3.3 trillion from Q4-2019 through Q4-2020 to a record $15.9 trillion across all wealth percentile groups. The amount of cash and cash equivalents held by households is likely to provide a tailwind to the economy as reopening continues. Dr. Ed’s Blog
Chart of the Day
This chart is bad on its own but it’s much worse when you correct for population and household size.
Source: Fortune
WTF
Undercover: A police officer was arrested for DUI after being spotted running over traffic cones in a marked police cruiser because Florida. News 4 Jax
Cat Lady: A 79 year old Spanish woman was found dead and partially devoured by her seven cats after neighbors alerted authorities to a foul odor emanating from her Madrid apartment. Probably goes without saying but this is yet another reason why I’m a dog person NY Post
Basis Points – A candid look at the economy, real estate, and other things sometimes related.
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