How a Shortage of Housing Supply Reduces Social — and Economic — Mobility
With fewer houses available, American households are moving less, according to a new study by Myers et al. (2020). This has profound consequences for household formation and economic opportunity in the United States.
Key takeaways:
- Following the slowdown in new construction after the Great Recession, local mobility fell by a third from 2010-2019.
- Unsurprisingly, lower vacancy rates and higher job growth resulted in less mobility by creating more “friction of competition” in the housing market.
- New homes for first-time homebuyers create “vacancy chains” when a household buys a home and moves out of a rental unit, opening up more vacancies and enabling mobility.
Americans are moving less. Since 1985, mobility has been on a downward trend—however, this was mostly a decline in long-distance mobility. Local mobility, or people moving within the same region, remained stable for many years. Drawing from the Census Bureau’s American Community Survey, Myers et al. (2020) find that local mobility fell by 2.5% after 2010, reducing the overall mobility rate by a third. By contrast, the decline in long-distance mobility plateaued.
Why did this happen? The Great Recession brought together a perfect storm: an eight-year decline in homeownership, a slowdown in residential construction, and an uneven recovery that failed to build enough new homes to keep pace with the recovery in job growth. As a result, there are fewer vacancies and higher housing costs, with Millennials stuck in substandard housing due to the “friction of competition”—more households bidding over limited supply.
The problem the authors observe is that “metros with a heavier concentration of young adults—typically people with higher propensity for mobility to rentals—instead could experience greater slowing of mobility if the friction of competition is great enough.” In other words, with limited supply, a growing population of young renters who want to move more is resulting in more people moving less.
To explain this phenomenon, Myers et al. develop a model that includes vacancy rates, employment, demographics, and trends in homeownership. Mirroring findings by Asquith, Mast and Reed (2019), the evidence shows that “Homebuyers frequently leave behind rental units when they move, which can trigger rental vacancy chains.” In turn, a decline in first-time homebuyers results in less mobility for renters. A larger young adult population, and higher cost burdens from an expensive rental market, also contribute to sluggish mobility.
Key to this finding is the fact that vacancy rates alone do not predict a slowdown in mobility. As the authors observe, a vacancy is a static observation in time; mobility is a flow of housing occupancy turnover across time. Thus: “If fewer vacancies are available for movers to occupy, fewer households will turnover their current homes for others to move into.” A new hypothesis is needed: while new construction adds more supply to vacancies, new jobs and young adults entering the workforce create the demand for those vacancies. Therefore, the authors were not surprised to find that new homebuilding keeping pace with job growth is a major factor in mobility: “The estimations found that new construction, and offsetting employment growth, together accounted for 13.9% of variation in the renter mobility trend.”
When the rent is too damn high, turnover slows down even more: “renters with higher rent burdens have occupancies that are more precarious,” Myers et al. observe, “thus increasing their odds of moving out.” In turn, “reluctance to risk turnover not only directly curtails mobility by the outmoving tenant but also indirectly blocks inmovers by discouraging turnover to create vacancies for would-be replacements to follow.”
This paper adds more nuance to our understanding of the modern housing crisis. A growing body of literature shows that displacement and homelessness, as well as the flipside of decreasing mobility and stiff competition for limited vacancies, have immense social costs. More people with more jobs need more homes.