Calculated Risk was looking at housing last week, with a post on falling apartment rents and rising vacancy rates. It is a national trend in apartments and houses both: people are using less housing. This is a situation that defies intuition, especially if you have a few hours of training in supply and demand. If the price of housing is falling as fast as it is, how can demand be falling fast enough to keep utilization rates falling? But really, it’s the natural result of an abrupt shift in perceived income. People have become more reluctant to spend on everything, but especially on big-ticket items like housing.
A year ago, with so many people moving from houses to apartments, I had imagined that apartments might fill up in some areas. I haven’t heard of that happening. Instead, it’s the opposite: more vacant apartments than ever.
There are three trends that might seem to explain the declining use of housing. Foreign workers have been leaving the country because of the difficulty of finding work, more people are homeless or living in tent cities, and builders continue to build housing units of all kinds. Yet these three trends added together are not nearly as large as the increase in vacant housing units. The real explanation is more prosaic: people are moving in with other people. Or they are slow in moving out.
It makes sense if you look at that side of it. When times are tough, you expect people to stick together, to pool their resources, to watch out for each other. With fewer jobs, there are fewer people who need to live in a particular place and more people who need to save money. To put it another way, when there is less action, people are less inclined to go where the action is, but more inclined to go where the people are.
I am sure there are people sitting around together in the evening, shaking their heads at the economy and at their own failed plans, and coming up with new plans and new ideas, some of which really are new. People looking for ways to escape the current economic pressure will, in some cases, generate new business models and new ways of approaching life and work that will change the world forever.
