I went to a lecture at the Henry George School in late June, given by an Episcopalian minister who spearheaded the squatting movement in New York City in the 1970s and 1980s (and, I guess, today). It was really inspirational stuff. He said—and I’m not going to verify this—that there were 120,000 vacant housing units in New York City and 40,000 homeless people in 2012. The reason for the mismatch is exactly what you’d expect: Private landowners are holding their property off the market. Georgist economist Mason Gaffney argues this occurs because landowners behave as a cartel, refusing to supply land to those who need it to increase the price.
If you want to verify whether land speculation causes higher prices throughout the United States, you’ll be disappointed to find that the housing vacancy rate in the U.S. is dropping, though it’s still higher than it was in the late 1990s. In an era of concentrated wealth, one would expect landowners’ land-hoarding to cause the vacancy rate to rise, based on all the foreclosures we hear about.
Yet, Dean Baker tells us that residential construction is depressed because of the high vacancy rate. Who’s right?
Here’s how the Census Bureau calculates the vacancy rate.
If you look for the data in Historical Table 8 that Baker links to, though, you’ll find that the vacancy rate’s denominator is not the entire housing inventory. It excludes “seasonally vacant units” and units that are “held off the market.” In other words, if speculation is going on, the vacancy rate deliberately excludes it.
Here’s the total vacancy rate, the held-off-the-market rate, and the composite vacancy rate (it’s the weighted average vacancy rate for owner-occupied units and rentals because Census doesn’t separate “rented but awaiting occupancy” and “sold but awaiting occupancy).
What’s obvious here is that since about 2010, the Census Bureaus’ vacancy rate has dropped while the held-off-the market rate has not. Meanwhile, total vacancies are down slightly from their peak over 14 percent during the housing bubble, but it’s still well above the 11-12 percent range from the 1990s.
Now, you ask, how is “held off the market” defined? You get three answers:
(1) Occasional Use
(2) Usual Residence Elsewhere (URE)
There is but a slim difference between “occasional use” and URE, if any. “Other,” has a more nuanced *cough* definition:
Other vacant. Included in this category are year-round units which were vacant for reasons other than those mentioned above: For example, held for settlement of an estate, held for personal reasons, or held for repairs. Below are the definitions for the other vacant categories presented in Historical Table 18.
- Foreclosure – [Q1, 2013 = 10.8%]
- Personal/Family Reasons – [19.6%]
- Legal Proceedings – [6.0%]
- Preparing to Rent/Sell – [6.2%]
- Held for Storage of Household Furniture – [7.8%]
- Needs Repairs – [15.3%]
- Currently Being Repaired/Renovated – [8.5%]
- Specific Use Housing – [1.4%]
- Extended Absence – [6.0%]
- Abandoned/Possibly to be Demolished/Possibly Condemned – [5.9%]
- Other Write-in/Don’t Know – [12.5.%]
Table 18 would be enormously useful, except it only goes back to … 2012. Heckuva job Census.
Importantly, though, “Foreclosure” includes units that are “bank owned,” meaning if banks want to hold them off the market, then they’re in “foreclosure,” even if it’s actually for naked real estate speculation.
You might ask “Why is this important?” I’ll tell you: Think about all those times you read about how student loan debt “delays important milestones like marriage, family formation, and home ownership.” If the banks were forced to put their housing inventory up for sale or rent, then there’d be a large wealth transfer from the hyper-wealthy banks to real-life human beings. The long-run problem of student loan debt, even with IBR, is a generation of Americans that will lack the earning power to buy homes from aging boomers.
I was going to stop there, but if you want more evidence, take this super-downer article from The Japan Times, “Pity the Generation That Can’t Retire Before 80,” July 6, 2013. Here’s a taste:
“Mr. B” is a 56-year-old junior high school teacher. His son studied hard, was a good student, got into a good university and graduated with distinction. He sent out 50 job applications and was invited to 30 interviews. But the expected offers didn’t materialize — not a single one. The young man grew seriously depressed. He hinted at suicide. His parents had to watch him constantly. The strain was too much for Mr. B’s wife. It wore her down. Though far from elderly, she showed symptoms of Alzheimer’s. They got worse. She had to be institutionalized. Her son blamed himself. His depression deepened. And so it goes.
At least in Japan, 40 percent of people under 30 don’t have student loan debt. The Japanese government is trying to reflate the economy, and it’s not championing credential inflation. The U.S. isn’t so lucky.
Now you understand why I think young Americans should all be Georgists.