Under utilization can be measured as a factor of the vacancy rate; which influences both home pricing and rental pricing.
Here in Canada, the desirable places to live all have relatively low vacancy rates for residential housing, and have for quite some time. Ie, it's rare to see cities with vacancy rates for apartments exceeding 3%, let alone a healthy 5%.[0] The CMHC estimates that by 2030 we will need 3.5M additional homes beyond the expected number to be produced.[1] The PBO has come up with similar numbers; roughly speaking, Canada needs to complete a new home every 50 seconds just to maintain current price levels.
There's much gnashing of teeth up here over our housing crisis, and it's clear to me that it's a multi-factor concern[2]. While there simply exists much more demand than the supply can service, the reasons for low supply are many and complicated. There are the obvious zoning and infrastructure issues; we don't build for mid and high density nearly enough, and we rely too heavily on cars. There's the labour supply issue the politicians focus on. But most unnerving, to me, is the suggestion that we simply do not have the capacity to produce or source the raw materials necessary in construction.
Why is the vacancy rate so low in desirable neighborhoods?
Is it that there isn’t enough housing period, in the entire country. Or is it is people and investments abandoning rural areas in favor of a handful of city neighborhoods?
I’m also curious if those vacancy rates can be / have incentive to be gamed by the homeowners, or otherwise don’t paint a very accurate picture. I lived in a wealthy part of NYC for a while, and my apartment faced a courtyard on the interior of the block. As a result, I could see into the windows of 100s of apartments of 3 adjacent buildings. Only maybe like 5 out of 100s of apartments consistently had someone living in them. This reflects my feeling on the street: the streets were empty, especially given the relative density of the apartment buildings.
I know this is anecdotal evidence, but everyone I know that lives in NYC has the same observation.
I wish scientists and experts would take these concerns seriously and research by this gap in perception and the reported vacancy rate is so different.
Just a note that "occupied" != "can see people milling about". A lot of people (particularly in NYC) treat their apartment as just a place to sleep. During the day, they're at work. For breakfast and dinner, they eat out. In the evenings, they hit the clubs, or go over to a friend's, or visit one of any number of cultural attractions. That's why they live in NYC, because of the density of non-home forms of entertainment. Particularly if you value your privacy, it makes sense to keep the blinds permanently shuttered, leave your apartment in the morning and come back at night, and just sleep & shower there.
Heck, it can make financial sense too. We tend to keep our windows covered most the day regardless of season. In winter it helps to keep the heat in and there's no natural light to miss out on anyway. In summer it helps to keep the heat out, and we mostly don't care about natural light in the apartment because we're outside enjoying the weather. (What's even the point of living in the city with the highest % public green space in North America if we're going to just stay at home bingeing Netflix all evening?)
And you can't necessarily see the lights on when somebody's home because we use the most blackout-y blackout curtains we can get. Urban light pollution has gotten so bad - especially since the switch to superbright LEDs - that they've become a sleep hygiene necessity.
This effect is also exacerbated in wealthier areas by bigger units. Units are less likely to seem lively because people are using a smaller proportion of rooms at any given time, and those rooms may not always even be visible to you. E.g. my grandparents flat would often have looked dark and abandoned from the courtyard, because that side of the flat was unused for much of the day, and often only lot when the curtains were closed, even when they were home and had visitors and a full house.
> Only maybe like 5 out of 100s of apartments consistently had someone living in them.
I would be highly surprised if this were true. I lived in NYC for year and the myth of tons of empty units is pernicious and just won't die. There has been a TON of research on this topic and it all points to there being a huge shortage of housing in the city. As a percentage of total housing stock vacant units make up a fraction of a fraction of a percent.
Anecdotally, my apartment building has 0% vacancy rate.
And a newer building across the street has at least 10 apartments vacant for the most of the year.
Anecdotally, i know quite a few boomers that own multiple properties (>3) in manhattan, some of which they rent some of which they keep vacant for when they want to come to the city
I feel like at least some % of apartments in the city are visibly vacant most of the time because they are just part time homes for the wealthy.
The research for this does account for pied-à-terres, which do exist in some number but are a tiny fraction of he total and mainly exist in a handful of Manhattan neighborhoods. There are only about 10K of these in NYC[1] which is 0.27% of the 3,644,000 total housing units in the city. This just doesn't seem like a real problem when the rental vacancy rate is shockingly 1.4%[2] (of the 2,183,064 total rental units).
I struggle to believe that pied-a-terres are less than 1% in NYC, particularly in the post covid era. Maybe paid off condos in NYC owned by people who also live in Florida aren't counted somehow? Seems like everyone with a net worth of $2.5mm has two properties.
My best friend's brother has a rent controlled manhattan apartment that sits vacant 80% of the time and is used as a crash pad for a rotating cast of ~12 people, what do you call that?
Why would you struggle to believe something that is accounted for in tax records and other city records?
The median household income in NYC is about $70k almost no one relative to the population has a $2.5mm net worth. There are only 350,000 people in NYC with a net worth of more than 1mm.[1] Anecdote is clouding your understanding here, the idea that there are tons of empty units in NYC is just another luxury belief, it stands up to 0 scrutiny.
A good friend bought her Hell's Kithen flat (read: condo unit) from a Japanese company. Years ago I had another friend who worked for a company that had a sizeable place in the Village.
There aren't that many. NYC housing data is sliced, diced, and studied by so many agencies, non-profits, think tanks, and so on that someone would notice. There's a marginal number of units that appear to largely unoccupied. Corporate and LLC ownership shows up in tax data and the totals are a drop in the bucket of the nearly 4 million units.
Yes, but you only need one unit per building to be over-bid and that then drives up the prices of other units in that building? It might not be an occupancy issue per se, but it doesn't help the overall residential market.
Housing exists in price bands more or less, so the thing you’re measuring has to be large enough to have an effect on the band. There’s a lot of research on NYC housing issues and no one has ever identified corporate housing as a contributing factor, so there’s a very high burden of proof on your claim.
Desirable neighborhoods in Canada and US typically resemble pre-automobile orientated design type neighborhoods. These are on short supply.
So while there might be enough physical houses around the country/province/city, what makes a place desirable to live extends far beyond the walls of your home.
Regarding your anecdote. I definitely notice the same thing, walk through the wealthiest parts of any bigger city and you will see many/most of the houses completely shuttered for >90% of the year. That also explains why the vacancy rates are low, the wealthiest 0.1% (whom ended up with much of the relief funding during the GFC and Covid) park most of their money in assets, but they are not interested in renting out these houses, so when they buy houses they reduce vacancy rates even when they don't live in them.
Growing housing costs and wealth inequality have been extremely correlated, anyone looking for other reasons for the housing inequality really needs to have a very good explanation why they are not related.
Vacancy rates should be lower where the total inventory increases and people’s ability to predict the market increases. That’s also going to be places people want to live.
Consider a city of 10 million people vs 1,000 small towns of 10k people. The variability for demand in those small towns is higher and vacancy rates can’t drop below zero. So some towns hit 0 while others might be 20%. But in a city if some apartment complex is full people just go to the apartment down the street.
Sure but on average Americans move once every ~7 years on average. A 5% vacancy rate would be ~4.2 months between owners/tenants which seems unnecessarily high. Most apartment complexes I was at could turn them over in a few weeks if someone wanted to move in. So 5% would seemingly represent a significant economic inefficiency.
3% may represent local shortages as Santa Monica is more desired than West Adams etc. So increasing availability in undesirable places may not reduce rents in general.
The 5% is a sliding window. Some of those have just opened up, some of those are about to close at any given time. And it also represents all buildings, from super in demand complexes to slower moving listings, and is a rule of thumb that also aggregates seasonal differences.
In aggregate, 5-7% seems to be a sweet spot where landlords can find tenants in a reasonable amount of time and tenants are not scrambling to send out a dozen applications a week.
I moved around a lot and the majority of the time I signed a lease it was 1+ months out for an apartment that was still occupied. Having some availability right now is definitely beneficial as stuff can happen, but current housing stock just wasn’t what I was looking at basically ever.
Though I agree less desirable locations should definitely increase the average, as should purchases vs rentals etc. It’s just 3% is already including a lot of mandatory time from cleaning, painting walls, replacing carpets, etc. So prices could fall heavily at a sustained 4% long before you hit the 5-7% range.
Expensive housing markets are very unhealthy. A median home is considered affordable at 5x median income. Most of the expensive areas (San Francisco, New York, Seattle, Los Angeles, etc.) are at 10+x.
The other metric is median rent as a percentage of median income. Nationally it has hit 40% when the affordability mark is 33%.
Just because what you are experiencing has been a norm for a while does not make it good, or the goal.
People who rent tend to move more often than people who own a house. Landlords will often take an apartment out of the rental pool for a few months to remodel it.
Actually, California population (for example) has fallen by >400k over the last several years. The first falling year was 2019, 2020 saw a small rise (<50k), 2021 saw a fall of >300k, 2022 a fall of ~150k, and 2023 a fall of ~50k.
That includes both births/deaths and in/out migration. Population growth rate has been generally falling since 1990 (except for a peak in 2000) and significantly so since the GFC in 2009. However, prices have skyrocketed.
China has overbuilt their population by 10-100million (yes, and there are even more outrageous numbers) homes over the last 10-15 years, and yet prices in Shanghai/ Beijing/ Shenzhen still exceed NYC or SF by 50%. They have a falling population.
Crowding is huge in California though. The starting point was "multiple unrelated families living in one house." If the population has dropped by 1% but you started with 3 families per house, you still have (to some rounding error) 3 families per house.
China has the confounding issue where it has both poor social security systems and a mistrusted, dysfunctional stock market and financial system, so everyone shoves money into real estate for retirement.
This is not even a new problem. The imperial landed gentry was so named because bureaucrats would shovel their money into land.
A net migration out of California does not mean an increase in available housing. There are a lot of families (adults+kids) where the children grew up and then can’t afford a home in California and left the state. A household of 4 then becomes a household of 2 but the housing supply stays the same.
The price finds whatever level it needs to maintain a population that fits within the housing supply. Obviously population can’t grow that much against a fixed housing supply; once the vacants and spare bedrooms are filled up, people just get priced out. This is Malthusian NIMBY policy working exactly as intended.
Population geography also shifts from rural to urban and from declining to rising cities even as the total population size holds constant or shrinks. The fact that there is space for you on a farm or in a coal-mining town is cold comfort to someone with a STEM degree and a job offer at a corporate headquarters.
Did you forget to factor in that it is a replacement rate? Sure, more people are born every year, but plenty of people pass along in one way or another (mortality, downsizing, various care facilities).
but it's not necessarily needed in dense urban centers. Plenty of laptop class people could secure housing in rural areas for a fraction of the cost of what they're paying now.
One of the many things contributing to pricing, is that not enough road corridors are being built or widened.
It's harder live further out, when traffic slowdowns extend commute time 10x. And governments love the idea that expensive roads can be waved away using environmentalism as an reason.
Yet these same governments don't build fast transit either, and without fast amd efficient transit, trips take far far longer than a car.
At this stage we should be building both, as we're that far behind.
The point is, there is a move for 'dense urban areas'. Pack 'em in. Increase that housing density. Yet there is another way in North America, where there is often an endless bounty of space. Better transportation corridors.
Better transportation corridors means that housing costs plateau, because it's just easier to drive 10 minutes more, 20 minutes more, than spend 4x for housing.
That said, even the laptop class often does need to commute:
* Many remote workers have to attend once a week, or more often.
* People make lives, friends, contacts, have relatives in specific areas.
* Every once in a while, you may need to go to "the city" for something important. Medical treatment or specialists, specialty products, etc. Not everything can be shipped, or is shipped.
Anyhow, it seems you sort of missed the point, that is... the faster you can get into a city, the further you can live from the city and still be part of it.
Here in Canada, the desirable places to live all have relatively low vacancy rates for residential housing, and have for quite some time. Ie, it's rare to see cities with vacancy rates for apartments exceeding 3%, let alone a healthy 5%.[0] The CMHC estimates that by 2030 we will need 3.5M additional homes beyond the expected number to be produced.[1] The PBO has come up with similar numbers; roughly speaking, Canada needs to complete a new home every 50 seconds just to maintain current price levels.
There's much gnashing of teeth up here over our housing crisis, and it's clear to me that it's a multi-factor concern[2]. While there simply exists much more demand than the supply can service, the reasons for low supply are many and complicated. There are the obvious zoning and infrastructure issues; we don't build for mid and high density nearly enough, and we rely too heavily on cars. There's the labour supply issue the politicians focus on. But most unnerving, to me, is the suggestion that we simply do not have the capacity to produce or source the raw materials necessary in construction.
0: https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=341001...
1: https://www.cmhc-schl.gc.ca/blog/2023/estimating-how-much-ho...
2: https://thoughtleadership.rbc.com/the-great-rebuild-seven-wa...