What to Do with All the Unneeded Houses?

Posted by Dave Fratello on Thursday, July 31st, 2008 at 3:52am.

There are some unloved, unwanted homes – even new ones – in MB, but we don't have it nearly as bad as some parts of the state, or the country.

A fascinating article the other day over at Calculated Risk used Census Bureau data and other sources to estimate that, as we speak, nationwide there are "about 1.75 million excess housing units in the U.S. that need to be absorbed over the next few years." (See "Q2: Homeownership and Vacancy Rates.")

That 1.75m figure breaks down to:
  • 825,000 excess vacant homes;
  • 200,000 excess new home inventory; and
  • 710,000 excess rental units.
If these numbers are anywhere near accurate – and CR is sort of a stickler for stats, so we won't second-guess him here – they are an important measure of how greatly the housing boom/bubble led to wild, speculative overbuilding. What CR is saying is that there is just simply far too much housing for the people we now have in America who will actually pay for housing.

You can take another measure yourself next time you are flying in central or northern California, or over Las Vegas or Phoenix – check out the partway-developed new housing tracts.

They look different now, because you know they've stopped work on most of them.

You'll see the cleared, flattened land, dirt outlines of roads (with signature cul-de-sacs) and foundations, but no homes. Often, there's one model home sitting like an island amid the dust.

Nearby, perhaps Phase I has been built – a dozen families or so have bought into a new development, but they won't have any neighbors any time soon. Bonus: The kids will always have plenty of open space.

Leave it to the Wall Street Journal to propose a radical solution – "buying unsalvageable houses and demolishing them." That's the concept pushed by Holman W. Jenkins Jr., in Wednesday's edition (see "How to Shake Off the Mortgage Mess").

Jenkins notes, approvingly, a suggestion by Pimco's Bill Gross that, "in an ideal world," the federal government would "buy one million new/unoccupied homes, blow them up, and then start all over again."

Jenkins completes the rationale for utter destruction of bubble building thusly:
Fannie and Freddie's strength is housing market software: They could be put to work devising a least-cost, maximum-bang strategy for demolishing unoccupied homes to preserve as much value as possible for the homeowners and mortgage creditors who remain.
There you go. Part of the Darwinian unwinding of the housing bubble should include the actual, physical destruction of orphan housing to preserve market prices, equity and credit for the overwhelming majority of Americans who own homes and for banks and investment firms who play in the credit markets.

We would note that no one is (yet) proposing that homelessness could be solved by tapping part of this overbuilt inventory. Well, no one expected the WSJ to suggest that.

Somehow, destroying homes doesn't seem a fringe concept. And yet, the day that first FDIC/FHA/Fannie/Freddie bulldozer starts its tango with a McMansion – probably somewhere in the southwest, perhaps Stockton – we'll know we've reached a new stage in this bubble, or, more properly, its aftermath.
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