Kevin asks

In the medium scenario, there would be an increase of about 7 million units, compared to 6 million for the past decade. That doesn’t sound especially Armageddon-like. I’m having a hard time getting too panicked about this.

In any case, this is a chicken-and-egg problem. If the economy is bad, then fewer people will buy homes. If the economy is good, more people will buy homes. No surprise there. But of course, if more people buy homes, that will help drive the recovery. Would you care to weigh in on this, Karl

Having glanced over the report there general analysis seems fine to me.

The framing seems to be around boomers but as this chart and Kevin indicates the this whole thing turns on Echo Boomers.

That’s what I was referring to in Growth, Interrupted.

There are a several levels to look at this from.

One, this is how a kick-start would work. If you can find some means to bring job growth up to the point where echo boomers are moving out into there own places this in turn creates demand for homes which creates construction jobs which creates more demand for homes. You move from the low scenario to the high scenario. You move from Amerosclerosis to Morning in America.

This is why whether or not the Fed allows the economy to kick is a big deal. If nominal interest rates are guaranteed to stay low enough for long enough then it will be in some bank’s interest to bet on the high path. This of course is self-fulfilling and when enough people bet we move to the high scenario.

Two, this is not a chaotic multi-equilibrium scenario sensibly dependent on initial conditions or herd psychology. This is a simple path jump. It doesn’t require people to “believe”  or to be “confident” in the future or the success of the American project. It requires cash.

Three, I do suspect that something like this is the mechanism behind hysteresis. If you have low capital formation for a number of years then its going to take a boom to bring you back up to normal. Yet, such a boom will almost certainly involve high investment at the very same time that there are improving long term prospects and hence higher demand for consumption. However, because it take time to build capital the intervening period will be tight and inflationary.

In our case of housing the mechanism is obvious. Less unemployment means more demand for housing which means higher rents until those houses are built. If you could – at low cost – build a house in a day you wouldn’t have this problem. Because you can’t, you do.

However, once you punch through and get the stock of housing built-up and cruising at equilibrium levels unemployment can fall further without generating as much inflationary pressure.


Folks talk about the impact of the baby boom but this report has a nice chart that shows why that’s over rated. Immigration essentially smoothed out the baby-bust.