Erdmann Housing Tracker · Housing & Cities
TIER 4 Fri, 10 Oct 2025 18:44:29 +0000
In the previous post, I argued that economic conditions in 2023 and 2024 are what recessions look like under a housing shortage. ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ | | ---|---|--- | | | Forwarded this email? Subscribe here for more --- --- # Residential Investment in the Would-Be Recession of 2024 | | Kevin Erdmann --- | Oct 10 --- | --- --- | | | --- | | --- | | --- | | --- | | READ IN APP --- In the previous post, I argued that economic conditions in 2023 and 2024 are what recessions look like under a housing shortage. Upgrade to paid Here, I want to touch on one final aspect of that, which dovetails with a series of posts scheduled for next week, where I will outline a standardized analytical product I have developed for distribution. In the previous post, I discussed employment trends, construction employment trends, multifamily housing starts and completions, and interest rates. And, I noted that they look like what a would-be recession looks like under housing shortage conditions (like 2001-2002 and 2006-2007). Here, I want to discuss residential investment. In the 20th century, residential investment was very volatile across the business cycle, and it was especially volatile in multi-family construction. | | ---|---|--- You can see the same pattern in starts. Starts move together in both single-family and multi-family. In the 20th century, multi-family starts tended to be at least as volatile as single-family starts. Now they are not. The only common deviation is that single-family starts tend to be an early recovery signal - turning back up before the recession is officially over. Multi-family residential investment recovery sometimes lags single-family just a little bit. This is probably mostly a product of the longer production time, so it takes longer for production decisions to play out as investment. | | ---|---|--- Remember, my assertion is that in the post-Covid period, it was harder for NIMBYs to vocally dominate municipal meetings, and so there was a temporary boost to the number of multi-family projects that were approved. In the starts chart, you can see that single-family and multi-family starts rose together as they usually do. But, look at Figure 1. After 60 years of residential investment moving together, in 2022, suddenly residential investment in multi-family jumped higher and at the same time, it jumped lower in single-family. Then in 2023 and 2024, they reconverged. That has never happened before. They have moved at different scales, or with slight differences in timing. They have never moved in opposition. That is because we are now supply constrained in a way that has never been binding before. Since we are supply constrained, when multi-family starts claimed more resources, they had to come out of single-family activity. So, during that period, single-family construction delays accumulated. One explanation for that is that multi-family is normally supply constrained by local land use regulations. Many projects require local zoning variances. When those variances are issued, the land that is approved gains value. There is excess value due to the regulatory arbitrage associated with arbitrary zoning limits and changes to those limits, so there is wiggle room for those projects to bid up input costs to proceed profitably. It is widely appreciated that spot upzoning increases land values. Some would go so far as to claim that broad upzoning would raise land values in total. I wouldn't go that far. But I think we can stipulate without debate that upzoning adds value. That means that constrained supply elevates land values. Where supply constraints are removed, land values will decline. So, I think a plausible explanation for the odd divergence between multi- and single-family construction in 2022 is that where housing is located on inflated land, market forces will drive construction higher on those homes wherever the capacity to build them exists. That isn't necessarily great for builders. The land is the binding constraint. The profits go to the landowner. Volatile market conditions can create financial stress for the builders or building owners even if the market is still settling at elevated prices because the landowner captured most of the gains. On the other hand, if building capacity increases enough to lower the scarcity premium on land, there is no downside protection for the landowners. Locational and amenity value is pretty stable most of the time. And value added work to prepare land for development can be reliable. But in cities where scarcity value has risen to $100,000s per home, there is nothing to stop that from dropping to zero. Landowners and developers who don't understand that the market has changed, but only temporarily, may be in for a world of hurt. Most cities now have land premiums on all lots - even single-family. Few cities had land premiums before about 2015. This is very unusual. As they can be built, they will be built. Just like with multi-fam, they will be built because the land owners can capture the premium, and so they will. But, the result of that building will be to reduce the land premium on all the other homes in the city. The only way to stop this process will be to ban it. It is already limited everywhere by overzealous mortgage regulation and by binding local zoning limits. Many places will effectively cap building at unsustainably low levels by adding a ban on new single-family rentals to those other limits. In the following posts, I am going to outline how the scale, trend, and likely path of that scarcity premium can be tracked and forecast in every market, and may be the single most important information developers and investors in the housing market track for the foreseeable future. And, I would argue that the little mini-boom in multi-family construction that started in 2022 when we briefly loosened the straightjacket on that market is a clue about how readily homes will be constructed when the resources are available to build them on land with a scarcity premium. Upgrade to paid You're currently a free subscriber to Erdmann Housing Tracker. For the full experience, upgrade your subscription. 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