With the consistent news about declining home values and stagnating sales, its easy to forget that, in effect, there are two housing markets in the U.S. - those for owners and those for renters. Guess which one is booming.
As Matthew Yglesias reports, a number of factors have conspired to push the purchase-price to rent ratio as low as it ever gets, and things are primed to get even worse. With a glut of jobless people living with family members who would under normal circumstances be living on their own, called "shadow" households, there is pent-up demand waiting to be unleashed on a rental market that is currently at its lowest vacancy level in a decade.
According to Yglesias, now that jobs are being created again, the storm clouds are gathering. "The country has been on a decades-long drought of large-apartment-building construction. We're now facing a perfect storm of demand, thanks to a growing population of empty nesters with busted 401(k)s looking to downsize and the huge backlog of twentysomethings who still need their first place."
So what is the solution? Unleash foreclosed homes onto the rental market? Yglesias isn't convinced. He sees new construction as the only avenue to fix the imbalance. "Unfortunately, intrusive anti-density regulations will make it difficult to build as much or as quickly as there's market demand for. Mayors looking to boost their local economies should move to deregulate and unleash the pent-up demand."
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