Housing prices are rising but construction isn't taking the cue. The market is broken again, and not only in Seattle.

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The mid-2000s housing crisis was oversupply and rackets on Wall Street, including subprime loans where the late Washington Mutual was a key part of the supply chain of doom. The new one is lack of supply even as the country keeps adding population.

Seattle is one of the fastest-growing cities in the nation, and yet the chart above — for the Seattle-Tacoma-Bellevue metro area — shows that new single-family house construction is badly lagging.

The market is failing on several fronts. Builders aren’t responding to the price signals, even though metro prices keep racing ahead of the S&P/Case-Shiller 20-city index. Sellers aren’t willing to take handsome profits because they are afraid they couldn’t afford another house here. The low inventory isn’t encouraging much new residential construction, outside of apartments.

And lest you think it’s about urban growth boundaries (and there are plenty of places to build, albeit fewer in most-desirable Seattle city), the problem is nationwide, according to Matthew Yglesias.

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A key problem, he writes, is “after years of financial crisis and recession, a large share of Americans are simply too burdened by low wages, past foreclosure, depleted savings, and overhangs of other debts (student loans, medical bills, etc.) to buy starter homes. And while investors were willing to pick up vacant or bank-owned single-family homes for pennies on the dollar during the peak slump years to operate them as rentals, nobody is excited enough about the business of operating single-family rental homes to actually go out and build vast new tracts of modest-size single-family homes destined for the rental market.”

It goes deeper than that. The post-recession jobs landscape has been unforgiving. Good jobs are being created in a relatively few metros, especially tech and energy centers. And in many places, the “recovered” jobs pay less than those that were lost. Many metro areas with a substantial housing inventory lack high-paying jobs.

Yglesias argues that “unsticking” the housing problem would solve several economic woes at once. I’m not so sure. Real recovery depends on a major and sustained national infrastructure program (and not just or even primarily “roads and bridges”). But that, dear reader, is a column for another day.


Today’s Econ Haiku:

Job cuts at Boeing

Execs will give back, too, right?

Or would that not fly?