Forty Million Houses in the US That No One Needs?

40 million houses too many ... one explanation for falling prices ... America has too many big houses – 40 million, to be exact – because consumers are shifting preferences to condos, apartments and small homes, experts told the New Partners for Smart Growth Thursday, holding its 11th annual conference in San Diego through Sunday. Relying on developers' surveys, Chris Nelson, who heads the Metropolitan Research Center at the University of Utah, said 43 percent of Americans prefer traditional big, suburban homes but the rest don't. "That means we are out of balance in terms of where the market is right now, let alone trending toward the future," he said. He estimated that this demand suggests a need for 10 million more attached homes and 30 million more small homes on 4,000-square-foot lots or less. By contrast, demand for large-lot homes is 40 million less than currently available. "Is it any wonder that suburban homes are plummeting in price, because there is far less demand of those homes than in the past," he said. – UT San Diego

Dominant Social Theme: Another day, another market failure.

Free-Market Analysis: This article originally appeared in early February but is still being picked up around the web – and it certainly provides us with a shocking observation.

In fact, it is worth commenting on here because it is a kind of dominant social theme: Market failure provides us with these kinds of distortions. They are worth mentioning in passing but nothing can be done about them because that's the way the world works, or maybe not ...

In fact, if you multiply 40 million houses by about US$ 250,000 (the approximate average of US home prices in 2011, per US Census figures) you end up with a fairly frightening number – in the area of multiple trillions. About US$ 10 trillion, to be exact.

But McMansions are not ordinary houses. They're supersized with 3,000 to 4,000 feet of living space. And during the boom years of the mid-2000s many sold for upwards of US$ 500,000, especially on the East and West Coast. Add up the figures and that's a whopping US$ 20 trillion not US$ 10 trillion (bad enough).

That's right. Wipe US$ 20 trillion or so off the gross national product, which is somewhere in the area of US$ 12 trillion per year and you're looking at a serious market impact. Twenty trillion is no one's "small change." Here's some more from the article:

Shyam Kannan, director of the economic development practice at the Robert Charles Lesser & Co. consulting firm, said his company made its money in recent decades in advising builders of suburban master-planned communities. But that emphasis is shifting with consumer patterns.

"Many master-plan developers realize golf courses are dead and the town center is in, and they're working as hard as they can to deliver it," he said. "Unfortunately, they're bumping up against entitlement problems on the public side more often than not... We need to push public policy to keep up with the builders."

Joe Molinaro, who heads the smart growth program at the National Association of Realtors, shared the results of 2004 and 2011 consumer surveys to explain why preferences are changing.

Factors include a desire for shorter commutes, walkable neighborhoods, economic considerations and, in the case of Generations X and Y, born between 1965 and 2000, they want the non-car mobility they did not get as youngsters.

"Having the freedom not to be tied down to a vehicle all the time is a big plus to that generation," Molinaro said.

"Smart growth," loosely defined as nonsprawling developments that minimize distances, maximize public infrastructure investment returns and promote environmental sustainability, has been a buzzword in planning circles since the 1990s.

You see how matter-of-factly this disaster is being treated? We are simply supposed to accept that the market itself misjudged US$ 10-20 trillion worth of houses.

Of course, those who subscribe to Austrian economics have a different perspective. The theory of the business cycle market distortion starts with the overprinting of money and ends with greatly distorted economies.

But now we have a number – a helluva large number. It certainly puts things in perspective. When we speak of monopoly fiat distorting the economy it sometimes seems removed from reality. But US$ 10 - $ 20 trillion provides us with a fairly succinct viewpoint. An economy that has to write off this kind of figure is an economy that is not going to see "recovery" for a while.

Now, we should also point out that this number comes from a "smart growth" conference that attracts public planning types that would be biased against McMansions for a number of reasons, starting with the idea of "ostentatious consumerism."

Sometimes it seems public planning types won't be satisfied until everybody is sitting in cardboard boxes, shivering in the dark. Still, we've read enough articles about this sort of housing to know a goodly percentage probably was either marked down or destroyed.

At the top of the boom, houses were built too far from cities and the combination of taxes and costly gas made such developments unrealistic. Developers were blinded by dollar signs ... the kind of easy money that was pouring off Fed printing presses and circulating with considerable velocity.

But all that is changed now. Money is not circulating and houses in the US (and Europe, too) are not selling quickly or at top price. Many are still not selling at any price.

You would think the money men in charge of the expansion of currency would have learned their lesson. Not at all. Ben Bernanke has been printing money day and night ... and weekends, too. Congress is obviously on board as well, as the Fed can't print without congressional approval.

The same over-printing of money that caused this incredible waste is still ongoing. In fact, it is seen by the powers-that-be as the solution to the current economic crisis.

Conclusion: It is NOT the solution. It's the problem.