The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
The Outreach and Education function engages, empowers and educates the Second District communities that the Bank serves, especially civic leaders, students, educators, small business owners, policymakers and the general public. It furthers the Bank's commitment to the region by listening to the communities we serve and leveraging our unique attributes to positively impact school and university programs, as well as analysis and research.
The boom and subsequent bust of housing construction and prices over the 2000s is widely regarded as a principal contributor to the financial panic of 2007 and the ensuing “Great Recession.” Much has been written about the demand side of this pronounced housing cycle, in particular the innovations in mortgage finance and the loosening of underwriting standards that greatly expanded the pool of potential homebuyers. In this paper, we take a closer look at developments on the supply side of the housing market, and bring prior theories and previous analysis of housing supply face-to-face with data from the 2000s cycle. We focus our discussion on four key issues. First, how much excess housing production occurred during the boom phase of the cycle and how far along is the correction? Second, we look at trends in the characteristics of new single-family homes built prior to, during, and after the construction boom to assess what effect, if any, the boom may have had on those trends. Our third question is how the homebuilding industry changed as prices boomed during the 2000s. Finally, we address the important question of whether large developers reaped excess profits from the boom, or whether excess demand simply drove up land values in specific markets, enriching landowners.