Staff Reports
The Supply Side of the Housing Boom and Bust of the 2000s
2014 March 2012 Number 556
Revised October 2012
JEL classification: R30, R14, D40

Authors: Andrew Haughwout, Richard W. Peach, John Sporn, and Joseph Tracy

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.

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