We talked about SB50 in class a few days ago, my undergrad class, and I had a student come up to me later and say “How can you say that we need more housing when vacancy rates are so high?” I asked her where she got the impression that vacancy rates are high in Los Angeles, and she told me about a study from some well-intended people at Luskin who published a study that pretty much epitomized why vacancy rates are not a great measure of the many things that both YIMBY and tenant orgs cite them for.
I don’t link to the study because I don’t want the dunks to start again, and plenty of people criticized that exercise already, but I have since had (also well-intended) YIMBY folk quote vacancy rates at me, leaving me my normal, nonplussed self.
We can put vacancy rates in with average rents as being decidedly poor measures of where we are in terms of housing supply and demand information. Point-in-time rate measures are useful in engineering but descriptive in social sciences, and there are so many things about vacancy rates that are not likely to add up that it’s kinda hard to know where to begin.
First off, a 1 percent vacancy rate is low, but not if a week after the occupancy rates were reported, 100 new buildings with 11 million new units available come on the market. Just so, an 80 percent vacancy rate is high, but not if it describes the occupancy of the 50 available rental units and 11 million families are heading towards the city in Uhauls. These are silly, extreme examples, but you get the point: vacancy rates, like average rents, are only really illustrative when we have repeated measures over a relatively long period, and those measures stay relatively stable over that time. How long indicates a decent market-clearing supply rent profile? I don’t know. How stable? Don’t know that either.
A second problem is that we really don’t know for sure what the relationship, and the timing of that relationship, between rents and vacancy rates. WHOA NELLY. I know right at that point I have YIMBY advocates clearing their throats to yell at me that OF COURSE, WE KNOW THAT LOW VACANCY MEANS HIGH PRICES DUH ECON 101 LADY. Yes, but blunt theoretical knowledge of that relationship really doesn’t tell us when one moves the other or vice versa, and these very likely seems to be mutually reinforcing phenomena. At what vacancy rate, for how long, do landlords really get the message that they have to go lower/can’t go higher? And how much lower do they go when they do go lower? Ditto with renters: are they aware of vacancies such that they walk from bad deals? What about places with lots of recent migrants who are very unlikely to know the rental landscape and very likely take what they can get until they know the place well enough to shop around?
How good even are periodic vacancy reports? Data are scarce enough in housing, and much of it is proprietary, and call me old-fashioned, but I don’t trust business or business associations collecting and reporting data properly. The more information have about their competition, the better, and they all know that, so gaming data that you report to others strikes me as possible but likely, and it also seems to me that the bias here is likely in favor of over-reporting occupancy rather than under-reporting.
This is not me trying to do some “oh see your measure is wonky you can’t prove there is a housing shortage” nonsense. It’s very clear from the accumulated evidence that California cities are too expensive and supply lags are a major part of the problem. It’s just that vacancy rates do not give us much of a guidepost, and granted that they are one of the few data points available, it’s fairly easy for that one, wonky guidepost to be less helpful than we need it to be.