Reasons for Shift in Housing Occupancy - 1980s
There are several key factors that influenced the shift in property occupancy in the 1980s. The so-called "1980's Property Boom" can be attributed to the influence of technical change. However, the huge increase in mortgage rates priced most Americans out of the real estate market, decreasing occupancy rates.
The Influence of Information Technology
- Technical change provided great influence on the shift of property occupancy in the 1980s.
- The most relevant ways in which technical change influenced this housing shift is seen in the effect of information technology on products and services, a rise of income amongst the U.S. population, and the effect of service industry growth.
- Technical change during the 1980s directly affected the housing market. Buildings (whether commercial or otherwise) are where much of economic change takes place. Altering those economic characteristics ultimately influenced the demand for property.
- Property builders had previously faced unknown variables in the housing market. Considerations (such as drawing up plans, approval of such plans, and any incurred project cancellation costs) were made more transparent through the use of new technologies.
- Consequently, long-term shifts with construction input had an effect supply and demand in the 1980s. The number of housing units available in the United States grew from 68.7 million in 1970 to 88.4 million in 1980.
- The problem in property occupancy became apparent when it was clear that there was a supposed lack of demand for all the supply in the housing market industry. Especially commercially, this boom created 10-20% more space than was needed, resulting in a decrease of occupancy and a huge drop in the real estate market.
- The apparent lack of demand in the U.S. housing industry was not actually a lack of interested buyers, but rather being driven by the insane increase of mortgage interest rates in the 1980s. This led to a drop in home ownership.
- Although the average cost to buy a home in 1981 was $82,500, the average mortgage rate was about 18.5%.
- Taking inflation into consideration, the average cost to buy a home in 1980 was equivalent to a $3,986 monthly mortgage payment today. Today, most interest rates on homes in the U.S. are somewhere between 4 and 5%.
- The increase of mortgage rates for Americans was so dramatic that home sales decreased by 50% between 1978 and 1982. In fact, this had such a profound effect on the housing market and occupancy rates, that it wasn't until 1996 that home sales once again increased past the 4 million unit level of sales seen in 1978.
To provide applicable insights surrounding the 1980 shift in occupancy, we consulted a research journal that discussed several plausible explanations for this shift. This journal examines global factors, and considers financial and service sector influences in the U.S. After finding relevant information about the 1980s boom, we then consulted several sources on the U.S. housing market and census in order to ascertain what the relationship was between supply and demand during this time. During this search, we found that there was a large boom in the building industry, but a decrease in occupancy.
In order to gain a clear perspective on what factors contributed to this seemingly low need for demand, we looked for resources from real estate industry experts. We found conclusive evidence that the shift during the 1980s was a direct result of high mortgage interest rates, which most families could not afford. We included applicable data to show how the market would look today with comparable rates.