Shadow inventory. It was supposed to be the boogeyman of the real estate bust, thousands upon thousands of unsold properties scattered across the city. Bought or built for more than they were worth, people would hang onto these homes until the market improved, giving a better appearance to the housing supply than actually existed. It’s like the difference between the standard and broad rates of unemployment.
I never quite understood this idea of a shadow inventory — supposedly the apartments that hadn’t been leased in developments. I thought, well, when the market turned down, they will be rented and they’ll come on slowly — which is exactly what’s happening now. The demand for new product and the latest is really out there.
Hurray! Disaster averted. Not quite. The Observer checked in with shadow spook Jonathan Miller and he agreed that indeed shadow inventory was down from what he presumed was about 6,000 units at the peak to about 3,000 units of unsold wanting units today. But he still insists this is a tough trend that could take a few more years to fix.
“This should not signal to people that it is time to go out and start building again,” Mr. Miller said. “It’s like losing 100 pounds and still being 50 pounds overweight, and then saying it’s time to start eating again.”
Mr. Miller said we should actually thank the banks for helping out on this count. Because they continued to deny just how much the value of their assets had declined, because it threatened the financial firms own survival. As a result, many properties that would have been foreclosed on and sold off were held onto, converted into rentals and hotels or sold off. There is still plenty out there to worry about, though.
“This is a problem that has been managed by attrition, and we’ve ended up in a better place than we were, but we’re still not out of the woods yet,” Mr. Miller said.