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Stop building to help housing prices recover?

November 17, 2008 | 11:05 am

So many plans and ideas are being floated to repair the country's economic situation. David Reilly of the Wall St. Journal offers this take on home building in today's Heard on the Street: "Housing Supply Side Needs a Reality Test."

Home_building There is currently more than 10 months of home inventory. Homeowner vacancy rates are at historic highs of about 2.8%, compared with pre-bubble levels of about 1.7%, according to the U.S. Census Bureau.

Yet still they build. Data due out this week are expected to show that housing starts fell to a seasonally adjusted annual rate of 800,000 in October, according to Credit Suisse.

Housing construction levels are back where they were in the early 1980s. But it still begs the question: Why?

Clearly there is always going to be some activity in certain parts of the country. And projects take time to work through the system. But Merrill Lynch economist David Rosenberg suggests, only half-jokingly, that the Treasury should impose a moratorium on home building. "It sounds like lunacy, but we have to destroy the housing capital stock to help put a floor under the market," he said.

Is that throwing the baby out with the bathwater?

--Lauren Beale

Thoughts? Comments?

Photo: Jim R. Bounds / Bloomberg News