You are here

Anatomy of a Market Crash: Suburban Housing Supply in California: 1989 - 1994

David Dale-Johnson
Prices of existing houses peaked in southern California during the second quarter of 1990 and preceded a lengthy recession. This paper examines the response of homebuilders in a master planned community in the suburban Los Angeles region to the end of the boom and the onset and deepening of the recession. There has been little research which has focused at the micro level on builders’ responses to changes in market conditions. This paper will employ data from master planned community home builders in Riverside County between 1989 and 1994 to examine the dynamics of the market. This analysis sheds some light on the volatility of housing starts not attributable to price changes in previous studies. For example, builders are found to shift to producing low cost or lower priced housing units presumably in response to changing consumer preferences. This adjustment does not arise from design changes but simply producing more of less expensive product that had already been planned and curtailing production of higher priced houses.