The Miami Paradox: Recessionary Risks to the Tri-County Housing Market

The Density Paradox

Housing affordability and density per unit are typically correlated. Housing markets characterized by high demand relative to supply tend to exhibit higher levels of density, i.e. more individuals living per housing unit. On the other hand, markets with an abundant supply of housing tend to have fewer individuals living per housing unit and a lower density score. Currently, the national average for people per household hovers around 2.5. [3]

Recent data from the U.S. Census Bureau's Population Estimates Program (PEP) for the Tri-County area yields an unexpected figure. With a population of approximately 6,584,834 distributed across 2,722,131 housing units, the area's raw average density per unit is just 2.42 people. This metric, below the national average, would typically suggest an oversupplied or balanced market where ample housing stock keeps affordability in check. [4]

Adjusting Metrics: The Seasonal Factor 

The reason for this low-density figure, despite widespread reports of an affordability crisis, lies in how the total housing stock is measured. The raw calculation includes a significant number of housing units that are not available for year-round, primary residence occupancy, which results in an inaccurate estimate of the average number of individuals living per housing unit.

When accounting for vacation homes, second homes, and short-term rentals (properties that are not occupied as primary residences), the picture changes dramatically. It is estimated that approximately 350,000 units in the Tri-County area fall into this category. [5] Thus, the current available housing unit count for the Tri-County area is closer to 2,372,131.

After adjusting the denominator in the calculation of density per unit to exclude these seasonal properties, the effective density rate jumps to approximately 2.78 individuals per occupied unit. This adjusted figure aligns far more closely with a housing market experiencing high demand and low effective supply, validating the public perception of an affordability crisis. Therefore, the Tri-County area does not suffer from an absolute shortage of structures, but rather a shortage of housing units dedicated to local, year-round occupancy.

The Recessionary Risk Factor

The significant number of non-primary residences constitutes a major risk factor for the stability of the Tri-County housing market during a severe national economic downturn. The risk materializes through two distinct but related channels: increased rental supply and increased inventory for sale.

Downward Pressure on Rents

A major recession is likely to curtail discretionary spending significantly. Non-local Tri-County owners relying on short-term rental income (e.g., Airbnb, VRBO) may find demand evaporating as tourism and leisure travel decline. To generate cash flow and cover mortgage payments, many of these owners would likely shift their properties from the short-term vacation market to the long-term rental market.  This sudden influx of thousands of units would increase the supply of year-round rental units for local residents and exert significant downward pressure on area rents. Declining rents subsequently diminish the financial incentive for prospective buyers (both investors and residents) to purchase homes, stabilizing or decreasing property values.

Increased Inventory for Sale

The more significant threat to home prices stems from widespread economic distress and its impact on home prices. A severe recession often leads to job losses, reduced investment portfolios, and general financial strain for households nationwide. Non-local owners of Miami area second homes and short-term rental unit owners, facing financial difficulties, may choose or be forced to liquidate non-essential assets inclusive of their Tri-County area properties.

A wave of properties hitting the "for sale" market simultaneously would dramatically increase inventory levels.  In a buyer's market driven by economic fear and high supply, prices would inevitably fall. The degree to which property values would fall seems logically tied the significance level of the recession.

Conclusion

The Miami Tri-County area’s unique market composition (characterized by a high proportion of investor-owned and non-primary residences) sets the area up for a potentially sharp correction during the next major national recession. While the local market has struggled to resolve its persistent affordability crisis through organic supply-side solutions, a major economic contraction may "come to the rescue" by artificially depressing values. This adjustment, however, would come at a high cost, likely resulting in billions of dollars in lost household wealth and home equity for area residents and investors alike. [6]

The author invites critiques from market participants, academics, media, and governmental agencies.

Endnotes

[1] Miami, FL has been consistently ranked as one of the least affordable US cities. See reports from sources such as ATTOM Data Solutions, and the National Association of Realtors, among others.

[2] The Tri-County area is the OMB designation for the Miami-Fort Lauderdale-West Palm Beach, FL Metropolitan Statistical Area. 

[3] For information on average U.S household size, refer to sources like USA Facts and Statista.

[4] Estimates of housing units and population are provided via Census Bureau’s Population Estimate Program through April 1, 2024.  The program’s latest vintage as of the writing of this analysis. Specifically, see CO-EST2024-HU-12 and CO-EST2024-POP-12. From there housing units and population are extrapolated to the date of this analysis based on the growth in population and housing units from 2020 to 2024 in order to provide the most current estimates.

[5] Lending Tree: 5.6 Million Homes Are Vacant in Nation’s Largest Metros — Here’s Where Vacancy Rates Are Highest, Lowest.

[6] Gemini Pro was utilized for minor copyediting, enhancement of readability, and handling data queries.

Contact: Ken Johnson, Ph.D.
Christie Kirkland Walker Chair of Real Estate
University of Mississippi
Khjohns3@olemiss.edu