Has the United States Overinvested in Housing?

Several economists have concluded that housing investment has been excessive relative to industrial investment in the U.S. Most blame provisions of the federal income tax that favor owner‐occupied housing. This paper poses the question within a two‐sector neoclassical growth model which permits the social return to housing to differ from that to non‐housing. The model is estimated using national income accounts and capital stock data from 1929 to 1983. The conclusion is that the return to housing capital is about half that to non‐housing capital and that the housing stock should be about 75% of its 1983 volume.