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Today’s episode is about the US housing market.
This is our first curiosity Corner.
Episode curiosity corner.
Is this new thing that we’re doing on plain English?
Where we ask for your curiosity, is your questions, your anxieties and then we try to answer those questions on the podcast and it seems like in the first few batches.
A lot of you had the exact same curiosity, question, anxiety, namely housing.
So in this podcast, we answer all of your housing Curiosities, what’s going on with the u.s.
Real estate market.
Is this a bubble?
Is it first thing, why our homes in America so expensive?
Why are we so bad at building houses in the first place?
And why is there so much homelessness in America’s richest?
I say, most liberal cities.
The Atlantic Jerusalem Dems has is today’s guest.
She is probably the sharpest and most entertaining housing writer that, I know, and she answers all these questions and more getting into the deep roots of why America sucks.
So much a building, not only houses, but also building highways.
Green energy projects building basic infrastructure, but first a couple of points about the US housing market today to ground our discussion.
The US housing market is, there’s no other way to put this, it’s been really really crazy.
Like if you’ve tried to buy a house or apartment condo in the past few years, you have dealt with so much shit.
You’ve probably tried and failed to buy several different properties.
You’ve probably discovered that approximately 100 people put in offers for every new home that is listed.
You’ve probably tried to offer like 20 30 % / listing and lost to somebody who went 60 percent overall cash.
And this is all because in the last year, just about every housing, statistic, you can imagine set some kind of weird-ass record home, prices, all time, high share of homes, that sold above asking, all-time high.
And this craziness started before inflation.
Took off in the broader economy.
But it’s probably going to come to an end now because inflation took off, let me explain the Federal Reserve has four years set.
Its interest rates very, very low to stimulate demand and investment like investment in houses mortgages on top of that, the FED has been stockpiling more than two trillion dollars in mortgage-backed Securities that was designed to help push mortgage interest rates even lower than they would otherwise be.
But now the FED is changing course.
It’s looking at a And inflation and saying.
Nope, we cannot have that and so mortgage, interest rates are rising from a record.
Low level at a record high Pace, kind of confusing.
The level of mortgage interest rates right now is not anywhere near an all-time high, but they’re rising at an all-time high rate.
So what the FED is trying to do here is to cool.
The housing market down, plain and simple.
They’re trying to cool down demand and guess what?
They are succeeding.
Brilliantly or tragically, depending on what side of the housing market.
You’re on, on Tuesday.
We got word that new home sales, fell 17 percent.
In April, inventory, is rising across the country.
Some people are starting to worry that we are entering another housing bubble.
Like we saw in 2007, 2008, whose crash caused the Great Recession.
So that is the context for our discussion today.
If you have more questions, please please keep sending them to plain English and Spotify.
Come, I’m Derek Thompson.
This is plain English.
Jerusalem Dem says, welcome to the podcast.
Thanks for having me.
So in our curiosity Corner mailbag, our first-ever curiosity Corner mail bags.
We got all these questions about housing and I was like, okay, who do I know, who is unhealthily?
Obsessed with housing policy?
Healthily obsessed with real estate economics.
Oh, yeah, duh, it’s Jerusalem.
So Jerusalem, that is why you are here.
I want to start with all the questions that we got about the latest breaking news, which is the very high likelihood that we are at or near the peak of the housing market right now.
And the fears that we might be witnessing the popping of a massive housing bubble.
So reading from the mailbag here.
First name is only Al asks quote.
It seems like 2007 all over again.
Am I paranoid or is the housing market?
Not overinflated and the lending under-regulated?
I would love you and your expert steaks and predictions.
And quote, John asks, quote.
What would a housing bubble look like in 2020 to 23?
2008 was caused by flimsy buyers, who should not have been approved for a mortgage lending and led to a wave of foreclosures, but this time around that doesn’t seem to be the issue.
So Jerusalem, I want to start.
By defining our terms like cable news and other podcasts are going to throw around, you know, this word bubble as if it has some objective mathematical definition that you have written directly about this.
You have spoken directly to Nobel prize-winning economists about the word bubble.
What does bubble actually mean?
So this is kind of the problem is that there’s not actually a really great specific agreed-upon term for what an asset bubble is.
I think the The, the most interesting thing.
Someone said to me, when I was trying to track down, how to define.
This was Nobel, prize-winning, Economist, Richard Thaller.
He thinks about it as kind of an epidemiological phenomenon.
So kind of like it’s the epidemic of an idea of a feeling of what one should do with one’s life or Leisure or what school, so it’s not just for instance, that like prices rise really quickly like prices have risen about a lot of things but people don’t really talk about there being like a bubble in, you know, cars or anything like that.
That kind of discourse around it the same way, there is around housing.
So it’s not just that there’s a run-up in prices but also sort of like this idea that, you know, everyone’s kind of getting it on it because, you know, that’s what school or that’s like the thing to do or that’s what Smart Financial people do.
And so that kind of accompanying frenzies.
I think what people really get at when they mean there’s a bubble here.
It’s not about the fundamentals.
There’s like something else going on, right?
Is that about the fundamentals of supply and demand?
It’s about a social epidemic of Percy?
Seed coolness and then that’s social epidemic pops.
Like for example, people are talking about a bubble in NF T’s in the crypto Market or a bubble in cryptocurrencies.
And the thinking there is that the cryptocurrencies themselves or those n FTS aren’t necessarily doing anything.
Fundamental people were paying a million dollars for them because they thought they were really cool.
And then all of a sudden they kind of change their mind, they’re like, they’re not cool anymore.
And so the value fell from a million dollars to whatever $1.00.
So a bubble.
I think just in really simple terms.
Is a bubble is something that pops like Define narrowly.
A bubble is something that inflates and inflates and then it pops.
And so when people think about it, in terms of the housing market, what they’re really saying is is the housing market, going to pop our price is going to fall and not just one percent.
Two percent three.
Are they going to fall 20?
Are they going to fall?
30% are real estate value is going to be decimated in my local market.
So let’s make the case for and against a housing bubble happening right now, Jerusalem, make your best.
Case that we are in or about to be in a housing bubble right now.
Yeah, so the best case is just looking at how crazy these prices have gotten.
So Harvard Economist Robert, Robin, Greenwood and fellow researchers to sort of look at 40 times that stock prices have increased over a hundred percent and they do find that when that happens when a crypt quick price, boom occurs.
There is an increased probability of a crash.
So we have some of the fundamentals available.
Crash to occur in this market, which is that there’s been a massive run up in home prices.
They are higher than they’ve ever been before median home prices about four hundred thousand dollars was Unthinkable very recently.
And so that’s one of the big things and the second thing is this idea of this epidemiological phenomenon is obviously they’re right.
You hear these absurd stories of people offering to name their children after the seller of a home.
If they were favorite story, my favorite story from Redfin last year that a buyer offered to name.
They’re first born child after the seller and yet was rejected.
Let’s reject that get the house even creepy.
So that’s I would have rejected that is good for Humanity that that offer was rejected.
But that’s not the only thing, right?
Like there are these phenomenon of these buyer Love Letter?
It’s what you’ve become, you know, super common for people to write these letters explaining like you should pick me because, you know, I have two kids and we’ll go to the Catholic Church nearby I or something like that.
And obviously there are a lot of fair housing applications there.
We won’t get into, but I all these Types of actions and behaviors are ones that kind of indicate that there’s something.
This frenzy is not purely, just a logical decision being made about.
I want to buy a house for X y&z reasons.
And so that kind of friends use their.
There’s like, even when you talk to real estate agents, they talked about the type of behavior, they’re witnessing and these like often even very very upper middle class or upper class neighborhoods where people are like shocking in line.
Like they have to hire security guards to make sure like, they can bounce, people who are behaving appropriately.
So this sort of phenomenon is clearly their of people engaging in this way.
So those things are, are pretty true.
I just stop you right there.
I think you’re absolutely right.
I think it’s important to say that there is unsustainable behavior in the housing market.
We are not going to have love letters written forever.
I think we are not going to have offers to name firstborn children after the seller for the next few months or years.
Got God willing, that kind of behavior might be a kind of a social bubble, right?
That might pop.
But what the, what Al and John a fundamentally asking is our housing prices a bubble, right?
So look just about every house insist that you could imagine set some kind of weird-ass record in the last two years home, prices hit a record-high to share of homes that sold above asking.
He had a record high, the number of available homes.
Sometimes called inventory, that hit a record low.
So it’s been record, record record all across the board and that seems Bubblicious, but I thank you.
And I agree that this is probably not what most people would think of as a housing bubble, or at least, we are unlikely to see prices decline, ten, twenty thirty percent in some of these major markets.
So, tell me why you might be a little bit skeptical that we are in a housing bubble right now.
Yeah, so there are a few reasons, firstly.
When you think about, I think a lot of times the most recent housing market phenomenon, people really remember is the Great Recession.
There are A lot of differences between what happened then and now and primarily it’s the types of people who are able to buy housing.
So post Great Recession.
There’s a bunch of credit tightening that occurs accrediting standards that occur in order to make it more difficult for people who may not be able to afford it to buy homes.
What we now see is that the lower bound of credit worthiness to qualify for a mortgage has gone up significantly and the people who people are buying homes are often like pretty wealthy individuals and people who are able to bid out ahead.
Ed of, you know, 10 20, 30 people, in many cases, these are individuals who can make all-cash offers in many cases.
And so and I think a lot of people feel this reality to where they see like it is not possible for someone to find a starter home.
It is not possible for regular people to get out of rental markets and and to go and buy their first home.
And so, you know, so I think in many cases that’s one of the reasons why you shouldn’t try to try to analogize this situation to what we saw during the Great Recession.
It’s a very different population of people who are getting involved.
So we have a higher Lure of credit.
Worthiness lending, conditions are more strict.
Number two, number three.
It’s an epidemic of cash offers rather than an epidemic of subprime mortgages.
Like those are kind of the exact opposite.
Like it’s very, it’s very secured to say, I have all the cash and buying this house with all of my savings rather than to go into debt in order to get a subprime mortgage, that you can’t afford relatedly.
We’re not seeing a wave of foreclosures and then this is really important.
And I know that you’ve written about this.
I want you to comment on it as well.
Inventory is really different.
So inventory is the availability of unsold homes in a local area.
And when inventory is low, as people trying to buy houses in, let’s say Los Angeles, Denver Boise.
Are certainly recognizing.
When inventories low housing prices go, crazy bids.
Go over asking everyone like housing house, goes up for sale and you get 20 offers in the first few days.
So that’s what we’re seeing now.
And that is, this is so critical, the opposite of what we saw in 2005, 2006, 2007.
So in 2005, there’s this economist Bill McBride who famously calls the housing crash and he calls it because he’s looking at the statistic of existing homes months of Supply in inventory.
And he sees it, Serge for about four months of Supply to eight nine, ten months of Supply over the Of a few years right now.
We’re at two, maybe three months of Supply is a totally different economy.
And that’s why he says, were much more likely to enter situation.
That’s akin to the late 1970s, early 1980s.
That’s a period.
When we saw housing prices rise.
We had high inflation.
The Federal Reserve comes in.
They say we can’t have this.
They jack up mortgage interest rates it cools off the housing market.
Real prices fall a little bit basically housing stalls rather than crashes and then we come out.
On the other side, basically, just fine.
In the 1980s least in terms of housing market.
We did suffer a pretty serious recession in that period that seems to me like what we’re going to see in the housing market.
Not a crash but a stall.
Do you agree?
That inventory is a key statistic to look at here.
I mean, I think that it’s really feel to imagine that a bubble could pop in housing when there are so few homes available.
And the demand is still pretty strong.
Like we’re going to talk a lot.
I mean you’ve And about this recently Derek about how this demand is cooling off as mortgage rates.
Rise above 5 percent for the first time, the 36 30 year fixed rate mortgage has risen above 5% for the first time since like 2010 or something.
And and so you know that the all those facts are true.
But at the same time, you’re still seeing like I think 59 percent of homes sold above list price in April.
So it’s not a situation where this cooling is leading to the fact that like, there’s no one trying to buy homes anymore.
I have people texting me, they I do housing policy, but guys, I can’t help you with your real estate, whether or not, they should be selling, they should be scared to sell their home like a couple of months.
Like I mean, I’m not going to tell you what to do or not, but this is not a situation where we are precipitating a massive crash or anything right.
The demand is pretty strong here.
The fundamentals about the largest generation in American history.
The Millennials are still entering their Prime home buying years.
It’s also the case that these are especially this is a generation that is experiencing remote work in a different way than any generation before has.
And therefore, has the To purchase homes in a larger, you know, array of housing markets, like their parents were kind of constrained to job centers in a way that this generation may not be to the same level or is definitely not to the same level.
But overall, we’re going to see continuing strong demand for new homes.
We can see this in the home construction start numbers.
And so that’s that’s pretty clear.
That’s all great.
And I love the fact.
He broke it down that way that there are.
There are some forces that are clearly acting to push down home prices, right?
A rising faster than they’ve increased in the last 50 or 60 years.
That’s the rate.
What’s important to point out is that the level of mortgage interest rates is lower than it was in any year of the 1990s or early 2000s.
So the rate is rising really quickly, but the level is still historically low.
On the other side of the Ledger, you have inventory being low.
You there’s not a lot of houses to buy.
That’s going to keep housing prices high and number two, really important.
Why don’t you just mentioned demographics?
The millennial generation is the largest generation in American history.
The average age of Millennials right now is something like I don’t have the number right in front of me, but 32 and a half.
It’s within a year of like 32 33.
That’s Prime home buying territory.
So you have a demographic wave, you have low inventory, and you have historically low mortgage rates.
At the same time that the state of people’s finances over the last few years.
Years less spending on Leisure.
During the pandemic, all this cash that was given to them by the Trump and B.
Administration’s people have a high amount of savings.
This is not 2005-2006 people.
This is not, it’s it.
I know it feels like we’re at the top of a, of a mountain of housing prices, but the other side of that mountain doesn’t necessarily have to be a sheer drop-off.
We might just be at a high plateau and housing prices will sort of stabilize for the next few years for A little bit in inflation-adjusted terms like they did in the late 1970s early 1980s, but I really really don’t think we’re going to see a crash.
I want to move on to the second category of questions that we got, which is that for the average person, you know, trying to buy a house right now.
It really doesn’t matter whether we you know, call this a bubble or just a sharp increase.
It’s likely going to stall.
The real concern.
Is that a lot of people want to buy?
Buy a house and these metros like, Los Angeles and Denver, and Austin, and they can’t afford one.
And that brings me to the next question.
In the Curiosity corner mailbag.
It’s from Jake and Jake.
Anyone looking to buy a house today can tell you how overwhelming the process can feel.
I am a 38 year old college grad.
My salary is higher than I ever thought.
It would be and I’ve been diligent about saving throughout the years.
I feel like I’ve been doing everything right, but housing is still Out Of Reach.
I’m in Los Angeles where housing prices just won’t stop rising and quote Jerusalem.
This is a topic that you’ve written about so much and so, well, why is housing in America?
So damn expensive.
Yea, so to simplify.
There are two reasons that prices rise, there’s demand and their supply.
So demand is high, right?
We talked about this for many reasons, like people want to buy homes.
Like they’re, you know, people are forming families or they want to move out of having roommates.
It is - you Millennials out there exactly.
And that’s Kind of constant, right?
I mean, obviously, it can rise for different factors.
But in general, people are going to live.
They’re going to need a place to live.
They’re going to have kids.
They’re going to have families that’s going to occur.
So the big policy lever then comes with Supply, how many homes are there and in healthy functioning markets.
When there’s strong demand.
I mean, you can see people want to live in Los Angeles.
They want to live in belt d.c.
They want to live in Boston.
These are the so-called Superstar cities in the United States.
When you have strong demanded any kind of Market, the natural thing for the market.
To do is to provide that asset.
So people try to get in, they want to make money.
They build a lot of homes and they make money and then prices drop because there is a supply that is responding to that increased demand.
So the breaking point in American housing markets is that we have not allowed Supply to respond to the increased demand for housing.
And this is not just something that occurs in Superstar.
Cities is obviously very true in Los Angeles.
Where your where your reader ask this question or listener asked this question.
But it’s true across the country.
And the reason why we’re not able to build enough, housing is actually pretty simple.
We have made it illegal to build, many different kinds of Housing and we have made it illegal to build types of housing that people really need in order to afford entry-level home.
So for instance, in most places across the country, there are these things actually across the entire country.
There are these things called zoning codes, which delineate, the types of homes and properties that are allowed to be built on any Of land in the entire area and most places are Zone.
First single family homes and not just single family homes, but their homes that have it has to be larger.
Maybe have to be set back from the street.
A certain number of feet have to be set away from their neighbors, a certain number of feet and the sounds like really trivial when you’re like talking about.
It sounds very boring.
Like how could this affect the total supply of homes?
When you take all of that land, that’s only allowed to be used for the specific type of housing.
You’re essentially creating a built environment in which only very large single-family homes can be Be built over large, lots of land and that means that you can’t build densely, right?
You can’t have 10 people living on one.
One spot of land.
You can only have maybe one family even if that family doesn’t want that large of a house.
Those are the only available options.
I think a lot of people who have looked for homes have seen this very recently that they the actual types of housing that are available in their area.
There’s not a lot of diversity.
It is basically, you have to pick this one type of house.
I want to disentangle the root causes here of Inability to build like and we really do suck at building shit in this country.
I know this is an obsession of yours.
It’s a huge Obsession Obsession of mine.
Just some examples in that last decade.
San Francisco has built.
About 700,000 has created about 700,000 jobs and built less than 180,000 housing units.
So they’ve added four new jobs for everyone new home, that they have built that sucks.
And that’s guaranteed to increase housing costs because you’re bringing in all these jobs.
And not building nearly enough houses to put the people who are doing those jobs.
Another example, it took four years to build the first Twenty Eight Stations of the New York Subway at the beginning of the 1900s.
It took four years to build the first Twenty Eight Stations of the New York.
It took 17 years to build the Second Avenue extension.
We are getting slower at building all Technologies.
We’re all so bad when you compare the u.s.
To other countries, so in Copenhagen in Paris, In Madrid it cost about 200 to 300 million dollars.
Per mile to build a Subway in San Francisco and Los Angeles.
It costs just shy of 1 billion, right?
Three to five times more expensive to build every single mile.
You’ve done a great job of explaining why this is the case and two of the explanations.
I’d love you to talk about here are the rise of environmental regulations and something that you’ve called citizen voice.
Those are going to sound like a good thing to a lot of people like environmentalism.
Reasons those are not scary words.
These are good words, but you have you’ve made a really clear case that environmental regulations in citizen voice.
Our key forces behind our inability to build.
Same organ that.
Yes, so first with the environmental regulations, so we see the rise of these regulations happening in the 70s.
The National Environmental Policy Act is the national one, but we also see State versions of this like a handful about a dozen states have their own versions.
Best most popular is or most well-known is California’s California.
Environmental Quality act and these you know, it is this.
The the fundamental problem here is not that we are trying to protect the environment.
The fundamental problem here.
Is that what these regulations do is they create an opportunity for people to infinitely, Sue and block things from occurring.
So many of the complaints that are people are loving are not actually environmental complaints, I grew up in Maryland and there is a I was promised when I was very young that I would be able to ride this thing called the purple line.
And it was going to take me from my home to other area where I was going to go to high school and everyone told me I was gonna go to, this is still not built.
This line was not built and I am, you know, well past high school.
So the fundamental complained that some of the people were making when the chubby chick there was a chubby Chase.
There was a group of homeowners that were complaining about this purple line and in a very wealthy suburb of Chevy Chase.
And what they said, is that there Are some environmental concerns that they have space suit under this policy.
The environmental concern, they love eat, is that they believed that there was an invertebrate inside somewhere near where the line would actually be built and that there needed to be some studies done to ensure that you weren’t going to disrupt this invertebrate.
When people ask you have evidence that this being exists, there was no evidence provided was it as big as there is an invertebrate.
Like yeah, like they don’t exist in this space and if building happens at this, vague species will be disrupted and placed out of his environment.
Yes, and the thing is, everyone can hear this and everyone understands that.
What’s Happening Here is that these group of people do not want, you do not want a rail line, being built near their Community.
Some of the comments being made were about the types of people who ride mass transit.
Some of it was that they felt it would disrupt the view from the country club.
That’s not an exaggeration.
That is literally what they were concerned about.
But what ends up happening, is that Instead of loving those concerns that allowing public officials to decide like, hey are these concerns legitimate?
Are you actually destroying some kind of beautiful view?
That is like really valuable to Residents?
Instead they’re able to use these so-called environmental regulations to Sue and stop and block projects.
And this delay is, what is so costly in general.
What happens is that you have to hire a bunch of lawyers on the other side to try to defend the project often even before that even happens.
You have lawyers and you have developers anticipating.
This type of behavior from local residents and so they don’t want to engage in that.
They try to build in ways that become a lot more costly to try to avoid this.
They come to people with projects.
They’re already going trying to mitigate for perceived conflict that they think is going to occur.
And so that drives up the cost of projects to begin with.
But in particular these environmental regulations are creating the availability for people to to really run up the costs.
And this is happening with housing and which is something which, you know, the technology is obviously, really obviously know how to build houses.
And it’s really problematic in spaces like Transit where it’s so we actually have a lot of things we want to innovate on and how to build that effectively.
I want to put a point here, which is that Jerusalem and I are environmentalists, like, you love the environment.
I love the environment.
I don’t assume too much love of the environment on your behalf, but you seem like someone who cares about the environment.
It’s important to see how these kind of a environmental regulations can Cascade in a way that turns out to be bad for the environment.
So we know Know that there exists in America.
And in every country, probably for decades, maybe even hundreds of years, this Instinct of nimbyism.
Not in my backyard people when they own property don’t want other people to build near their property because they want to preserve their views.
They want to preserve their housing prices.
What some of these environments are regulations.
Have done is placed in the NIMBY hands.
A weapon that is extremely powerful and useful to Lodge against any Builder.
So what happens is that the price of building goes up and up and up as someone who wants to build a new solar project win project.
Housing development has to pay for all these lawyers to overcome the environmental regulation hurdle.
It does something else.
I think it makes it harder for construction companies and Builders to get better at their job.
How does someone get better at their job?
This is obvious.
You don’t go full ten thousand.
Our rules here.
This is obvious stuff.
If you practice more You get better at what you’re doing.
If we make it harder to build, if we make it harder for these kind of infrastructure, projects and energy Mega projects and apartment buildings to be built in the first place.
The groups that build these places will get worse at figuring out the kind of efficiencies that other countries seem to have figured out to build more efficiently.
That’s how I think you get the whole domino effect here.
We’ve placed the weapon of environmental regulations in the hands of ancient nimbyism and there.
Using it to reduce density and reduce clean energy construction projects, which irony of ironies is bad for environmentalism.
The second thing I want you to talk about here is the rise of Citizen voice.
What is citizen voice?
Yes, so I can’t take credit for this term.
It was actually coined by Leo, Brooks at George Washington University and Zach Liz goes at Yale University and they wrote this paper.
And essentially, they wanted to look at something that we have practiced doing.
Thing, which is building highways.
And so, what they look at is that they find it, they could have discard the, like, the normal explanations like, oh, is it like, you unions?
Is it that we’re building in places now that are harder to build in like, we’ve already built an easy places.
Now, you have to have a lot more expensive stuff to build around.
Are we paying for important things, like environmentalism, and like climate efficiency, comment, efficient, building structures or accessibility, and they discard a lot of these explanations and what they’re able to find and they narrow it down.
To is this thing they call.
Voice and environmental regulations are a part of this, but the idea is that especially around the 1970s.
There is a growth in these local groups, whether their homeowners associations, or they are, you know, they are citizen groups Public public citizen groups, especially folks who are familiar with Ralph Nader will like really remember about as the native rights and a lot of these goals groups have really valuable goals that they’re trying to pursue with those consumer protection or Environmental Protection or whatever it is.
What ends up?
Is that instead of creating systems of democratic governance, where people are actually widely represented and then their interests are aggravated by their elected officials and then decisions are made.
We create things like the National Environmental Policy Act or just a culture of, you know, solving these problems through lawsuits that is not done in our Pure countries like Italy or France and have much better rates of building Transit than we do and other large infrastructure projects.
And we have inculcated as culture of you know, just a few people can cause a lawsuit and create these kinds of delays.
So this rise of system, voice is not just is not this like innocuous thing where now people have more democratic power and that’s important.
They can Levy their concerns.
What it does is that it concentrates power yet further in the hands of people who, you know, can afford lawyers can afford to get really involved in the local decision-making and end up capturing local government for their own ends.
And this isn’t a situation where there is.
You know, equal capture by any citizen, who wants to show up.
It really is predicated on the idea that you have the money access and power to hire a lawyer and get involved at this level.
And so, there’s really good research showing that the kinds of people who weaponize citizen voice are, you know, older, they are wealthier and they’re more likely to be homeowners.
And this biases, us against change.
These are not, these are not legitimate views to have.
But when they’re the only views that are represented, both at the local level and, you know, increasingly I thought at the state As well.
You have a situation where you know, no one wants change if you’re older and you kind of know your community the same.
You’re going to be biased against something new coming up and those views need to be balanced against what about younger people who want to buy their first homes?
What happens for them?
What about for individuals who have lived in this community before someone who’s moving?
Because of a good job in the area.
Those people are not counted for when it comes to Citizen voice.
And so it’s become a real problem.
That was very well stated.
And I think it’s so interesting that what you’re seeing here in trying to understand.
Why is he?
Housing in America.
So expensive is this tangle of selfishness and good intentions, like some of this is pure selfishness.
Some of it is just my house is worth a lot of money and I wanted to stay a lot.
I wanted to continue to be extremely expensive and I don’t want any condo buildings in my area.
Sometimes it’s racism.
Sometimes it’s I don’t want any people who might not be my color of skin to live in this area.
But a lot of this is a tangle of selfishness and good.
Intentions citizen feedback is Portent.
That’s what democracy is.
But too much citizen voice in the concentrated, in sort of, you know, upper-middle-class, complainers.
Who can pay for a lot of lawyers to stop building across their neighborhood that has - Downstream applications for people that can afford housing, environmental regulations.
We should want to protect the environment.
But if it hands Nimbus a powerful Swiss army knife that they can use whenever anybody wants to build anything within sight of them.
That is bad and it’s important.
Ooh, I think that we point out how this works out intergenerationally.
I feel like I know a lot of people that are nimbys who are maybe older parents, they say, yeah, like I don’t really want to one building around my beautiful house.
I don’t really want anyone building in my neighborhood.
But if you ask them, you know, have their kids or that maybe their grandkids are faring in terms of trying to look for a house or like oh, it’s impossible.
There’s nothing available.
It’s like think intergenerationally.
The reason that nothing is available for them to buy is because there’s too many people like you who Use their wealth and used their connections to stop the kind of construction that would alleviate some of this housing construction.
Yeah, the two things I want to make clear though.
Is that one in other countries, they are able to protect their environment without empowering this kind of, you know, malcontent class of individuals, you know, I don’t think anyone thinks the United States is the Premier protector of environmentalism or the environment.
And I think that’s clear, when you look at the administrative state in peer countries.
Like Italy where they are able to evaluate different project on their environmental concerns and then make a decision because their local bureaucrats are empowered to do.
So, the second thing I’ll say is that this is not, I think, actually a function of this is what’s popular write.
Like this is a very small group of people.
I don’t think and those people listening to, this know, who their local elected officials are at all, or even what their local zoning board where that person where they meet, what they do and how they engaged.
This is a very small group of people and that’s why it’s so important.
Democratic is because this group of people believes that it is democratic for them to engage in politics in this way, but really, their voices are really being made primary over everyone else’s concern around housing affordability and even folks who end up opposing and kind of Housing and infrastructure in their neighborhoods often.
Like you said, Derek don’t see how it affects their children and also secondly, don’t see how it affects themselves.
There’s like a real problem right now with folks who are aging into their retirement years in these.
Large homes and large homes, are often.
These are inaccessible for them.
They a lot of vigil High rate of seniors who can’t even get to the second floor of their houses.
They never ever use it.
This is unused space for them.
It’s an accessible from to get to important places in their home.
Perhaps the bathrooms up there, or whatever it is.
And then, secondly, there’s nowhere for them to downsize while remaining in their communities and they still have to pay property taxes while they are expensive, you know, homes, appreciate in value.
They are still forced to pay hyper.
They’re getting to pay property taxes on them.
They don’t have a higher income and they don’t have a place to downsize and actually liquidate that asset while still remaining in their communities.
So, I think one thing that’s really important here is that?
Yes, it’s, there’s an intergenerational problems, but people are really screwing themselves over as well.
Yeah, you can actually see this growing over themselves as well.
Yeah, you can use harsh language if you wish.
I think you’re right.
I think it’s important to point out that it’s not just a failure to think, intergenerationally.
It might also be a failure to think about the future period, your own future.
Not just the future of your children and grandchildren.
I want to move on to the third bucket that we were asked about, which is in some ways the exact opposite of bucket.
Number two, and in some ways directly related and it is not the difficulty of buying a house.
If you have a great job and make a good amount of money, but the phenomenon of homelessness, which is rising across the country.
Steve asks, quote Portland native here.
I would be interested to hear you analyze homelessness facts causes fixes.
Nobody really seems to have a grasp.
Of these other than quote tensor, ugly.
Not in my backyard, please.
So we got a lot of questions about homelessness, which I was really gratified by X.
This is a really important issue and I really love Steve’s breakdown of facts, causes and fixes.
So Jerusalem, let’s start with facts.
What’s the most important fact to know about homelessness in America?
The most important fact that roughly five percent of Americans have experienced homelessness at some point in their lives and This is something that’s really important because really measuring homelessness is incredibly difficult.
We do these things called point in time estimates, where we try to just measure on one point in time, how many people are homeless?
But in general, it’s really hard, right?
It’s obviously a very transient population and it’s also important to understand that homelessness is not a stock problem.
It’s a flow problem.
And what I mean by that is that it’s not just like there’s just one group class of individuals that are the homeless and they we to help them find housing.
It is that there is a flow of people who are both coming in and out of homelessness all the time.
Someone loses their apartment without having a second option.
They’re homeless for a time being they may find a way to go stay with a friend or a family member.
They are no longer homeless that can happen again.
If that’s housing situation, doesn’t come through for the long-term, really important fact.
And just put a number on it before I feed it back to you in a study that I decided that I found of the homeless population.
And again, this is this is a rough estimate because this is not an easy census.
To take, but it estimated that one.
Fifth of the homeless are quote, chronically homeless, that means without a home for at least a year or homeless repeatedly within three years.
That means that 80% of the homeless population is not chronically homeless.
They are flowing into as you said this stock of homelessness and they will flow out.
That’s not to minimize the the horror of being homeless for any period of time.
But one of the difficulties here, is that there is this high chair.
In the homeless population, which can make it hard to study, but let’s move on to causes.
What are the root causes of homelessness it in my estimation.
There’s a bit of a debate online or at least in some of the material that I read between whether homelessness is primarily a phenomenon of housing Supply again, our old friend inventory or whether it’s about crises in individuals lives.
Whether for example, this is mostly about drug abuse.
In San Francisco or poverty, and Trauma, in Detroit or New York City, Washington d.c., What are the root causes of homelessness as you understand?
So the best book about this is called, homelessness is a housing problem, which will indicate to listeners already where I kind of fall on this.
The authors are Greg Goldberg who’s a professor at the University of Washington and Clayton page old earns a data scientist.
And so I think the question is always because debate is always really confusing, because it’s hard to know what exactly people are talking about.
It is obviously the case, right?
Then you can know an individual who has a drug problem and then because of Life Choices they make or unluckiness, or whatever it is.
They end up becoming homeless and that’s can be true for a lot of people that there’s drug addiction involved, but there’s poverty involved.
But there’s losing jobs.
There’s getting divorced that there’s, you know, difficulties and problems with their landlord, or whatever it is that are leading them to become homeless, and those are the individuals.
Jewel stories, we hear that we know of in our communities that lead people towards this, you know, really horrible outcome, but that’s different than what is the question of why is there high homelessness in some places and not in others?
Like why is it the case at Los Angeles and Francisco.
Seattle have high rates of homelessness but places like Miami Dallas Houston.
We don’t see those kinds of rates of homelessness.
It’s not the case that people in like Dallas or Houston or Miami don’t have drug problems that they don’t have poverty that there is Unemployment, there’s something else going on here that is, causing this problem.
And I think it’s important to think on our kind of historical timeline to.
We’ve gotten used to this, at this point.
I think the idea of modern homeless Camp cities has become kind of ubiquitous and a lot of major American cities, but this is not normal.
Like, there’s been poverty for a lot of American history, but the camp homelessness where people are camping out in front of, you know, big Office Buildings or whatever, and major American cities.
This is not something we saw even when people were poorer than They are today.
I think that’s what such a strange participative phenomenon.
And why while even though only a small number of Americans are actually experiencing homelessness.
It’s high on people’s minds is that it’s really in Conger, went to see such a wealthy Society, incapable of making sure that people can remain at the very basic level, just housed.
So when we’re talking about the root causes of homelessness, what I’m talking about here is, why is there this kind of regional variation in homelessness happening?
And why is it the case that like places these wealthy cities are facing this problem.
There are these traditional narratives.
I think that we saw a especially during the waning years of the company ministration where they said, you know, Blue State governance is the problem and then, you know, Nancy Pelosi and Gavin Newsom, pushed back and said, no, it’s that the federal government isn’t giving enough funding.
The actual answer here, is that homelessness is a function of rent, prices, and vacancy rates.
When people people experience a high degree of of, you know, susceptibility to becoming homelessness ripe.
Leti to having access to being poor to losing their jobs or whatever.
The question is, when that emergency happens when you become addicted to drugs, when you become, when you lose your job or you get out of or you do get a divorce or whatever it is, do our, they’re cheap housing options available for you to live in until you get back on your feet.
And that is really the question here.
So, these researchers that I pointed to earlier there.
They look at this.
They look at the variation across cities and they find that the really key thing is, when cities have low vacancy rates, when there are very few.
Apartments available for Reds and rent places, right?
And prices are high.
Then you see Rising rates of homelessness.
And I think that when you think about the story like this, that there’s going to be emergencies, if there’s going to be problems in people’s lives.
The question is only when that happens.
What is the local housing context available stem?
And so when you look at places like Los Angeles, I mentioned earlier, these are places that have not allowed for a large amount of fordable housing to be built, small units, small homes, things that are going to be affordable to people who are in really bad.
Add conditions things that they could run for short periods of time.
These are not housing options that exist anymore and major American cities.
I want people to hear the common theme to all three buckets here because we’re asking three different questions in this episode.
Are we in a housing bubble?
Number two, why our house is so expensive and major metros like Los Angeles.
And number three, what are the root causes of America’s homelessness crisis and answer.
I said, we are not in a housing bubble because inventory is so low.
And when inventory is low, it’s very, very difficult to be in a housing bubble 2006-2007.
So the opposite really high inventory.
So the answer to problem to question.
One was inventory is low.
Therefore, we’re probably not in a major housing bubble.
Question over to, the answer was also inventory.
Why is it so difficult to buy a house in Los Angeles?
Why is it so difficult to buy a house in say Washington, d.c.
It’s because inventory is so low.
There aren’t a lot of houses available.
And as a result, supply and demand, when Supply is low demand is high prices are really, really high.
That’s why it cost seventy percent over listing to buy that house that you want in Denver question number three.
What is behind our homelessness phenomenon?
Well, you just answered it in markets, where you have really, really low inventory, where Supply is very, very low.
It’s not that, that inventory being low causes homelessness, but rather that it makes the local population, especially those in poverty, or suffering, from drug addiction, more susceptible to homelessness.
If one more thing in, Life goes the wrong way.
They flow into the homelessness population, a couple stats to put on top of that analysis.
The states were homelessness is highest by rate are Hawaii, California, New York, Oregon, Washington State.
What are the states have in common?
Well, you could say they’re all built near an ocean.
Okay, that’s fine.
They’re all also blue.
They’re all run by democrats.
That’s kind of interesting.
I’m a Democrat.
I kind of went Democrats to, you know, be better at housing policy, but it turns out that in a lot of these states, it is Difficult to build houses.
For, again, the reasons that you’ve talked about environmental regulations, tend to make it harder to build citizen voice tends to make it easier for the nimbys to block building.
And you see how these sometimes well-intentioned laws can have negative consequences.
If you make it easy to block the construction of new housing projects, you also reduce inventory and make it easier for people who are already vulnerable to slip into homelessness.
And this isn’t just my analysis.
This isn’t just your guesswork.
Zillow did a study 2018.
The title of that study is quote, homelessness Rises faster.
Were rent exceeds a third of income and where does average rent exceed a third of income?
It’s in the same pricey Coastal markets.
We’ve been talking about this entire episode, New York, Boston, Los Angeles, San Francisco, Seattle, probably also Portland where our question asker lives.
This is where housing inventory is too low.
Which means that people who tend to be high poverty or have other problems their lives like drug addiction.
Enter a state of extreme vulnerability.
They are significantly more likely to flow into homelessness.
Let’s fix this problem.
All right, we’ve done facts.
We’ve done causes, let’s do fixes.
What is a fix to the homelessness problem?
I mean you pretty much summed it up.
You cannot fix this problem without providing people homes, and it’s a point.
It’s like very simple, right?
Like the word that we’re saying is homelessness.
We need to make sure that people can have homes and but at the same time, it’s like, very difficult to overcome.
A lot of these local barriers and the real concern that I and a lot of homeless Advocates have is that there’s increasing frustration for people about Rising homelessness in their communities.
Both from, I think and altruistic perspective of like they’re concerned about people and also concerning only From perspective of you know, you know wanted not wanting disorder in front of them, not wanting to see that kind of, you know, poverty in their face and their parks and their communities.
And so when that It happens, often people turn towards, you know, kind of militarism and using the police, to kind of clear out, encampments, even in very liberal places like Los Angeles.
We saw tent encampments being cleared by the police over the last couple of years and that kind of quick fix attitude.
I mean, it is something that is completely understandable.
When people are facing a crisis, they want it fixed, but I want to underscore here until you figure out a way to make home price out a way to make rental prices lower.
You cannot actually solve this problem because there’s not a stock of To clear.
This is a flow of individuals coming in and out of this space.
And so that is the fundamental thing here.
And I think that there is attempts to build permanent Supportive Housing, which is, of course, you know a good aim.
It’s increasing the housing stock.
It’s dealing with that inventory problem.
It is still made by the same exact forces that we see stimulating regular housing.
So in Los Angeles, for instance, you know, a very liberal City by any respect is has approved 1 billion dollars about six years ago in order to To build permanent Supportive Housing, very few units have actually been built because time and again, even affordable housing, developers are being stopped from being able to build these units because people don’t want them in their communities in Los Angeles.
This is true, not just in LA but in places all across the country.
And so you have this problem where people are going to community homeless, until we figure out a way to house them and the reaction by locals to kind of give up in frustration and turn to quick fixes, is going to create a lot of issues and it’s not actually going to solve the root problem here.
Even shelters and things like this.
There are obviously things that people can do to alleviate the problem.
But there are many reasons why people choose not to go to shelters, which I think is going to be pretty pretty consistent, the future.
I want to end on this point because it’s such an important Point money, alone cannot solve this problem.
If you give all the homeless people in Los Angeles enough money to rent an apartment for the next year, that will help some of the homeless population of Los Angeles, but some of them might not be able to find an apartment.
And even if they all did home, Homelessness is a flow, not a stock.
So, in X years you would simply have more people flowing into homelessness, because you haven’t built more housing.
You can give money to the city of Los Angeles, or to the state of California and say, go forth and build.
But guess what?
The money alone doesn’t build.
What builds is permits and you can’t get a permit because of environmental regulations and citizen voice.
The money does shit.
So money, solve some problems, but it does not solve every problem.
You have to focus, not only On the supplies on the demand side, but also on the supply side sounds like supplies had progressivism.
Shout out, Ezra.
This is a really important way to think about solving the problems.
I think that we have in this country that a lot of them are not just about what can we do with the treasury purse.
But how do we actually build in this country?
And how do we overcome the rules and the mentalities that keep us from building Jerusalem?
Dem says, thank you so, so much for joining.
We will love to have you.
Back on this podcast, answer more curiosity Corner, mailbag questions very soon.
Thank you very much for listening.
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