Filtering on HGTV

The show “Home Town” is a cleverly produced show on HGTV that is set in Laurel, Mississippi, where clients choose a fixer-upper, which married couple Erin and Ben Napier team up to design and renovate for them.

One clever thing they do is to really lean into the love the host couple has for their town, and the generous sense of community they reflect for clients. In most other shows, a set of homes will be shopped, and they will discuss the amenities, location, etc. On this show, they make a point to treat the clients as part of the narrative of the neighborhood’s history. Instead of calling the homes “The spacious home” vs “the big kitchen home” or something like that, they name the choices after their previous owners. “The Smith Home” vs “The Carson Home”, and when they introduce the homes, they introduce them as a sort of story. “Jim and Nadine Smith built this home in 1964 when Jim became a partner in a Laurel law firm.”

Most of the time, the details are little more than you could glean from the deed search and maybe a brief conversation with the owners. But, just that little rhetorical touch turns the house into a character and a focus of love, family, and aspirations. It’s a great example of the importance of rhetoric in our self-conception and our moral intuitions. This is in contrast to rhetoric in housing that is becoming more belligerent as housing gets more scarce - like subjects in a New York Times article who repaired and fixed up a house that was infested with termites and falling apart, who then self-flagellated about how that attracted “carpetbaggers” to the neighborhood.

The more subtle lesson from the show is a reminder of how filtering works. “Trickle down” housing, as the skeptics call it. The narrative of the “Smith” house becoming the “Warren” house is a story with a house as a character. A protector of families. Of generations sharing a piece of themselves over time.

It works here because Laurel, Mississippi is not growing. It is a town of 17,000 that was a town of 18,000 twenty years ago and 27,000 sixty years ago. The American housing market can’t even support 0.5% annual population growth these days, but Laurel can get under that bar. So, homes there are still filtering down.

This is not a class-specific process. Homes don’t “trickle down” only for some proletarian underclass. Homes all trickle down. The minute a home gets a certificate of occupancy, it starts depreciating. The clients on the show represent the full range of potential homebuyers.

There might a house that was built in the 1970s, which is still worth $400,000 and is in immaculate shape, and it looks like a house built by someone with great taste in the 1970s. For that house, some new cabinets, paint colors, carpets changed to tile, etc. will end up producing a $500,000 house that looks nice for a family with good taste in 2024.

There are other homes that the show’s clients buy for, say $50,000, with rotten floor boards and boarded up windows. With $150,000 in extensive renovations, they become beautiful starter homes for those families.

This is how filtering works! This is how the United States of America managed housing for 200 years. A city that is amply supplied has a range of homes for every family that are a blank slate for that family to choose a symbiotic relationship with a narrative that has shelter at its center.

The problem is that the script has flipped and now few people have an experience of filtering as it happens in a functional market. This chart of price/income ratios across Phoenix shows the two contexts.

In today’s context, deprivation and financial stress are always in the background. Someone in a neighborhood where homes sell for 7 times their income doesn’t want to hear about filtering. They want a home that sells for 3 times their income. Telling them that if they let families with twice their income build a bunch of new homes, that maybe someday, there will be a neighborhood with homes selling for 6 times their income or less seems like a slap in the face. It seems like they’re a dog waiting to grab a bone after the steak has been eaten.

It seems so obvious that rich families have everything they need. We don’t need luxury homes. We need affordable homes! We need homes that families with $50,000 incomes can buy for $150,000.

The problem is that those $150,000 homes didn’t become $300,000 homes because the homes got so much nicer over time. They went from being $150,000 homes on marginally valuable lots to being $150,000 homes on $150,000 lots. There is no way to fix that problem by building downgraded homes. There is no $150,000 house that anyone can build on that lot.

One question to ask someone who demands affordable housing instead of luxury housing: How did Phoenix arrive at such a cosmic coincidence in 2002? Homes had been constructed over the course of decades, in a city that evolved to something nobody could have guessed when they built those houses. How did they manage such a lucky coincidence that there were just the right number of homes of all types - that families all over Phoenix could live in homes that were worth roughly 3 times their incomes?

“Home Town” is an anachronism from a time when this country functioned that shows us how that works. Homes in Laurel are trickling down! Boy, are they trickling down. Just like in Phoenix in 2002. As soon as a house is completed, the family that lives in it will have an income that will probably stay the same or rise each year and the house itself will age and break and become outdated each year.

In a city that is not in a state of scarcity, those dots in the figure above are doing everything they can, predictable and unpredictable, to move down. That’s what some personal finance gurus are talking about when they say that a home isn’t a profitable asset to own because it depreciates. (It’s generally misguided advice, but it gets the detail right.)

In a city that is amply supplied - a city that doesn’t look for reasons to stop construction, such as blocking luxury units - homes trickle down. But, when homes are truly trickling down, that doesn’t mean that families with lower incomes are just waiting around for subpar homes to maybe, finally, kind of get cheap enough to live in without being totally displaced from the city. Those skeptics are living in a context where homes are filtering up, and they are referencing that experience when they imagine filtering working like that.

No. When homes are filtering, they are blank slates - whether they are decent $400,000 homes that just need some updating, or little shacks threatening to blow over in a hard wind that truly need a major renovation.

Where homes are truly trickling down, they trickle down much faster than we would like them to. Updating and renovating them is work - it’s an important part of the residential investment and the expense of consuming shelter. Yet, the way that plays out for an individual new owner is that there is some house that needs them - that is just the right house for them, but it is less than they need. And, they build it up. They make it better - and more expensive - because it’s there, waiting for them to put their mark on its narrative as a source of shelter for generations.

Filtering - trickling down - where it actually happens is a narrative of rebirth, of regeneration, and of comfortable equilibrium. It is no coincidence that homes across Phoenix sold for 3x their tenants’ incomes in 2002. That coincidence would be impossible.

That is the comfortable equilibrium. That is because, where homes trickle down, families are in the favorable position of making the depreciated stock of homes more expensive to suit their preferences. That is naturally where an amply housed, comfortable city of people will end up. They will put their imprint on the depreciating housing stock. They will be a productive part of the narrative. And, plus or minus some variation that depends on property taxes, incomes, life spans, etc., they will comfortably maintain that stock of homes at an average price/income ratio of about 3.

In the end, trickle down becomes a bottom up process. A process where the leftover “bones” from the “Smith house” become the “soup’s beef stock” for the “Warren house”. “Trickle down” housing is a creative process - an additive process. And, to get it back, we have to find enough Americans who can imagine a better world - the world their grandparents, and maybe their parents had. Unfortunately, each day, that world passes deeper into our forgotten past, and those who are unable to imagine it can only think of quarreling and growling over bones.