Question -- have the relative proportions of people in different credit score bands changed over time? I think you'd want to rule out that as a conflating factor, right?
They have. And, if I was being careful, I would try to control for it. But I don't think it amounts to that much, and it would be hard to cleanly control for it. There are at least 3 reasons for changes - aging (older households have higher scores), changing economic conditions, and changing rules about what affects scores.
It looks like there is, maybe, a 10 point swing related to economic conditions, and maybe we've seen another 10 points of variance due to the other factors? When the change is at least 40 points, precise controls are less important to the broader point.
Also, in 2008, when the tightening happened, it was during an economic contraction, so the shift is probably understated, because the average credit score was declining when the average score on new mortgages was rising. Then that factor reverted to normal over the next several years, and most of the shift on top of that, I think, is related to aging.
I think you'll probably find some folks trying to make more of that issue, and usually when they are, it's because they are benchmarking to the 2008-2012 period, which inflates the apparent change because they are benchmarking to very challenging economic conditions.
I haven't put the work into trying to adjust because I don't think it would make THAT much difference, and I don't really have confidence that any controls would be reliable.
It feels kind of like counter to Kling's Dictum (Governments "solve" problems by restricting supply and subsidizing demand), this is a rare instance where we have restricted <i>both</i> supply <i>and</i> demand.
Also, I think it adds to the confusion that homeowners reflect both supply and demand, and I think some economists got in the habit of overemphasizing the demand part of that. On the margin, some households for whom credit is the binding constraint, might trade up to a unit with 200 more square feet when interest rates drop. So, traditionally, when analyzing cyclical changes in demand, that has been mostly analyzed as a factor that increased demand.
But, when millions of potential buyers were locked out of new mortgages, that was almost entirely a supply shock. They are still renting something in the ballpark of what they would have lived in before, but now they supply nothing. They cannot serve as a conduit through which capital can flow to housing.
So, in the traditional way that economists usually talk about borrowing and homeownership, it's restricted demand, but really it's mostly an additional case of restricted supply.
Seems like you're changing a lot of your emphasis here? From your prior tune, that is.
In the past, you've held that mortgage access decline was a central factor, not a marginal one. But here, you show that supply problems have overshadowed mortgage access.
Either way, I agree a lot more with today's framing than what you've said in the past. But I do have a few wrinkles to add:
1. Some time in the 2000s, most cities reached their outer practical limits of sprawl, which is about 1 hr of commute time in either direction. This isn't a strict function of commute time alone, though -- it is also impacted by political boundaries like pre-existing county borders (most cities grew over the 20th century to be about the size of a traditional county), 70's-thru-90's era "greenbelts" banning sprawl past a certain zone, and the inherent productivity-to-traffic ceiling of the suburban development model's "3-pod" system of remote office parks, commercial strips, and residential subdivisions. This means that even if mortgage access hadn't been clamped down, we'd still have simply ended up dealing with a slower-rolling version of our currently accelerated housing crisis.
2. Wrinkle #1 also means that your counterintuitive "mortgage access drives supply" mechanism, while *indeed REAL*, is also only a marginal mechanism (I'd ballpark it at 10-20%). Put simply, if we were already running out of places to cheaply build sprawling subdivisions, financing more of them was still going to result in the price getting bid up. If anything, continuing to finance a dwindling pool of targets for sprawl would simply have driven up that market segment's prices _faster_.
3. All of this discussion ignores some of the other, deeper problems of the suburban/sprawl model AND of the 5-over-1/"yuppie fishtank" model that has come to replace it. For instance, the 70's density crackdown banned all kinds of aspects of gentle density that had previously made urbanism incredibly scalable -- workable at any density level from a small town to a big city. Namely, corner stores, mixed-use, and other small-scale infill types. As a result, the bigger problem than merely whether we're financing sprawl, is the fact that our financial system's ability to finance the "missing middle" -- the absolutely most *irregular* segment of the market -- has completely atrophied.
--
The way I see it, you're justifiably mad at a bunch of unnecessary suffering that was inflicted on the poorest buyers. Indeed, I myself have been impacted by this! My life would look VERY different if I'd had better access to good, equity-building credit while I was just starting my career in 2008-2009.
But there also just wasn't much juice left to squeeze from the kind of sprawl that the pre-mortgage-crackdown system was financing. If it hadn't been artificially dried up, it was going to dry up in another decade or so. If anything, I'm kind of grateful that the mortgage crackdown helped reveal the broader problems with NIMBY bans on density and the entire suburban development model. Because now we can *fix* those problems and rebuild a new financing system that will finance more sustainable types of developments. The crisis that was lurking behind the superficial crisis caused by bad lending standards, is already here, and can't hurt us any more than it already has.
Because even if I'd have been somewhat better off without the crackdown, that "better off" would have been a mirage. We'd all have been obliviously hurtling towards a later supply crisis, all the more oblivious because we'd still think things were fine. Rather than having to wait until I'm 40-45 to buy a house, I might have lost a huge chunk of my housing wealth at 40-45, or even 50-60 when I'd have been hoping to take advantage of that housing wealth, led on by a mirage of steadily growing value that would have been wiped out at some point.
Yeah. I think you're right that the inability of any major city to counter the drop in single-family sales with multi-family infill has given a nudge to the YIMBY movement by making housing affordability more salient.
I also agree with you that the most important long-term issue is fixing the city-building problem.
But, I think you're wrong to infer that cities simultaneously all hit their greenfield development limits. There is no support for that. That interpretation came from not having the real reason for the production collapse, which was the mortgage crackdown, 100%. The earth really does orbit the sun, not the other way around. And, until it gets banned, single-family build-to-rent is going to start making up the difference. If it is allowed to, then single-family construction activity will reach the 2006 peak levels again.
I agree with you that it would be better for more multi-family urban options to be available, and maybe under those circumstances we would have less greenfield development, but in the aggregate, there was no geographical reason for single-family starts to decline.
To be clear, I'm not saying that the greenfield development limits were *completely* exhausted, nor that they weren't to a large extent man-made and thus potentially elastic/removable.
But I do think that (1) in most places, we were about 80-90% of the way there, and (2) even in places that had plenty of surrounding greenfield, they were already starting to stretch the limits of the suburban model.
I'm thinking of 3-4 cities in particular as examples of this.
1. My hometown of STL is enormously sprawled, to the point that we indeed hit our true limits of sprawl. Our sprawl was running up against county borders, the traffic and commute times were too high, and the only greenfields left were all flood plains which developers were busy speculating over as cheap investments to flip (this caused a particularly destructive flood in the early-mid-teens due to original flood plains being blocked off for floodwaters to run into).
2. LA is an example of how, even when you have infamously terrible traffic, as long as your agglomeration effects are still running strong, you can still keep sprawling past artificial boundaries. The greater metro area covers several counties, and the sprawl ran up against hard boundaries like mountains. At this point, there's only so much more of the Inland Empire that can be colonized.
3. College towns like Champaign-Urbana, where I went to school, were exhibiting plenty of sprawl in the mid-2000s, and had plenty of room to go. Barely even 20-30% exhausted, by my ballpark estimate! And I think that one of your favorite examples, Kalamazoo, fits into this category too. But the problem with Champaign is that the urban core could only support so much population to begin with. It's not LA. Housing was already pretty cheap, and the only way to keep it cheap was to keep densifying, because there just weren't enough people to afford even CHEAP houses out on the periphery. Likewise, Kalamazoo may have been able to keep building cheap sprawl, but even in the best of mortgage-access circumstances they were still going to only be able to sprawl so fast.
So yeah, I do see these as legitimate geographical and/or geo-demographic reasons, in a wide diversity of regions.
Most of the mortgage access was financing a kind of sprawl that wasn't going to end well. Now, I'd happily trade "enabling more sprawl" for "also enabling the missing middle and general catch-up densification" -- I'm no Philistine here. But I think that the impact you're imputing solely to the mortgage crackdown was ALSO reflecting a political reality that (1) the greenfields were getting fewer and farther between, hence the lack of pushback from developers against the crackdown, (2) the popping of the housing bubble put a violent capstone on a generations-long campaign to subjugate developers, atrophying the market's ability to meet regulatorily-depressed supply, and (3) the fundamental inability of the suburban model to _singlehandedly_ stretch a given population nor build its agglomeration effects even up to the full extent of its greenfield constraints.
In other words, there were fewer fields to build on, barely any contractors left to build them, and sprawling suburbs simply are not an acceptable substitute for the economic vitality of urbanism.
For certain urban/suburban locations I tend to agree with the "no more greenfields" argument, but only because those places have entrenched populations of homeowners who would fight to the death to prevent ANY kind of development that is slightly denser or offers any type of sensible mixed-use areas within it. This condition persists in much of New England and is the root cause of our housing shortage.
However, home developers in the South and West benefit from more low cost greenfields and fewer restrictions resulting in large scale housing construction on relatively small lots. I think that many new neighborhoods in Texas, Florida, and Arizona meet this criteria. The density also allows for modern infrastructure like all underground utilities.
Commercial and industrial uses still favor true agglomeration conditions which seem to be influenced by transportation and political support. In this area the South, the Midwest, and the arid West have significant advantages over many coastal regions.
I think that Arizona should be made off-limits. While it’s true that the population there isn’t the largest consumer of water resources — rather, the culprit is agriculture — it’s also true that continued development and agglomeration in the state will only drive more agricultural water demand, both directly from the local population’s food demand, and indirectly by enabling further investments and development in the state’s agricultural economy.
Also, notwithstanding the baseline truth that Florida should be shot into the Sun, Florida’s housing sector should be forced to either build resiliently or not at all. We’re nowhere near having a national housing economy like Japan’s, where housing is built in such quantities that people treat it more like we do cars — they expect depreciation, but the ample supply ensures that buyers at all price levels can climb the value ladder over their lifetime. In the absence of THAT kind of housing market (IE, where Florida just built insanely cheap houses that they expected to rebuild from time to time), we should at least stop subsidizing their growth with disaster relief. We keep tossing good money after bad in that godforsaken place.
Outside of those two exceptions, though, I say “have at it”. Build ‘freedom cities’ outside the Bay Area, or really anywhere throughout the PNW, Mountain West, or Great Plains. Densify anywhere that will allow it.
And as for New England (where I myself live), I say we should still fight the good fight. The NIMBY Boomers are dying off. The next 20 years aren’t going to be a cakewalk, but it seems like the tide is turning here.
I'll give an Arizona resident space to respond to your first exception if he feels like it. And while I agree with the baseline truth on Florida, why pay Elon Musk money for a job Nature is doing for free?
I appreciate your optimism about New England and hope that you are correct. I should give a shout out to New Hampshire, which has large suburban growth areas in the Nashua-Concord region.
Question -- have the relative proportions of people in different credit score bands changed over time? I think you'd want to rule out that as a conflating factor, right?
They have. And, if I was being careful, I would try to control for it. But I don't think it amounts to that much, and it would be hard to cleanly control for it. There are at least 3 reasons for changes - aging (older households have higher scores), changing economic conditions, and changing rules about what affects scores.
It looks like there is, maybe, a 10 point swing related to economic conditions, and maybe we've seen another 10 points of variance due to the other factors? When the change is at least 40 points, precise controls are less important to the broader point.
Also, in 2008, when the tightening happened, it was during an economic contraction, so the shift is probably understated, because the average credit score was declining when the average score on new mortgages was rising. Then that factor reverted to normal over the next several years, and most of the shift on top of that, I think, is related to aging.
I think you'll probably find some folks trying to make more of that issue, and usually when they are, it's because they are benchmarking to the 2008-2012 period, which inflates the apparent change because they are benchmarking to very challenging economic conditions.
I haven't put the work into trying to adjust because I don't think it would make THAT much difference, and I don't really have confidence that any controls would be reliable.
Thanks for the detailed response!
It feels kind of like counter to Kling's Dictum (Governments "solve" problems by restricting supply and subsidizing demand), this is a rare instance where we have restricted <i>both</i> supply <i>and</i> demand.
Yes.
Also, I think it adds to the confusion that homeowners reflect both supply and demand, and I think some economists got in the habit of overemphasizing the demand part of that. On the margin, some households for whom credit is the binding constraint, might trade up to a unit with 200 more square feet when interest rates drop. So, traditionally, when analyzing cyclical changes in demand, that has been mostly analyzed as a factor that increased demand.
But, when millions of potential buyers were locked out of new mortgages, that was almost entirely a supply shock. They are still renting something in the ballpark of what they would have lived in before, but now they supply nothing. They cannot serve as a conduit through which capital can flow to housing.
So, in the traditional way that economists usually talk about borrowing and homeownership, it's restricted demand, but really it's mostly an additional case of restricted supply.
Seems like you're changing a lot of your emphasis here? From your prior tune, that is.
In the past, you've held that mortgage access decline was a central factor, not a marginal one. But here, you show that supply problems have overshadowed mortgage access.
Either way, I agree a lot more with today's framing than what you've said in the past. But I do have a few wrinkles to add:
1. Some time in the 2000s, most cities reached their outer practical limits of sprawl, which is about 1 hr of commute time in either direction. This isn't a strict function of commute time alone, though -- it is also impacted by political boundaries like pre-existing county borders (most cities grew over the 20th century to be about the size of a traditional county), 70's-thru-90's era "greenbelts" banning sprawl past a certain zone, and the inherent productivity-to-traffic ceiling of the suburban development model's "3-pod" system of remote office parks, commercial strips, and residential subdivisions. This means that even if mortgage access hadn't been clamped down, we'd still have simply ended up dealing with a slower-rolling version of our currently accelerated housing crisis.
2. Wrinkle #1 also means that your counterintuitive "mortgage access drives supply" mechanism, while *indeed REAL*, is also only a marginal mechanism (I'd ballpark it at 10-20%). Put simply, if we were already running out of places to cheaply build sprawling subdivisions, financing more of them was still going to result in the price getting bid up. If anything, continuing to finance a dwindling pool of targets for sprawl would simply have driven up that market segment's prices _faster_.
3. All of this discussion ignores some of the other, deeper problems of the suburban/sprawl model AND of the 5-over-1/"yuppie fishtank" model that has come to replace it. For instance, the 70's density crackdown banned all kinds of aspects of gentle density that had previously made urbanism incredibly scalable -- workable at any density level from a small town to a big city. Namely, corner stores, mixed-use, and other small-scale infill types. As a result, the bigger problem than merely whether we're financing sprawl, is the fact that our financial system's ability to finance the "missing middle" -- the absolutely most *irregular* segment of the market -- has completely atrophied.
--
The way I see it, you're justifiably mad at a bunch of unnecessary suffering that was inflicted on the poorest buyers. Indeed, I myself have been impacted by this! My life would look VERY different if I'd had better access to good, equity-building credit while I was just starting my career in 2008-2009.
But there also just wasn't much juice left to squeeze from the kind of sprawl that the pre-mortgage-crackdown system was financing. If it hadn't been artificially dried up, it was going to dry up in another decade or so. If anything, I'm kind of grateful that the mortgage crackdown helped reveal the broader problems with NIMBY bans on density and the entire suburban development model. Because now we can *fix* those problems and rebuild a new financing system that will finance more sustainable types of developments. The crisis that was lurking behind the superficial crisis caused by bad lending standards, is already here, and can't hurt us any more than it already has.
Because even if I'd have been somewhat better off without the crackdown, that "better off" would have been a mirage. We'd all have been obliviously hurtling towards a later supply crisis, all the more oblivious because we'd still think things were fine. Rather than having to wait until I'm 40-45 to buy a house, I might have lost a huge chunk of my housing wealth at 40-45, or even 50-60 when I'd have been hoping to take advantage of that housing wealth, led on by a mirage of steadily growing value that would have been wiped out at some point.
Yeah. I think you're right that the inability of any major city to counter the drop in single-family sales with multi-family infill has given a nudge to the YIMBY movement by making housing affordability more salient.
I also agree with you that the most important long-term issue is fixing the city-building problem.
But, I think you're wrong to infer that cities simultaneously all hit their greenfield development limits. There is no support for that. That interpretation came from not having the real reason for the production collapse, which was the mortgage crackdown, 100%. The earth really does orbit the sun, not the other way around. And, until it gets banned, single-family build-to-rent is going to start making up the difference. If it is allowed to, then single-family construction activity will reach the 2006 peak levels again.
I agree with you that it would be better for more multi-family urban options to be available, and maybe under those circumstances we would have less greenfield development, but in the aggregate, there was no geographical reason for single-family starts to decline.
To be clear, I'm not saying that the greenfield development limits were *completely* exhausted, nor that they weren't to a large extent man-made and thus potentially elastic/removable.
But I do think that (1) in most places, we were about 80-90% of the way there, and (2) even in places that had plenty of surrounding greenfield, they were already starting to stretch the limits of the suburban model.
I'm thinking of 3-4 cities in particular as examples of this.
1. My hometown of STL is enormously sprawled, to the point that we indeed hit our true limits of sprawl. Our sprawl was running up against county borders, the traffic and commute times were too high, and the only greenfields left were all flood plains which developers were busy speculating over as cheap investments to flip (this caused a particularly destructive flood in the early-mid-teens due to original flood plains being blocked off for floodwaters to run into).
2. LA is an example of how, even when you have infamously terrible traffic, as long as your agglomeration effects are still running strong, you can still keep sprawling past artificial boundaries. The greater metro area covers several counties, and the sprawl ran up against hard boundaries like mountains. At this point, there's only so much more of the Inland Empire that can be colonized.
3. College towns like Champaign-Urbana, where I went to school, were exhibiting plenty of sprawl in the mid-2000s, and had plenty of room to go. Barely even 20-30% exhausted, by my ballpark estimate! And I think that one of your favorite examples, Kalamazoo, fits into this category too. But the problem with Champaign is that the urban core could only support so much population to begin with. It's not LA. Housing was already pretty cheap, and the only way to keep it cheap was to keep densifying, because there just weren't enough people to afford even CHEAP houses out on the periphery. Likewise, Kalamazoo may have been able to keep building cheap sprawl, but even in the best of mortgage-access circumstances they were still going to only be able to sprawl so fast.
So yeah, I do see these as legitimate geographical and/or geo-demographic reasons, in a wide diversity of regions.
Most of the mortgage access was financing a kind of sprawl that wasn't going to end well. Now, I'd happily trade "enabling more sprawl" for "also enabling the missing middle and general catch-up densification" -- I'm no Philistine here. But I think that the impact you're imputing solely to the mortgage crackdown was ALSO reflecting a political reality that (1) the greenfields were getting fewer and farther between, hence the lack of pushback from developers against the crackdown, (2) the popping of the housing bubble put a violent capstone on a generations-long campaign to subjugate developers, atrophying the market's ability to meet regulatorily-depressed supply, and (3) the fundamental inability of the suburban model to _singlehandedly_ stretch a given population nor build its agglomeration effects even up to the full extent of its greenfield constraints.
In other words, there were fewer fields to build on, barely any contractors left to build them, and sprawling suburbs simply are not an acceptable substitute for the economic vitality of urbanism.
For certain urban/suburban locations I tend to agree with the "no more greenfields" argument, but only because those places have entrenched populations of homeowners who would fight to the death to prevent ANY kind of development that is slightly denser or offers any type of sensible mixed-use areas within it. This condition persists in much of New England and is the root cause of our housing shortage.
However, home developers in the South and West benefit from more low cost greenfields and fewer restrictions resulting in large scale housing construction on relatively small lots. I think that many new neighborhoods in Texas, Florida, and Arizona meet this criteria. The density also allows for modern infrastructure like all underground utilities.
Commercial and industrial uses still favor true agglomeration conditions which seem to be influenced by transportation and political support. In this area the South, the Midwest, and the arid West have significant advantages over many coastal regions.
I have two big exceptions to your suggestion.
I think that Arizona should be made off-limits. While it’s true that the population there isn’t the largest consumer of water resources — rather, the culprit is agriculture — it’s also true that continued development and agglomeration in the state will only drive more agricultural water demand, both directly from the local population’s food demand, and indirectly by enabling further investments and development in the state’s agricultural economy.
Also, notwithstanding the baseline truth that Florida should be shot into the Sun, Florida’s housing sector should be forced to either build resiliently or not at all. We’re nowhere near having a national housing economy like Japan’s, where housing is built in such quantities that people treat it more like we do cars — they expect depreciation, but the ample supply ensures that buyers at all price levels can climb the value ladder over their lifetime. In the absence of THAT kind of housing market (IE, where Florida just built insanely cheap houses that they expected to rebuild from time to time), we should at least stop subsidizing their growth with disaster relief. We keep tossing good money after bad in that godforsaken place.
Outside of those two exceptions, though, I say “have at it”. Build ‘freedom cities’ outside the Bay Area, or really anywhere throughout the PNW, Mountain West, or Great Plains. Densify anywhere that will allow it.
And as for New England (where I myself live), I say we should still fight the good fight. The NIMBY Boomers are dying off. The next 20 years aren’t going to be a cakewalk, but it seems like the tide is turning here.
I'll give an Arizona resident space to respond to your first exception if he feels like it. And while I agree with the baseline truth on Florida, why pay Elon Musk money for a job Nature is doing for free?
I appreciate your optimism about New England and hope that you are correct. I should give a shout out to New Hampshire, which has large suburban growth areas in the Nashua-Concord region.