I’m a recent subscriber and a confirmed YIMBY. A consistent theme of yours is that zoning is at best a tertiary cause of our housing shortage and the primary cause is “the mortgage crackdown of 2008.” Can you be more specific about what “the mortgage crackdown of 2008” was, and what specifically we need to change to restore the home building and home buying markets? It seemed obvious at the time that there were blatant abuses and outright fraud in the mid-2000s mortgage industry. Where specifically is the over-regulation that is stifling home building now? Thanks
1) The private securitization boom and bust from 2003 to 2007 that did include a lot of abuse and fraud. In the 3rd paper under the "Research" tab, I estimate that it was associated with an average price appreciation and then reversal of about 8% (and much more in credit dependent ZIP codes).
2) Standards on conventional mortgages through Fannie, Freddie, and the FHA, which were pretty stable during the private lending boom (they all lost quite a bit of market share during that time), then, when the private market collapsed, and the federal agencies became the dominant lending conduits again in 2008, they imposed novel new standards that were much tighter than they had been for decades. I estimate that that second event - the novel tightening - reduced the average home price by more than 20% (and much more in credit dependent ZIP codes). That was a drop from prices that hadn't been elevated. I have come around over time to putting much of the blame for the 2008 crisis on that tightening.
Here's a post where I isolate price changes associated with FHA market share in a given ZIP code. The first chart is for Detroit. It's just a regular market with no anomalous price trend, and then when the agencies tightened standards in 2008, home prices in those ZIP codes collapsed.
Here's a brief at Mercatus that goes into some details about how the tightening at the agencies affected markets. At Fannie Mae, you can see it both in the credit scores of the new mortgages they originated and the prices of the homes that were collateral after 2007. They basically just cut off the bottom half out of the market they had served for decades.
Oh. Also, I should clarify that zoning reform and the re-legalization of city-building is the most important long-term fundamental issue, and that the mortgage crackdown was only as binding as it was because zoning constraints prevented alternative forms of housing from filling the void.
Before 2008, land use regulations mostly just changed the form and location of housing - single-family instead of multi-family. Suburbs instead of cities. Interior instead of coastal metros. And, it caused prices to be elevated in the coastal metros, and also temporarily in the regions where coastal metro refugees move to.
But, the proximate trigger that led to a shortage of 20 million homes, unprecedented nationwide rent inflation, and a nationwide affordability crisis was adding the mortgage crackdown to that.
I’m a recent subscriber and a confirmed YIMBY. A consistent theme of yours is that zoning is at best a tertiary cause of our housing shortage and the primary cause is “the mortgage crackdown of 2008.” Can you be more specific about what “the mortgage crackdown of 2008” was, and what specifically we need to change to restore the home building and home buying markets? It seemed obvious at the time that there were blatant abuses and outright fraud in the mid-2000s mortgage industry. Where specifically is the over-regulation that is stifling home building now? Thanks
Thanks for asking for clarification. The Odd Lot podcast published an episode today where we talked about that.
https://www.youtube.com/watch?v=QZdqnY5s0AM&list=PLe4PRejZgr0MuA6M0zkZyy-99-qc87wKV
I would say there were 2 distinct credit events.
1) The private securitization boom and bust from 2003 to 2007 that did include a lot of abuse and fraud. In the 3rd paper under the "Research" tab, I estimate that it was associated with an average price appreciation and then reversal of about 8% (and much more in credit dependent ZIP codes).
2) Standards on conventional mortgages through Fannie, Freddie, and the FHA, which were pretty stable during the private lending boom (they all lost quite a bit of market share during that time), then, when the private market collapsed, and the federal agencies became the dominant lending conduits again in 2008, they imposed novel new standards that were much tighter than they had been for decades. I estimate that that second event - the novel tightening - reduced the average home price by more than 20% (and much more in credit dependent ZIP codes). That was a drop from prices that hadn't been elevated. I have come around over time to putting much of the blame for the 2008 crisis on that tightening.
Here's a post where I isolate price changes associated with FHA market share in a given ZIP code. The first chart is for Detroit. It's just a regular market with no anomalous price trend, and then when the agencies tightened standards in 2008, home prices in those ZIP codes collapsed.
https://kevinerdmann.substack.com/p/a-review-of-the-layers-of-damage
Here's a post that details the massive scale in the change of borrowers served by Fannie Mae after 2007:
https://kevinerdmann.substack.com/p/mortgages-outstanding-by-credit-score
Here's a brief at Mercatus that goes into some details about how the tightening at the agencies affected markets. At Fannie Mae, you can see it both in the credit scores of the new mortgages they originated and the prices of the homes that were collateral after 2007. They basically just cut off the bottom half out of the market they had served for decades.
https://www.mercatus.org/research/policy-briefs/getting-corporate-money-out-single-family-homes-wont-help-housing
Oh. Also, I should clarify that zoning reform and the re-legalization of city-building is the most important long-term fundamental issue, and that the mortgage crackdown was only as binding as it was because zoning constraints prevented alternative forms of housing from filling the void.
Before 2008, land use regulations mostly just changed the form and location of housing - single-family instead of multi-family. Suburbs instead of cities. Interior instead of coastal metros. And, it caused prices to be elevated in the coastal metros, and also temporarily in the regions where coastal metro refugees move to.
But, the proximate trigger that led to a shortage of 20 million homes, unprecedented nationwide rent inflation, and a nationwide affordability crisis was adding the mortgage crackdown to that.