Part of Kevin's problem is he has good important things to say that policy community needs to hear but he's a bad writer. I'm now like halfway through the piece and he still hasn't revealed what the "elephant" really is.
I've seen several things by him that are extremely convoluted full of clumsy inside jokes, which is counterproductive approach if you are a prophet trying to get the word out.
Thanks for the input! I agree 100%. I discovered something really important a decade ago, and I've spent the last decade trying to get words out of my stupid mouth to explain it!
As hard as it might be to believe, I've gotten better at it. I'll keep trying!
In my defense, I think I write better than the economists who publish in the academic journals! Geeeeeez, those people.
Just as an aside I'm 2/3 of the way through this and you still haven't explained exactly what the "mortgage crackdown" is/was or developed exactly what regulations changed when, by whom and how this came about.
(I know sort of what you're talking about because I follow you on X but many more important people don't and should)
You're spending all of the space cheekily dismissing other hypotheses but your own which may well be the correct one is not getting out there!!!
Marginal Revolution provides a link to the new Glaeser/Gyourko paper and for the moment the comments section is actually coherent. But, no one has caught up to your thesis about mortgage suppression.
I do most of my internet trolling from the suburban comfort of a 1,000 s.f. bungalow that was probably marketed as a starter home in the Boston suburbs in the 1920's. That scale of house probably represents less than 1% of new construction in the detached single family market these days. Also, my lot size is non-conforming.
Isn’t it possible that the effect you point out about the cheapest neighborhoods experiencing the most severe inflation, is just a description of gentrification?
The mortgage crackdown compressed single family price/rent. Prices declined below construction cost but rents stayed level. Then rents had to rise to unprecedented levels to get prices back up to equilibrium that could trigger new supply. About when that was starting to happen, Covid supply chain constraints hit and still remain in place. Now I think there is pent up demand for new construction as supply chains heal, but it will be more weighted toward rentals than in the past.
No, I don’t think rents have gone up nearly 30% in Kalamazoo because of gentrification.
Oh, I should have also said that you are right that the mortgage crackdown was only binding in the larger cities because of the insanely restrictive permitting regime. If we didn't have that, infill and multifamily would have been much larger sectors to begin with and would have more robustly filled the gap of missing units.
I think you’re overindexing on the mortgage crackdown as a persistent limiting factor, and not enough on the overall impact of the permitting regime.
What I mean is, I *do* agree that the mortgage crackdown — along with the construction labor market atrophying — was certainly “the spark that blew up the bubble”.
But it doesn’t explain the sheer depth of the drop in housing starts alone. For that, you need the additional ingredients of (1) an insanely restrictive permitting regime, (2) the aforementioned atrophying of construction labor supply, and (3) large chunks of the country to be in the late stages of the Suburban Growth Ponzi Scheme.
In the paper you linked on mercatus.org, you write, “Builders haven’t been producing affordable homes below $200,000 because the prices of existing homes have been too low.”
Have you interviewed builders on that topic? Builders aren’t building homes under $200k because it costs more than that to build them. Your analysis doesn’t factor in how much more expensive construction is today vs 2007.
You have a graph showing how there was a lot of growth in high density areas between 2000 and 2010. At housing conferences in the mid 2000s, everyone was excited about younger people flocking to urban areas. High density areas got denser because people wanted to move to them. Changing demographics explain a lot of what happens in housing markets.
If there are in fact 15 million missing houses, why have vacancy rates been increasing? Rental vacancy rates started ticking up in 2020 and homeowner in 2022.
We are still about 3-4 million vacant units short of normal.
I agree that zoning has prevented cities from meeting demand for living in dense central districts.
If the problem was costs, then home prices would have been too high. Construction of those homes went from 500k+ annually to practically zero and the prices of existing homes at the price levels declined by 30-60%.
As of first quarter 2025, there were 3.5 million vacant units, resulting in 93% occupancy. You think the right level of occupancy is 86%?
Lenders nearly always underwrite to 93% occupancy. Whenever a market gets much below that it gets a lot harder to originate loans. Why would anyone build new units if the market was that soft?
My estimate is just based on benchmarking to the vacancy rate that appears to have been associated with neutral rent inflation. My number includes all types of vacancies, including those in single-family.
Ireland had a similar shift in mortgage access and has the same big dip as the US in prices, followed by high rent and price inflation.
Comparing the US to other countries that didn't have the mortgage crackdown, US price trends look similar to those, but we have a big 25% price drop from 2008 to about 2012.
Here's a long post where I compare the US to Australia and Canada. Once you take notice of the mortgage crackdown, the US looks exactly like them except there is a big scar in our markets in 2008 - declining prices, construction unemployment, permanent drop in housing starts, etc.
In general, I'd say the mortgage crackdown made US home prices lower but rents higher than those countries. It turns out, where supply is elastic at all, the prices of homes are moored to the cost of construction, as Glaeser and Gyourko note, and so more mortgage access raises the price/rent ratio, which lowers rents. In the absence of it over the past 2 decades, this has become obvious. The fears of mortgage access raising prices were misplaced, and were mostly the product of attributing high home prices to credit markets when local supply constraints were the main problem. Unfortunately, I find that credit hawks are not generally open to this new conclusion.
Here's a brief at Mercatus that is about the importance of the new institutional single-family build-to-rent market, but the main reason it is important is that families are blocked from mortgaged ownership, so it walks through the basic empirical story of the shift in lending and how that moved housing markets after 2008.
Part of Kevin's problem is he has good important things to say that policy community needs to hear but he's a bad writer. I'm now like halfway through the piece and he still hasn't revealed what the "elephant" really is.
I've seen several things by him that are extremely convoluted full of clumsy inside jokes, which is counterproductive approach if you are a prophet trying to get the word out.
Hard disagree. I find K.E.’s rhetoric and dry wit appealing. The subject matter is complex and as such necessitates detailed analysis.
I recommend you ask Chatgpt for a simplified version.
Thanks for the input! I agree 100%. I discovered something really important a decade ago, and I've spent the last decade trying to get words out of my stupid mouth to explain it!
As hard as it might be to believe, I've gotten better at it. I'll keep trying!
In my defense, I think I write better than the economists who publish in the academic journals! Geeeeeez, those people.
Just as an aside I'm 2/3 of the way through this and you still haven't explained exactly what the "mortgage crackdown" is/was or developed exactly what regulations changed when, by whom and how this came about.
(I know sort of what you're talking about because I follow you on X but many more important people don't and should)
You're spending all of the space cheekily dismissing other hypotheses but your own which may well be the correct one is not getting out there!!!
Thanks. I added a couple of links for new readers.
Marginal Revolution provides a link to the new Glaeser/Gyourko paper and for the moment the comments section is actually coherent. But, no one has caught up to your thesis about mortgage suppression.
I do most of my internet trolling from the suburban comfort of a 1,000 s.f. bungalow that was probably marketed as a starter home in the Boston suburbs in the 1920's. That scale of house probably represents less than 1% of new construction in the detached single family market these days. Also, my lot size is non-conforming.
Thanks for the heads up! I’ve got a second post on the paper ready to go and I’ll add a link to Tyler.
Isn’t it possible that the effect you point out about the cheapest neighborhoods experiencing the most severe inflation, is just a description of gentrification?
The mortgage crackdown compressed single family price/rent. Prices declined below construction cost but rents stayed level. Then rents had to rise to unprecedented levels to get prices back up to equilibrium that could trigger new supply. About when that was starting to happen, Covid supply chain constraints hit and still remain in place. Now I think there is pent up demand for new construction as supply chains heal, but it will be more weighted toward rentals than in the past.
No, I don’t think rents have gone up nearly 30% in Kalamazoo because of gentrification.
Oh, I should have also said that you are right that the mortgage crackdown was only binding in the larger cities because of the insanely restrictive permitting regime. If we didn't have that, infill and multifamily would have been much larger sectors to begin with and would have more robustly filled the gap of missing units.
I think you’re overindexing on the mortgage crackdown as a persistent limiting factor, and not enough on the overall impact of the permitting regime.
What I mean is, I *do* agree that the mortgage crackdown — along with the construction labor market atrophying — was certainly “the spark that blew up the bubble”.
But it doesn’t explain the sheer depth of the drop in housing starts alone. For that, you need the additional ingredients of (1) an insanely restrictive permitting regime, (2) the aforementioned atrophying of construction labor supply, and (3) large chunks of the country to be in the late stages of the Suburban Growth Ponzi Scheme.
In the paper you linked on mercatus.org, you write, “Builders haven’t been producing affordable homes below $200,000 because the prices of existing homes have been too low.”
Have you interviewed builders on that topic? Builders aren’t building homes under $200k because it costs more than that to build them. Your analysis doesn’t factor in how much more expensive construction is today vs 2007.
You have a graph showing how there was a lot of growth in high density areas between 2000 and 2010. At housing conferences in the mid 2000s, everyone was excited about younger people flocking to urban areas. High density areas got denser because people wanted to move to them. Changing demographics explain a lot of what happens in housing markets.
If there are in fact 15 million missing houses, why have vacancy rates been increasing? Rental vacancy rates started ticking up in 2020 and homeowner in 2022.
We are still about 3-4 million vacant units short of normal.
I agree that zoning has prevented cities from meeting demand for living in dense central districts.
If the problem was costs, then home prices would have been too high. Construction of those homes went from 500k+ annually to practically zero and the prices of existing homes at the price levels declined by 30-60%.
These were not subtle changes.
As of first quarter 2025, there were 3.5 million vacant units, resulting in 93% occupancy. You think the right level of occupancy is 86%?
Lenders nearly always underwrite to 93% occupancy. Whenever a market gets much below that it gets a lot harder to originate loans. Why would anyone build new units if the market was that soft?
My estimate is just based on benchmarking to the vacancy rate that appears to have been associated with neutral rent inflation. My number includes all types of vacancies, including those in single-family.
https://kevinerdmann.substack.com/p/we-need-empty-houses
I don't get it. Isn't the fear that more mortgage access just means higher prices but not higher construction?
Also, mortgage access may not have changed as significantly in the UK, but the housing issue appears broadly similar (and in fact worse).
Am I missing something obvious?
Ireland had a similar shift in mortgage access and has the same big dip as the US in prices, followed by high rent and price inflation.
Comparing the US to other countries that didn't have the mortgage crackdown, US price trends look similar to those, but we have a big 25% price drop from 2008 to about 2012.
Here's a long post where I compare the US to Australia and Canada. Once you take notice of the mortgage crackdown, the US looks exactly like them except there is a big scar in our markets in 2008 - declining prices, construction unemployment, permanent drop in housing starts, etc.
https://kevinerdmann.substack.com/p/when-we-lost-our-minds
In general, I'd say the mortgage crackdown made US home prices lower but rents higher than those countries. It turns out, where supply is elastic at all, the prices of homes are moored to the cost of construction, as Glaeser and Gyourko note, and so more mortgage access raises the price/rent ratio, which lowers rents. In the absence of it over the past 2 decades, this has become obvious. The fears of mortgage access raising prices were misplaced, and were mostly the product of attributing high home prices to credit markets when local supply constraints were the main problem. Unfortunately, I find that credit hawks are not generally open to this new conclusion.
this makes sense, thank you for taking the time.
What's your best short introduction to the mortgage access problem and its consequences?
You'd think a guy would think to prominently add a couple of links to the post, wouldn't you?
Here's a post that cites credit scores on Fannie Mae's book of business to document the scale of the abandonment.
https://kevinerdmann.substack.com/p/mortgages-outstanding-by-credit-score
Here's a brief at Mercatus that is about the importance of the new institutional single-family build-to-rent market, but the main reason it is important is that families are blocked from mortgaged ownership, so it walks through the basic empirical story of the shift in lending and how that moved housing markets after 2008.
https://www.mercatus.org/research/policy-briefs/getting-corporate-money-out-single-family-homes-wont-help-housing