Side thought: Tell your kids to go into something related to housing rehab, fix-up, repair.
America's housing stock is aging about one year for every year, there is so little new construction. Pipes get old, wiring dangerous or outdated, roofs leak, timber rotted and so on. I don't think AI can solve this one.
Fixing cars is another trade. The average age of car on the US road is now more than 12 years, and rising. Again, these are one-off situations, not something AI can do.
Side note:
This problem of expensive housing seems widespread, even globally. Aussie, Canada, Hong Kong, South Korea, UK. Whole populations have moved into decline.
Something about urbanity.
Orthodox macroeconomists say, "No problem. Just offshore having and raising babies."
Because the decline in single-family new home sales was driven by a moral panic about mortgage access in 2008. Those aren't economic decisions made on the margin now. If families could buy those homes, they would have in 2019 when the monthly mortgage payment relative to the rental value was half what it is now. There are millions of families who just can't check all the boxes on the federal regulators' mortgage forms, so they're just excluded.
Figure 3 is key. Blocking those traditional buyers pushed the prices down on those homes, but it didn't push the rents down. At some lower price, landlords became willing buyers. Then, rents had to rise significantly in order to get the prices back up to replacement value so that new homes were viable again. That is starting to happen around the country. But there are only about 1 million new households able to buy with cash or qualify for a mortgage each year. We are millions of units short. Any annual rise in units above that will have to be tenant-occupied and financial viable for a landlord.
For some reason I'm annoyed that you're right about this. Probably because for many years I've bought into the notion that the American Heartland was a forsaken, hopeless waste because of technological change and the outmigration that came along with that. Curiously, population trends in the Northeast were similar to the Midwest from 1970ish to 2000ish for the exact same reasons--although the Northeast replaced incumbent industries like textiles with more expensive stuff like computers and biotech. From 2000 to 2006 there was a resurgence of homebuilding that was then stabbed to death by Fed actions. Granted, there are cities that are making a comeback, but the trends in places like Canton are not good because of the mortgage access problem. Ironically, the affordability of older houses in many parts of the Midwest has a dampening effect on any type of improvement. "Look how cheap those houses are-no one would want to live there!"
Off topic, the Economist article on housing in Taiwan was simply bizarre. Whenever I think the U.S. has taken the trophy for bad housing policies I read about places like that or Ireland or the U.K.
Off/On topic the piece in the Atlantic about the reasons for mobility declines in this country. We have met the enemy and she is......Jane Jacobs.
I suppose the Economist thinks young folks in Taiwan just have different preferences? They love high rents and hate housing and ownership?
Oof. The Atlantic hit one of my current triggers. "In many parts of the country, housing is cheap and abundant, but good jobs and good schools are scarce." Nope. Nope. Nope.
One thing that hit me when I started looking at the intersection of incomes, home prices, and density, is that much of the value of cities is drawing poor newcomers. Dense urban centers can be opportunity creators for poor workers. The anti-city movement was an anti-poor movement. The emergent goal of the end of cities was to block progress for the poor. And, then, after we did it, the intellectuals looked at these new stagnant centers of exclusion and announced, "Great news everyone! Our cities are superstars! They only attract the best and brightest."
Can we be sure that privatizing Fannie Mae and Freddie Mac would further restrict mortgage access? I might have thought the opposite. Wouldn't that free them up to make a choice to write more mortgages?
There's a very long answer to this, that I probably should write as a post. The short answer is that (1) F&F are untenable as private entities and I haven't seen an explanation of how private F&F with no federal backing could survive. (2) In the post-2008 era, they became the dominant lending conduit because originators were exempted from some of the web of regulatory liabilities if F&F bought their mortgages. Private banks have been more tightly regulated. Recently, my understanding is that those protections have been reduced, F&F market share has declined, and mortgage access has actually recently gotten tighter (3) The main complaint of the privatizers seems to be that they think F&F is a taxpayer subsidy to home buyers. I don't see any evidence that they intend to pair privatization with loosened regulatory burdens.
The main problem is that right wing economists spent decades blaming high costs on low interest rates and generous mortgage access, which was mostly wrong. And now they are just too ensconced in a mis-specified literature to ever correct course. There's the whole bruhaha with closing the CFPB right now, but that buffoonery doesn't rise to the level of being analytically discussed.
How does the aging of existing homes factor in here? Land is a constraint in well-established cities. I wonder if zoning changes could lead to adapting already built properties.
I love the phrase gentle density. You got me curious about the housing stock in Canton. Lots of lovely homes built in the 1920s as well as cheaper properties in rougher shape. Despite the cheapnesses of the properties the home ownership rate is below the national average.
We have seen cities like Columbus get a lot of attention lately as people seek cheaper real estate. Some of that is from the potential chip factories coming to the area. I'm not sure what would create a Canton growth story.
Growth would be nice, even without growth, Canton's problem is that those cheaper properties can't be purchased by the families that would live in them because of federal mortgage gatekeepers. Poke around Canton on Zillow, and you'll find that it is very common for the estimated mortgage payment to be much lower than the estimated rent payment for most homes, especially cheaper homes. The federal mortgage suppression apparatus largely exist to keep families spending $1,500/month to rent a home from getting a $1,000/month mortgage to buy it.
Absolutely. As far as city building goes, that's everything. Where city-building is legal, homes are split, upgraded, renovated, replaced, etc. and land values remain low.
I'm not sure how important it is in a place like Canton. I mean, that backbone of appropriate urban growth regulation should be in place, but Canton isn't large enough to have the more salient trade-offs that American cities are suffering from - hour long commutes, etc. Canton probably will mostly build a few neighborhoods on the edge of town. But, over the long term, it will be important to allow gentle density, downtown apartments, etc.
Another superior report on housing from KE.
Side thought: Tell your kids to go into something related to housing rehab, fix-up, repair.
America's housing stock is aging about one year for every year, there is so little new construction. Pipes get old, wiring dangerous or outdated, roofs leak, timber rotted and so on. I don't think AI can solve this one.
Fixing cars is another trade. The average age of car on the US road is now more than 12 years, and rising. Again, these are one-off situations, not something AI can do.
Side note:
This problem of expensive housing seems widespread, even globally. Aussie, Canada, Hong Kong, South Korea, UK. Whole populations have moved into decline.
Something about urbanity.
Orthodox macroeconomists say, "No problem. Just offshore having and raising babies."
I wonder.
Can you explain why you are assuming that marginal new construction will be build-to-rent, as opposed to for-sale single family housing?
Because the decline in single-family new home sales was driven by a moral panic about mortgage access in 2008. Those aren't economic decisions made on the margin now. If families could buy those homes, they would have in 2019 when the monthly mortgage payment relative to the rental value was half what it is now. There are millions of families who just can't check all the boxes on the federal regulators' mortgage forms, so they're just excluded.
Figure 3 is key. Blocking those traditional buyers pushed the prices down on those homes, but it didn't push the rents down. At some lower price, landlords became willing buyers. Then, rents had to rise significantly in order to get the prices back up to replacement value so that new homes were viable again. That is starting to happen around the country. But there are only about 1 million new households able to buy with cash or qualify for a mortgage each year. We are millions of units short. Any annual rise in units above that will have to be tenant-occupied and financial viable for a landlord.
For some reason I'm annoyed that you're right about this. Probably because for many years I've bought into the notion that the American Heartland was a forsaken, hopeless waste because of technological change and the outmigration that came along with that. Curiously, population trends in the Northeast were similar to the Midwest from 1970ish to 2000ish for the exact same reasons--although the Northeast replaced incumbent industries like textiles with more expensive stuff like computers and biotech. From 2000 to 2006 there was a resurgence of homebuilding that was then stabbed to death by Fed actions. Granted, there are cities that are making a comeback, but the trends in places like Canton are not good because of the mortgage access problem. Ironically, the affordability of older houses in many parts of the Midwest has a dampening effect on any type of improvement. "Look how cheap those houses are-no one would want to live there!"
Off topic, the Economist article on housing in Taiwan was simply bizarre. Whenever I think the U.S. has taken the trophy for bad housing policies I read about places like that or Ireland or the U.K.
Off/On topic the piece in the Atlantic about the reasons for mobility declines in this country. We have met the enemy and she is......Jane Jacobs.
I suppose the Economist thinks young folks in Taiwan just have different preferences? They love high rents and hate housing and ownership?
Oof. The Atlantic hit one of my current triggers. "In many parts of the country, housing is cheap and abundant, but good jobs and good schools are scarce." Nope. Nope. Nope.
One thing that hit me when I started looking at the intersection of incomes, home prices, and density, is that much of the value of cities is drawing poor newcomers. Dense urban centers can be opportunity creators for poor workers. The anti-city movement was an anti-poor movement. The emergent goal of the end of cities was to block progress for the poor. And, then, after we did it, the intellectuals looked at these new stagnant centers of exclusion and announced, "Great news everyone! Our cities are superstars! They only attract the best and brightest."
Hi Kevin! That last paragraph is interesting - have you written a blog post about it? If so, I'd love to see it!
Thanks for asking! Here are 2 posts that touch on the topic:
https://kevinerdmann.substack.com/p/what-kind-of-good-is-housing
https://kevinerdmann.substack.com/p/does-density-increase-local-prices
Can we be sure that privatizing Fannie Mae and Freddie Mac would further restrict mortgage access? I might have thought the opposite. Wouldn't that free them up to make a choice to write more mortgages?
There's a very long answer to this, that I probably should write as a post. The short answer is that (1) F&F are untenable as private entities and I haven't seen an explanation of how private F&F with no federal backing could survive. (2) In the post-2008 era, they became the dominant lending conduit because originators were exempted from some of the web of regulatory liabilities if F&F bought their mortgages. Private banks have been more tightly regulated. Recently, my understanding is that those protections have been reduced, F&F market share has declined, and mortgage access has actually recently gotten tighter (3) The main complaint of the privatizers seems to be that they think F&F is a taxpayer subsidy to home buyers. I don't see any evidence that they intend to pair privatization with loosened regulatory burdens.
The main problem is that right wing economists spent decades blaming high costs on low interest rates and generous mortgage access, which was mostly wrong. And now they are just too ensconced in a mis-specified literature to ever correct course. There's the whole bruhaha with closing the CFPB right now, but that buffoonery doesn't rise to the level of being analytically discussed.
How does the aging of existing homes factor in here? Land is a constraint in well-established cities. I wonder if zoning changes could lead to adapting already built properties.
I love the phrase gentle density. You got me curious about the housing stock in Canton. Lots of lovely homes built in the 1920s as well as cheaper properties in rougher shape. Despite the cheapnesses of the properties the home ownership rate is below the national average.
We have seen cities like Columbus get a lot of attention lately as people seek cheaper real estate. Some of that is from the potential chip factories coming to the area. I'm not sure what would create a Canton growth story.
Growth would be nice, even without growth, Canton's problem is that those cheaper properties can't be purchased by the families that would live in them because of federal mortgage gatekeepers. Poke around Canton on Zillow, and you'll find that it is very common for the estimated mortgage payment to be much lower than the estimated rent payment for most homes, especially cheaper homes. The federal mortgage suppression apparatus largely exist to keep families spending $1,500/month to rent a home from getting a $1,000/month mortgage to buy it.
Absolutely. As far as city building goes, that's everything. Where city-building is legal, homes are split, upgraded, renovated, replaced, etc. and land values remain low.
I'm not sure how important it is in a place like Canton. I mean, that backbone of appropriate urban growth regulation should be in place, but Canton isn't large enough to have the more salient trade-offs that American cities are suffering from - hour long commutes, etc. Canton probably will mostly build a few neighborhoods on the edge of town. But, over the long term, it will be important to allow gentle density, downtown apartments, etc.