The Tea Party, Occupy Wall Street and the Bi-partisan American Own-Goal
Christian Britschgi very generously credited my work as an inspiration for his change in thinking and for his recent long article at Reason about housing. In the Twitter thread about the article, he noted this:
I briefly wrote about the Tea Party and Occupy Wall Street in Building from the Ground Up, because the two movements create nice bookends that support all the self-destructive, demand-obsessed narratives that filled the American library after 2007.
Figure 1 lays out the timeline of events. You can think of the 21st century housing market in 4 basic phases.
Phase A
Generalized increases in home prices, which may have been somewhat related to an interaction of the decline in real long term interest rates from the mid-1990s to 2002 and the urban land use restrictions that translate demand into higher prices instead of more housing.
Phase B
Regional increases in home prices, which I have gone over elsewhere. But, in much of the country, as in Atlanta in Figure 1, prices were pretty moderate. Figure 1 compares the price/income ratio for homes in 2 Atlanta ZIP codes - a rich ZIP code with an average income over $160,000 and a poor ZIP code with average income under $40,000.
In 2002, before the subprime boom, Price/Income ratios in those ZIP codes were about 3x and 5x, and in 2007, at the end of the subprime boom, they were…. about 3x and 5x.
But, the regional housing bubbles elsewhere led to a moral panic which, by 2008, had wrapped its ropes around the legs of the American economy, and dominated American economic results from that point on.
Phase C
One part of the panic was an intense tightening of mortgage regulation and mortgage access. The median credit score on new mortgages is shown in the bottom panel of Figure 1. Keep in mind, there are 3 periods where declining interest rates led to tactical refinancing, around 2003, 2012, and 2021. At these times, borrowers with better credit and higher scores originated a lot of mortgages and pushed up the average. Once you factor that in, basically, the American lending market has 2 periods. Before 2008, the median borrower had a credit score in the 710s and after 2008, it’s in the 760s.
And, in the top panel of Figure 1, you can see that this moral panic was an absolute disaster for poor parts of Atlanta (and every other city). In Stone Mountain, where home prices had been steady at about 5x local incomes and have since returned to levels much higher than that, real estate values of working class locals who had scrapped and saved and managed to own a home, temporarily lost the equivalent of 3 years’ income because of the moral panic.
Notice, the rich neighborhood, which was unaffected by the new mortgage restrictions, has basically stayed at the 2002 price/income level for the entire post-2007 period, before rising in 2021.
Occupy Wall Street
After at least 3 years of this collapse in mortgage access, Occupy Wall Street sauntered in with a lot of motivated, wrong-headed anger. And, in spite of all their differences, they were in agreement with the Tea Party about the worst idea that either group held, which was that the residents of Stone Mountain definitely shouldn’t have gotten mortgages and shouldn’t get them now, and that the problem that we needed to solve for them was to make sure their price/income ratios never increased to 5x again.
Between those two movements was conventional academia. Mian and Sufi’s famous book “House of Debt” was published even after the Occupy rallies, and shared the same sentiment. All agreed that the collapse had been tragic. And all agreed that the problem had been the value of real estate before the collapse. By acquiescing and cheerleading the collapse they were all simply handmaiden’s for what they agreed was inevitable.
It’s worth noting that among those who would torment Stone Mountain for its own good, I am not aware of a single advocate who called for stimulus - for policies that would directly or indirectly lead to home values at 5x local incomes. At best, the calls were for keeping home values down with the left hand and funneling subsidies to the victims with the right hand. How dare we bail out Wall Street but not Main Street?
The Tea Party and Occupy Wall Street were passionately united against the one sustainable solution to Stone Mountain’s primary problem. Stone Mountain just needed a mortgage market like it had been in 2002.
Phase D
And, what happened in Stone Mountain? Well, housing production collapsed, and especially production of new entry level single family homes collapsed - because those were the homes that needed the mortgages that made the Tea Party and Occupy so angry. And, since housing production collapsed, rents shot through the roof. And, as I have been documenting at EHT, when rents shoot through the roof, they especially rise in the neighborhoods that can least afford them.
Zillow only has rent data going back to 2015, but that is far enough back to clearly see that the perverse advocacy of Occupy led to an unprecedented rise in the cost of living for working class Americans. Now, for residents in Stone Mountain, homes sell for 8x local incomes, and those homes sell to outsiders who charge Stone Mountain tenants rents that take nearly half their incomes.
But don’t be mad at private equity landlords. Be mad at Occupy Wall Street.
Oh, who am I kidding. Private equity landlords are going to get the hate for this, and the haters “may be more likely to go to Heaven yet at the same time likelier to make a Hell of” Stone Mountain, Georgia.