I searched your article and the words "immigration" and "immigrant" do not appear. Any article discussing housing that doesn't address the massive influx of both legal and illegal immigrants is a waste of time. On the other hand, evict the 40 million or so illegals, revoke immigrant status for millions of not-yet-citizens, and bang, housing problem goes away.
You need to think about your metrics in some of the charts. These may be misleading. For example, Figure 1 shows a close relationship between the Tenant Rent/PCE Index series and Owner-Equivalent Rent/PCE Index. They will be correlated, perhaps highly so, even if there is no underlying relation between Tenant Rent and Owner Equivalent Rent because the series in the chart have a common denominator, the PCE Index. More generally, suppose variables X, Y, Z are all completely independent. Even so, X/Z and Y/Z must, by construction, be correlated because Z is in the denominator of both.
The divergence between the 2 rent measures may be the most important aspect of my graph. It doesn't seem to be widely appreciated how regressive supply-related rent inflation has been.
Kevin, I keep returning to the unstated, I think, impact of the massive domestic wealth redistribution that resulted from the neoliberal unfettered capitalism policies that began under Nixon and kicked into high gear under Reagan. The timeframes you are using correlate with those timeframes very closely.
That massively redistributed wealth from individuals to oligarchs may be limiting the necessary broadly based capital accumulation and formations required to support the types of policies you’re suggesting.
Part of my observation comes from seeing how few young people can accumulate the high levels of home purchase down payments required today except in underpriced markets in sporadic areas of Texas, for example. ($250k houses vs the national median). Existing owners can get there, but fewer young prospective buyers can. (This comes from direct research with two of my daughters and their friends - late 20’s to mid 30’s).
Broad price and value charts may not show or reflect the lack of broadly based underlying residential capital availability over the last 50 or so years that was present previously. I’m think it could be unintentionally missing entirely, but perhaps I’m not seeing something.
Never thought about it that way. Based on the groups I’ve fought over many years, I would say no. But, the impact of their efforts could be construed as that. IMO, such a construction of NIMBYism is misguided because a major element of intent is missing in the NIMBY equation, namely LCP.
I see neoliberalism as the expansion of unfettered capitalism through the creation of a global corporate state that is independent of any nation state. Its fundamental goal is LCP, the lowest cost of production. Large LCP differentials most often are seen in high level nation state level comparisons of labor costs and production restriction costs created by EPA, ADA, unions, taxation, public policy, etc. China had significantly lower wages and far fewer public policy restrictions than the US in the 70’s, 80’s and 90’s and received millions of offshored jobs and thousands of factories from America’s heartland as a result.
The massive labor and policy restricted LCP cost savings from the neoliberal offshoring effort accrued to the corporate entities, not the people. (Those corporate accruements are missing in your housing numbers and are unusable by people in the same manner that they were used from the 40’s through the mid-80’s to fund SFR ownership.)
NIMBYs, on the other hand, were, and in my experience still are, locally or regionally grown groups opposed to land use change or are looking to preserve a local status quo. Housing and transportation changes have been their main battle grounds in my experience (Southern CA). Fear of change is their biggest driver and exploitation of legal inefficiencies is their most effective weapon.
There are national, state and regional level NIMBY groups that support local efforts, and often create their own initiatives, but none of the ones I’ve seen and witnessed are about amassing corporate power at the expense of the people to further LCP and globalism.
I think you're imagining counterfactuals that could not be sustainable or progressive. You're attributing acquiescence to inevitable changes in patterns of production to disloyalty. You seem to think that our abundance comes from exploiting others. That's just fundamentally wrong. If wages in the whole rest of the world were twice what they are, we would be richer for it. They would produce more for us. Low wages is not an advantage. It is the result of a lack of development.
Disloyalty is a very interesting inclusion. That’s a concept that has changed radically since I was in college during the 60’s.
Not entirely sure what the term “counterfactual” means in this context.
As for how the world works…
Part of my background and experience includes the serendipity of knowing and working one on one with many of the folks who were asked by Nixon and Kissinger to go into China in the late 60’s and early 70’s and again in the mid and late 70’s to observe and report as good will ambassadors, and later by Reagan (and even Kissinger) to observe, report and hands-on negotiate with the Chinese leadership about all of the issues surrounding “offshoring” as it’s known today. Ditto other countries across the world, including the Gulf oil region and Europe.
I was incredibly fortunate to have had many hours of candid off-record discussions with these folks starting in the early 70’s through the 2018-19 timeframes about China, the opening China initiatives, Europe, offshoring, etc, and domestic and foreign natural resource development governmental policies and major natural resource projects and events. Their candid observations were and remain stunning.
Separately, the same is true for corporate America perspectives from 1970-2015. Several individuals in this group were well known leaders of major American corporate and industrial firms in international large scale resource development, aircraft manufacturing, domestic and international banking, securities, telecommunications, real estate brokerage and development, and very large institutional investment companies. One was a Fed Governor and one member of the second group was also in the first group. Candor was a mandatory requirement in all of my discussions and interactions with this group because of the fiduciary nature of the relationships.
I won’t name names from either group, but most of them are recognized today as active participants in all of the events we’ve been discussing.
Candid, hands-on knowledge and understandings like these don’t come from classes or readings. They can and do impact belief systems and perspectives about business, business decisions and methodologies, politics and world events in ways not understood by many people, and may be at odds with information reported by MSM or other news and sources. While I trust these sources, I recognize that no source is absolute or inviolable. But, thus far, nothing I’ve read or heard denies their commentaries as anything but accurate and factual.
By counterfactual, I just mean that the alternatives aren't easy. It's not like we could have just chosen to keep making textiles in North Carolina, and everyone would still have their jobs, and we'd all be just as wealthy as we are, and we'd have all the same clothes we have today. Etc. The alternative is either we closed ourselves off and made ourselves poorer, or the factories just went out of business and some foreign company would be selling us clothes made in Asia today.
In the same way that we couldn't have just chosen to ignore the car so that all the blacksmiths and manure shovelers and oat millers could still have their jobs, and everything would be just the same, but without all the troublesome change.
I think the distinction that production moved to places that became more productive rather than moving to places to exploit low wages is important to seeing the value in that comparison.
The job equations are vastly different today than they were in 1973, or 1983, or 1993. China was emergent, hungry, and colossal, and had every wage and production advantage imaginable. It could absorb massive job creation activities, and did.
American corporations were fed up, frustrated and greedy, and didn’t and still don’t care about the domestic and national consequences of their actions. Most of the new factories in China were invented by the corporations that created the new jobs. China learned, and became infinitely more wealthy in the process.
Today’s job equations are more sophisticated and subtle because there are no remaining vastly deep, differentially advantaged opportunities like China had at the time. There are differentially advantaged pockets here and there, and China may or may not be the most comparatively advantaged alternative. It could be that parts of America are after the great hollowing out over the last 50 years.
Domestic housing is its own problem. Jobs are created locally in an instant and housing follows, if it can, over relatively protracted time frames. However, virtual job creation can solve some aspects of the housing issues, but doesn’t address the traditional employer control cultural issues. HP and others built massive satellite campuses in India and elsewhere to become a virtual 24/7 manufacturer and service providers. LLM AI may help if the hallucinations are not taken literally and the tunings are adequately aimed.
Kevin, I don’t know what the solutions should be today. Is America willing to defend its people, or will it defend unfettered capitalism? The unintended consequences of actions taken over the last 50 years may have already made those decisions for us. Please understand that I’m not being fatalistic here. It’s important for us to see and be ready to accept whatever unintended consequence arises, and there are several possibilities. The times leading up to the French Revolution had many similar unintended consequence potentials and the world knows what resulted there. America today is similar but different.
I think you’re suggesting events that occur at the margin are predicated on future conditions that are not yet known or knowable at the instant time of the change. EG, jobs are moved to a new location in anticipation of future increases in wage rates and that the move is not motivated by the relatively high wage rate differentials between the two locations at the time the jobs are moved (the margin).
Wages are downstream of productivity. Low or high wages don't cause anything. The higher wages are in a given country, all else equal, the more we trade with them.
Decisions taken in real time are based on empirical data and perceptions. Jobs are moved, or not, based on the instant and expected labor cost and production condition perceived cost advantages over a defined or protected time period.
I think you’re suggesting that creating job disenfranchisement conditions, unconstrained global trading conditions, and colossal wealth differentials, all in support of high corporate profits, are acceptable national goals for America and the American people.
On the topic of housing, there is the common refrain that I write about a lot that we don't have enough housing where the jobs are. Jobs move to where wages are high. Does San Francisco have a housing shortage because wages are low there? New York City? Why are jobs going to those cities if wages are high in those cities, instead of going to Cleveland or St. Louis?
New jobs in China are no different. Production is moving there for many reasons. Wages happen to be low in China. Of course they are low. So, it's easy to say that jobs move to where wages are low, but it's a non-falsifiable claim. Of course wages are low in China. If low wages weren't actually the key motivator, what fact would convince you? Wages aren't going to suddenly be higher in China than they are in the US. So, if you insist that the low wages are the reason for the shift, how could you ever be convinced otherwise? In every case around the world, there is a very strong positive correlation between the amount of global production a country engages in and the wage level there. You can be pretty certain that Sudan or the Congo are going to have low wages for a while. Is that where production is moving to? If you tell me that Sudan will have $40,000 average income in 40 years vs. $5,000, I can tell you with certainty which future Sudan has expanded more into production for global markets.
I suspect we have fundamentally different views on these things. I don't think low wages are causal. Production doesn't move to where wages are low. It moves to where wages are rising. And, wages are generally rising the most where they were previously low.
Expanding productive potential across the globe is absolutely a good thing, and where it happens, those places are bound to capture some types of production that used to be done elsewhere as they become more productive and specialize.
Great post that distills your housing insight.* One-stop shopping, I love it!
* Now if only there was a way to explain your counterintuitive view without recourse to technical PCE ratios, etc., perhaps it could be sold to a wider audience. Still, hopefully some key policy makers get it.
I searched your article and the words "immigration" and "immigrant" do not appear. Any article discussing housing that doesn't address the massive influx of both legal and illegal immigrants is a waste of time. On the other hand, evict the 40 million or so illegals, revoke immigrant status for millions of not-yet-citizens, and bang, housing problem goes away.
https://kevinerdmann.substack.com/p/who-causes-problematic-housing-demand?utm_source=publication-search
You need to think about your metrics in some of the charts. These may be misleading. For example, Figure 1 shows a close relationship between the Tenant Rent/PCE Index series and Owner-Equivalent Rent/PCE Index. They will be correlated, perhaps highly so, even if there is no underlying relation between Tenant Rent and Owner Equivalent Rent because the series in the chart have a common denominator, the PCE Index. More generally, suppose variables X, Y, Z are all completely independent. Even so, X/Z and Y/Z must, by construction, be correlated because Z is in the denominator of both.
Here's a comparison of Owner-Equivalent rent inflation to inflation for food. Both have PCEPI as the denominator.
https://fred.stlouisfed.org/graph/?g=1oUeP
The divergence between the 2 rent measures may be the most important aspect of my graph. It doesn't seem to be widely appreciated how regressive supply-related rent inflation has been.
https://kevinerdmann.substack.com/p/why-the-economy-isnt-working
Kevin, I keep returning to the unstated, I think, impact of the massive domestic wealth redistribution that resulted from the neoliberal unfettered capitalism policies that began under Nixon and kicked into high gear under Reagan. The timeframes you are using correlate with those timeframes very closely.
That massively redistributed wealth from individuals to oligarchs may be limiting the necessary broadly based capital accumulation and formations required to support the types of policies you’re suggesting.
Part of my observation comes from seeing how few young people can accumulate the high levels of home purchase down payments required today except in underpriced markets in sporadic areas of Texas, for example. ($250k houses vs the national median). Existing owners can get there, but fewer young prospective buyers can. (This comes from direct research with two of my daughters and their friends - late 20’s to mid 30’s).
Broad price and value charts may not show or reflect the lack of broadly based underlying residential capital availability over the last 50 or so years that was present previously. I’m think it could be unintentionally missing entirely, but perhaps I’m not seeing something.
Is NIMBYism neoliberal?
Never thought about it that way. Based on the groups I’ve fought over many years, I would say no. But, the impact of their efforts could be construed as that. IMO, such a construction of NIMBYism is misguided because a major element of intent is missing in the NIMBY equation, namely LCP.
I see neoliberalism as the expansion of unfettered capitalism through the creation of a global corporate state that is independent of any nation state. Its fundamental goal is LCP, the lowest cost of production. Large LCP differentials most often are seen in high level nation state level comparisons of labor costs and production restriction costs created by EPA, ADA, unions, taxation, public policy, etc. China had significantly lower wages and far fewer public policy restrictions than the US in the 70’s, 80’s and 90’s and received millions of offshored jobs and thousands of factories from America’s heartland as a result.
The massive labor and policy restricted LCP cost savings from the neoliberal offshoring effort accrued to the corporate entities, not the people. (Those corporate accruements are missing in your housing numbers and are unusable by people in the same manner that they were used from the 40’s through the mid-80’s to fund SFR ownership.)
NIMBYs, on the other hand, were, and in my experience still are, locally or regionally grown groups opposed to land use change or are looking to preserve a local status quo. Housing and transportation changes have been their main battle grounds in my experience (Southern CA). Fear of change is their biggest driver and exploitation of legal inefficiencies is their most effective weapon.
There are national, state and regional level NIMBY groups that support local efforts, and often create their own initiatives, but none of the ones I’ve seen and witnessed are about amassing corporate power at the expense of the people to further LCP and globalism.
In what sense?
I think you're imagining counterfactuals that could not be sustainable or progressive. You're attributing acquiescence to inevitable changes in patterns of production to disloyalty. You seem to think that our abundance comes from exploiting others. That's just fundamentally wrong. If wages in the whole rest of the world were twice what they are, we would be richer for it. They would produce more for us. Low wages is not an advantage. It is the result of a lack of development.
Thanks, Kevin Much appreciated.
Hmmm… need to think about those a bit.
Disloyalty is a very interesting inclusion. That’s a concept that has changed radically since I was in college during the 60’s.
Not entirely sure what the term “counterfactual” means in this context.
As for how the world works…
Part of my background and experience includes the serendipity of knowing and working one on one with many of the folks who were asked by Nixon and Kissinger to go into China in the late 60’s and early 70’s and again in the mid and late 70’s to observe and report as good will ambassadors, and later by Reagan (and even Kissinger) to observe, report and hands-on negotiate with the Chinese leadership about all of the issues surrounding “offshoring” as it’s known today. Ditto other countries across the world, including the Gulf oil region and Europe.
I was incredibly fortunate to have had many hours of candid off-record discussions with these folks starting in the early 70’s through the 2018-19 timeframes about China, the opening China initiatives, Europe, offshoring, etc, and domestic and foreign natural resource development governmental policies and major natural resource projects and events. Their candid observations were and remain stunning.
Separately, the same is true for corporate America perspectives from 1970-2015. Several individuals in this group were well known leaders of major American corporate and industrial firms in international large scale resource development, aircraft manufacturing, domestic and international banking, securities, telecommunications, real estate brokerage and development, and very large institutional investment companies. One was a Fed Governor and one member of the second group was also in the first group. Candor was a mandatory requirement in all of my discussions and interactions with this group because of the fiduciary nature of the relationships.
I won’t name names from either group, but most of them are recognized today as active participants in all of the events we’ve been discussing.
Candid, hands-on knowledge and understandings like these don’t come from classes or readings. They can and do impact belief systems and perspectives about business, business decisions and methodologies, politics and world events in ways not understood by many people, and may be at odds with information reported by MSM or other news and sources. While I trust these sources, I recognize that no source is absolute or inviolable. But, thus far, nothing I’ve read or heard denies their commentaries as anything but accurate and factual.
Interesting. Thanks for the background.
By counterfactual, I just mean that the alternatives aren't easy. It's not like we could have just chosen to keep making textiles in North Carolina, and everyone would still have their jobs, and we'd all be just as wealthy as we are, and we'd have all the same clothes we have today. Etc. The alternative is either we closed ourselves off and made ourselves poorer, or the factories just went out of business and some foreign company would be selling us clothes made in Asia today.
In the same way that we couldn't have just chosen to ignore the car so that all the blacksmiths and manure shovelers and oat millers could still have their jobs, and everything would be just the same, but without all the troublesome change.
I think the distinction that production moved to places that became more productive rather than moving to places to exploit low wages is important to seeing the value in that comparison.
The job equations are vastly different today than they were in 1973, or 1983, or 1993. China was emergent, hungry, and colossal, and had every wage and production advantage imaginable. It could absorb massive job creation activities, and did.
American corporations were fed up, frustrated and greedy, and didn’t and still don’t care about the domestic and national consequences of their actions. Most of the new factories in China were invented by the corporations that created the new jobs. China learned, and became infinitely more wealthy in the process.
Today’s job equations are more sophisticated and subtle because there are no remaining vastly deep, differentially advantaged opportunities like China had at the time. There are differentially advantaged pockets here and there, and China may or may not be the most comparatively advantaged alternative. It could be that parts of America are after the great hollowing out over the last 50 years.
Domestic housing is its own problem. Jobs are created locally in an instant and housing follows, if it can, over relatively protracted time frames. However, virtual job creation can solve some aspects of the housing issues, but doesn’t address the traditional employer control cultural issues. HP and others built massive satellite campuses in India and elsewhere to become a virtual 24/7 manufacturer and service providers. LLM AI may help if the hallucinations are not taken literally and the tunings are adequately aimed.
Kevin, I don’t know what the solutions should be today. Is America willing to defend its people, or will it defend unfettered capitalism? The unintended consequences of actions taken over the last 50 years may have already made those decisions for us. Please understand that I’m not being fatalistic here. It’s important for us to see and be ready to accept whatever unintended consequence arises, and there are several possibilities. The times leading up to the French Revolution had many similar unintended consequence potentials and the world knows what resulted there. America today is similar but different.
We just have a fundamentally different idea of how the world works.
I think you’re suggesting events that occur at the margin are predicated on future conditions that are not yet known or knowable at the instant time of the change. EG, jobs are moved to a new location in anticipation of future increases in wage rates and that the move is not motivated by the relatively high wage rate differentials between the two locations at the time the jobs are moved (the margin).
Wages are downstream of productivity. Low or high wages don't cause anything. The higher wages are in a given country, all else equal, the more we trade with them.
Hmmm… don’t see the logical connection.
Decisions taken in real time are based on empirical data and perceptions. Jobs are moved, or not, based on the instant and expected labor cost and production condition perceived cost advantages over a defined or protected time period.
I think you’re suggesting that creating job disenfranchisement conditions, unconstrained global trading conditions, and colossal wealth differentials, all in support of high corporate profits, are acceptable national goals for America and the American people.
You're bringing in a lot of baggage there.
On the topic of housing, there is the common refrain that I write about a lot that we don't have enough housing where the jobs are. Jobs move to where wages are high. Does San Francisco have a housing shortage because wages are low there? New York City? Why are jobs going to those cities if wages are high in those cities, instead of going to Cleveland or St. Louis?
New jobs in China are no different. Production is moving there for many reasons. Wages happen to be low in China. Of course they are low. So, it's easy to say that jobs move to where wages are low, but it's a non-falsifiable claim. Of course wages are low in China. If low wages weren't actually the key motivator, what fact would convince you? Wages aren't going to suddenly be higher in China than they are in the US. So, if you insist that the low wages are the reason for the shift, how could you ever be convinced otherwise? In every case around the world, there is a very strong positive correlation between the amount of global production a country engages in and the wage level there. You can be pretty certain that Sudan or the Congo are going to have low wages for a while. Is that where production is moving to? If you tell me that Sudan will have $40,000 average income in 40 years vs. $5,000, I can tell you with certainty which future Sudan has expanded more into production for global markets.
I suspect we have fundamentally different views on these things. I don't think low wages are causal. Production doesn't move to where wages are low. It moves to where wages are rising. And, wages are generally rising the most where they were previously low.
Expanding productive potential across the globe is absolutely a good thing, and where it happens, those places are bound to capture some types of production that used to be done elsewhere as they become more productive and specialize.
Great post that distills your housing insight.* One-stop shopping, I love it!
* Now if only there was a way to explain your counterintuitive view without recourse to technical PCE ratios, etc., perhaps it could be sold to a wider audience. Still, hopefully some key policy makers get it.