I'm a large scale housing developer (42 years in the business) based and active in CA and major housing markets across the country. I'm far less confident than you that housing supply will increase, at least in a consistent pattern in states and regions across the country.
Best case to me is that your analysis holds in states that build a lot of housing, and won't in states that don't build a lot of housing, resulting in asset inflation in those latter places
If words converted into action CA would lead the country in housing production. But of course the opposite is true. Since moving to CA in 2001 I've listened to a couple decades worth of optimistic and bullish talk about how this year's brand new ultra special housing policy/program is going to kickstart housing production. Gavin has given us 8 years of utter BS on this subject. But the results have been always been the same...complete failure insofar as the actual results; ie number of units subsequently produced are concerned.
Special interest demands in CA and many other blue states have attached to housing policy like barnacles on a ship's hull. And with the same result. And then of course there's the incompetence that leaves me and my fellow builders sitting on completed homes for six months because LA DWP and SoCal Electric have completely failed in providing service to new housing projects. Just one of many examples.
CA produces 2.8 housing units per year per 1,000 people. The national average is about 4 units per 1,000 people. (Places like FL are up in the 5-6 housing units per capita.)
While the CA Yimby movement has had great success in improving the entitlement/land use problem, there remains a vast regime of housing-killing processes and regulations, combined with terrible inefficiency at all levels of local govt and public utilities.
Put differently, in spite of a much more favorable land use landscape in CA, we developers find it impossible to supply homes above a 2.8 unit per capita rate. It's not because there aren't buyers (and renters) who want to buy more housing units and developers who want to build more units, it's because we can't. And this part isn't going to change.
In FL and TX where I also build it's possible to turn up supply, but not in places like CA, MA (build there as well) etc.
Bottom line for me working this business each and every day for 42 years is that high cost blue states with historically dismal rates of housing production (with NYC as an exception maybe) won't be able to create the add'l supply you posit and thereby sterilize the housing asset inflation forces that a Harris Administration price subsidy will create.
Alternatively I do agree that in places like TX, AZ etc that can turn on the supply spigot should be more immune.
MA is currently going through a (painful) process to rezone portions of towns for dense transit-oriented development. The reality in MA is that greatest Boston is "built out" - everywhere you can put a suburban style house, there is a suburban style house there. Homebuilders are resorting to insane measures like blasting ledge and using massive earth moving equipment to create lots where SFHs can go.
All of the land that's sanely commutable to Boston is built out. Maybe some states would let SFH suburbs sprawl all the way out to Springfield, but Massachusetts is not Texas. Terrain also becomes a factor - Massachusetts is quite hilly.
The logical next step is to build "gentle density", gradually converting existing old SFH neighborhoods into small apartments. BUT the blue-state zoning sclerosis kicks in then. THE SINGLE most politically charged topic is building an apartment next to a single family home - people LOSE THEIR MINDS about this. MA's suburbs are more conservative than you think. Plus, MA's car dependent suburbs have tons of traffic, which people view as a valid reason not to build ANY additional houses.
So of course instead of building small apartments when it's time to knock down an aging 50s ranch, builders put in 3,500sqft "mcmansions". I don't know who buys these, but I steer clear. They're UGLY - somebody recently knocked down a 1700's house for one of these McMansion hell houses.
Of course the problem is political - single family neighborhoods like it that way and vote, and any city councillor who doesn't toe the line gets replaced by somebody who does.
Meanwhile nobody from the condo complexes in my town ever shows up to the city council or engages politically at all. This may be because all of the condo dwellers are like my cousin, who dreams of owning a single family home himself, and views living in a condo as a temporary embarrassment he'll hopefully get over soon. A "transient" self concept gets in the way of political organizing. Homeowners view renters as "transients" not worthy of political representation, and many of the renters seem to agree! It's the classic American nation of temporarily embarrassed millionaires.
California passed a Standard State zoning enabling act in 1923. Zoning was not considered even firmly constitutional until 1926 (Euclid v Ambler). Zoning isn't as old as you think.
I’m not opposed to zoning in general, though. I think cities should be laid out intelligently. I just disagree with NIMBYs about what would make a city nice, and I see how their preferences have led to exorbitant rents and homelessness.
As I wrote above, in Marin and parts of the E. Bay there *is* a lot of new building along/adjacent to transit corridors. Much of it is even "urbanist", i.e., mixed use, with apartments over offices over storefronts.
I like what Sacramento does in downtown and Midtown (the places where your address is the intersection of a number and a letter).
It appears zoning doesn't exist. On a single block, you can have a midrise office building, a midrise apartment building, a stucco shitbox apartment with carports, a Victorian house converted into a business, a Victorian house that's still a house, some other kind of house, another apartment, and another midrise office building. (In areas south of the Capitol, there are also more industrial uses mixed in, like car repair shops and light manufacturing).
"It's not because there aren't buyers (and renters) who want to buy more housing units and developers who want to build more units, it's because we can't. And this part isn't going to change."
Could you explain a little more about the "can't"? I assume it's a death-by-a-thousand cuts situation, but could you describe in detail some of the blockers you face as a developer?
I can’t speak for this guy, but I think the points about general inefficiency, connection to utilities, etc are clear. You can have an extremely permissive land-use regime, but if it takes 10 years to get a hook up to the electric grid, you may as well make new housing illegal.
My brother-in-law is a 30+ year contractor (kitchens, bathrooms mostly) in Berkeley, CA; who says pretty much the same thing.
The only exception--in Berkeley anyway--are several thousand new rental units in large, multistory buildings (mostly along the Shattuck Ave corridor serviced by BART and bus lines) that the city somehow greenlit.
Where I live, in Marin Co., the permitting process for new builds, rebuilds on an existing foundation, or even renovations can take 1-2 years. But like in Berkeley, large multistory apartment buildings are popping up along the Hwy 101 road/rail corridor.
So many of the new units have come online that rents are down in the area. I know because a friend of many years who rents out a granny unit to Cal grad students has complained that she's now getting 10-20% less than before.
Great comment. There’s of course no silver bullet. Out of curiosity, if you were in charge of housing in CA, what are the top 1-2 things you’d change to promote more building?
The White House gets it. I noted utility company delays. This is CEQA. And there are many many more of these type of impediments that will make increasing housing supply in CA structurally difficult given the state's populist governance tendencies. (People in CA hate private side housing developers.)
Housing supply in CA will not increase so as to sterilize the asset inflation forces that will come with a price subsidy.
“ And for middle-class Americans, most of their wealth is the value of their home:”
People just don’t save, do they? Anyone with a decent job who invests 10% of their income is never going to have their home equity be the majority of their wealth.
If your home equity gets 30% of your income, then your retirement fund needs to appreciate three times as fast as housing to be a majority of your wealth.
Depends. If your house in CA is $1M, appreciates 2%, and is 80% leveraged, you’re making $20k a year on a $200k down payment, before considering mortgage payments.
What can be done to encourage older people to move along and not stay in the big suburban and exurban houses that they bought when they started families? It seems like there are a lot of old single people living alone in houses that they can’t really afford in terms of keeping up with continuing maintenance and annual property taxes, and our local and state governments respond by giving seniors deferrals and even exemptions from property taxes. That creates a perverse incentive to put off selling as long as possible, and there are neighborhoods designed for families that are clogged with retirees.
My British in-laws find this American trend crazy. They moved a couple of years ago from a SFH to a small 2-bedroom flat and they say that's just the norm there. Save a lot of money and get to travel more! Agree on the senior freeze property tax policy - not helpful in opening up more SFH homes for young families.
That’s true, and there is absolutely NO skepticism about the wisdom of old people “aging in place” in huge, expensive, and car dependent houses. There was an insane NYT story about home elevators a few months ago and all the old people were like ‘Yeah, we good..we have an elevator and we paid a shit ton of money for a wheel-in bathroom.” To which a few of us who had actually cared for our aging parents who refused to move were screaming AYFKM??? WHAT HAPPENS WHEN YOU CAN’T DRIVE??”
I’m 64..I’ve got the battle scars from dealing with all of the problems caused by elders refusing to move and I’ve got the timeline sorted out and I’m on a waiting list at a continuing care community. When I’m 70 we are selling our house and moving. We’ve already downsized once from the house where we raised our kids to a stair-free ‘60’s rancher, but it has a yard. I want to leave before I get too decrepit to make new friends or put down new roots.
Yeah I mean my mom *upsized* after we were grown, her new house is 3000sf and she’s in it by herself - but she did move there to be next door to my sister. 3000sf is a lot for one person, especially one that doesn’t have rooms full of books like me
Ideally single seniors would share a place with another senior. I wonder why this doesn’t happen more. I guess it is more complicated legally and you definitely need to be very compatible.
I think when you’re a single senior you get pretty set in your ways. At least my mom is. Plus, she’s in one of those neighborhoods that necessitates a car where everything is on an acre lot and there aren’t even sidewalks (it’s Mississippi, so land is cheap)
"Is Wall Street Actually Taking Over the Housing Market?" (Applying Betteridge's Law of Headlines, the answer is NO.)
Herriges: "A wave of sensational headlines in 2021 sparked a lot of discussion with the claim that one in five American homes are bought by investors. This sounds massive, but two pieces of nuance were lost in most of the reporting. One is that this isn’t new: one in five actually represents a decline from the 2013 peak, when investors made up 29% of home sales. The other is that “investors” is being used in the broad sense of the term, not the Wall Street sense. A 2015 Federal Reserve study found that large investors made up just 1–2% of all single-family purchases from 2012 to 2014, while other investors made up 18–19%.
Large institutional investors are picking up the pace of their activity, but they actually own a smaller percentage of the nation’s housing stock than you’d think. Americans for Financial Reform estimates that, as of June 2022, private equity firms owned real estate rented by around 1.6 million households. This includes at least 1,071,056 apartment units, 275,468 manufactured home lots, and over 239,018 single-family rental homes. These numbers sound big, but they equate to only 3.6% of all apartments and 1.6% of rental homes. "
Investment firms did buy a lot of houses in Memphis after the spate of subprime foreclosures, I had a friend whose husband (a pretty douchey guy) works for one of those firms. They definitely run it like a slum lord, avoiding repairs and never giving deposits back to people from what I was told. But they did do some necessary repairs to make some of the homes habitable, and they kept the market in some neighborhoods from actual free fall, so it’s a mixed bag.
Herriges did note what you describe, that the institutional investors snapping up houses was regionally concentrated, particularly in the Sun Belt in poorer inner cities and early suburbs but where the metro areas were growing quickly.
Much of Marin Co. (north of San Fran) has strict limits on AirBnB use; e.g., requiring minimum rentals of >1 month. Found that out last year trying to find a place for my mother-in-law to stay.
Property values go up when you improve things. Thus, your property taxes go up. So if you replace your roof, reseal a driveway, do some landscaping, whatever, you're punished with higher taxes.
Under our current system, this also means a vacant lot is taxed less than a lot next door with a building. This seems perverse. It means the government is literally subsidizing vacant lots.
We should probably just tax the land and not the improvements. (i.e. you should raise taxes on the vacant lot and lower taxes on plots with improvements). That way you encourage improvements, rather than discouraging them.
There are at least two kinds of people who like the Land Value Tax and read this blog:
1. People who want more homes: They see moving to a land value tax over a property tax as a common sense nudge for improvements on land (which include housing) and a nudge against speculators holding vacant or derelict lots.
2. Economics nerds: Whatever you tax you get less of. Except for land. Since people don't make land, taxing it has this neat property where you don't reduce the amount of a good thing by taxing it. Econ nerds find this very neat.
The proposal to authorize the referendum is currently stuck in legislative hell. And then Detroit still has to approve it in a referendum. Good luck seeing this before 2028 😨.
People frequently cite price concerns as a motivation for NIMBYism, but I'm not confident people are so financially aware of the impact of new housing in their home price. We're I grew up, and we're I live now, I suspect people mostly dislike change. I wonder if there's any studies on this.
I think this is William Fischel’s homevoter hypothesis - it’s about change, not direct financial motivation. But YIMBYs misinterpret it as financial because that’s an easy motive to understand. (There are a lot of political disputes that get misunderstood this way.)
I mean I think rarely has supply ever increased so much as to depress home prices. Maybe a little bit in the Great Recession, though that seemed more of a demand-side issue with subprime lending going bust. Still, at least in FL where I was, there was a boom in supply especially where apartment buildings would convert to condos because Countrywide would lend the money to anyone with a pulse. But new stuff was also being built before the crash, too, it wasn’t all just conversions.
I suspect car culture is also a huge driver of NIMBYism, because more residents in a car-dependent neighborhood means more traffic congestion and more difficulty finding a parking space.
People also dislike putting up with construction and its attendant disruptions. One of the appeals of a new SFH subdivision is there isn't going to be any heavy construction in the immediate area for decades
It maddening that this isn’t when the decision to build the missing middle is applied. When no one’s living in a greenfield development you can build anything.
I think you’re almost entirely talking past those of us who are skeptical of Kamala’s housing proposal: the issue is not whether she gestured in the right directions on paper, but whether she can be trusted to deliver on the less palatable and more difficult components - namely, supply side reforms. A few things suggest that we’re right to be skeptical:
- a boilerplate promise to “cut red tape”? Where have I heard that before? Oh right, every politician ever.
- promises to help along tax grants for “affordable housing”? Come on man, you’re in California - you know the “program to expand affordable housing” scam better than anyone
- $40 bn grants - haven’t you been making the point that throwing money at “abundance” problems isn’t the same thing as solving them?
- the federal land thing is a joke and everyone knows it. No one wants to say “this is less than a drop in the bucket” because that will alienate would-be allies, but you know and I know that none of this newly available land will amount to more than a few housing units.
Most importantly, getting the supply side stuff right requires strong leadership and management skills. Kamala does not have a reputation as a strong leader or manager - she has a reputation as the opposite. Happy to be proven wrong by a) her agenda not being California style “oh we’re gonna build housing but god forbid a developer gets rich” and b) her having the focus and capability to execute on such a vision. But to the extent that the real concern is what I’m describing rather than people being unaware of the details of her platform, I’d say skepticism is quite warranted.
That said - and maybe I should lead with this - I absolutely LOVE the acknowledgment that housing is never going to be purely a consumption good. Indeed this is the first time I’ve seen someone in the YIMBY camp (which I fully identify with) register the ubiquity of housing-as-savings-vehicle and the impossibility of getting prices to decline broadly. And the North Star of Singapore-style housing policy is spot on. Honestly you should just do a longer article on his subject - and knock down naive objections, eg the example of Austin circa 2023 - and ditch the excuse of Kamala’s platform to write about this.
I think the article effectively addresses most of your concerns that you have stated.
More importantly, I think you’re overlooking the fact that the federal government has very little power over local zoning and regulation. Any power that the Feds will have will come from funding mechanisms, and that will come down to what happens in the Senate and what they’re able to negotiate which no one knows how that will turn out.
The power of Kamala’s plan is that it sets the tone for elected Democrats across the country. And hopefully it will allow her to use the office of the President to brow beat blue states
I simply do not see how Noah addressed any of what I wrote. Feel free to correct me.
I am well aware of the weak influence the federal government has on housing policy - I am not the one claiming that Kamala’s policy is the right mix of supply side reform and demand side redistribution.
Again the tone Kamala is setting is that we will prioritize progressive shibboleths over doing the necessary, unpalatable work of cutting regulations and upzoning.
Time will tell how much of the hard work happens, but during a campaign is the wrong time to get specific about all the arm twisting you plan to do to various constituencies.
Okay some critiques based on my experience working with similar down payment assistance programs. The first big one is that the assumption that it will help young Americans is pretty questionable. DC has a down payment assistance program MUCH more generous (maximum benefit of more than $200,000) and the median age of a recipient is 33, only marginally younger than the median age of a DC homebuyer in general (36). The reason? A first-time homebuyer is NOT someone buying a home for the first time. Instead, a first-time homebuyer is someone who has not owned a primary residence in the previous three years. Secondly it's not clear if the policy would be a grant or a loan - a loan would lead to it being almost entirely unutilized in my experience (Rockville had a HPAP-style program formatted as a loan and the program had essentially zero applicants) whereas a grant may be marginally beneficial but even that I am fairly skeptical of. The lack of apparent targeting, low benefit amount, and current HUD understanding of "first-time homebuyers" makes me EXCEEDINGLY skeptical this will lead to an increase in home-ownership. And if home-ownership does not increase what is the point? You're basically copying the Home Mortgage Interest Deduction in effect - helping people who would buy homes regardless buy bigger homes.
when you say "current HUD understanding of "first-time homebuyers"" is that "someone who has not owned a primary residence in the previous three years"? or was the DC program non-HUD?
It's the definition provided within current HUD regulations. In practice this definition extends far beyond HUD - it's rare that a housing program decides to re-define a term already defined by HUD.
Noah seems to be endorsing the first time buyer subsidy without explaining why it's good policy. Sure, the effect on prices may be small, but it's still a bad policy that will benefit incumbent homeowners at the expense of taxpayers and all homebuyers not eligible for the subsidy. "Singapore does it" isn't really a justification.
Are you at all worried about the subsidies adding to the deficit? I’m sure there will be some limits on how many people can claim them and whatnot. But there are potentially millions of first time home buys and because that group would skew younger they are more likely to make little enough money to qualify. That’s a lot of money!
They could make a requirement that the first-time buyer credit needs to be repaid when the house is sold. If they never sell it, then they keep the credit Then people who live in their new home long enough for appreciation to cover the cost of the credit, that way they get the house they wanted but miss out on some capital appreciation, and the taxpayers get their money back. If the house doesn’t appreciate, then they have the same risk as buyers who didn’t get the credit.
Correct me if I'm misreading this, but it sounds like the $25,000 subsidy isn't helpful for housing affordability, but Noah thinks it's good because it reduces inequality (since it goes to young people whose earning potential is mostly still ahead of them). In that case, why not have the federal government instead just deposit $25,000 in people's retirement accounts when they turn 25, or something like that? That way you wouldn't reduce affordability; if people don't _want_ to buy a house, then they still get to keep the money, and meanwhile the supply they'd have used is freed up for everyone else.
If you think that home prices would be too low (resulting in a middle-class revolt) if you didn't do something like this, then I don't think that works out either. It's possible (and historically common) for home prices to be either too high or too low to balance the policy goals in this post, depending on other factors that would be independent of the subsidy. So the subsidy is likely to be either insufficient or counterproductive, depending on what else is going on in the economy at the moment.
What you instead need is a stabilization mechanism, wherein the government, acting according to some pre-specified procedure, buys up homes or cuts residential property taxes whenever home prices are too low, and sells those homes or raises residential property taxes whenever home prices are too high. That would let you target a price path.
(This is all granting that you think wealth-building-through-homeownership is socially important enough that it's worth deliberately pricing out the poorer members of society in order to facilitate it. I disagree with this, which is why I'm sympathetic to Georgism, but I suppose I can't exactly refute the notion that political economy forces us to go this route.)
I have very vivid memories of trying to get enough money together to afford a home over the years. Because of that, even though I am a homeowner now, I still identify strongly with homebuyers. I hated going through all that and don't want anyone else to do that either. My response to arguments that we can't let prices fall too much, because older homeowners lose a portion of their savings, is "To hell with them." I'm sure if I save and invest frugally I will be fine with whatever I can get out of my house when I am old.
First, I am absolutely one of the folks who screamed that Harris was subsidizing demand in a supply-constrained market, so thanks for filling out her policy a bit. Not taxing tips, playing whack-a-mole with grocery prices, and forgiving student debt are not inspiring policies, but I agree that the Harris housing policy looks quite a bit better with the supply provisions added.
Also, it is important to consider that homes are highly leveraged assets for most new home buyers. This means that if increased supply were to slow housing price increases to the rate of inflation, financial returns on homeowner equity invested remains attractive.
Leverage accounts for most homeowner equity gains in hot markets or cold. I bought a house in San Francisco in 1989. 35 years later, it is worth 6X more. I sold it long ago, but this represents about 5.25% annual growth. Inflation was 2.25%/year, so buying and holding that house earns 3% annually on the asset (less after property taxes, maintenance, etc). But if I had borrowed 80% of the money, my $100,000 in equity would have returned ~10% annually or 8% after inflation. Obviously if the market goes down (and 35 years ago, it went down sharply for 7 years), leverage would be my enemy not my friend. For years, I would have had to write a big check to sell that house.
Suppose that instead of growing 10% annually in nominal terms, the house had grown 2.5% annually because San Francisco created housing supply that kept up with demand. The house would be worth $1.2m today and the return on my $100k investment would be ~7%/year. A bit less than the stock market, which seems right, since it is less risky.
The point is that leverage makes it somewhat easier for public policy to manage the balance between a home as a consumer good and as a financial asset.
maybe I'm misunderstanding but isn't your calculation assuming an interest-free mortgage? at today's (admittedly high) 30-year fixed rate you'd be paying almost 7%/yr, which would wipe out almost all your returns
Your point is important in considering whether buying makes sense in the first place. As interest rates go higher, buying gets harder to justify, especially in markets where rents don't keep up with home prices.
Once you buy a home, assuming that you borrow 80% of the cost as this example does, every time your home gains 10% in value, your equity returns are 50%. (If you put $100k down on a $500k house and the value of the house grows 10%, you are $50k richer on a $100k investment). My point, and I probably did not make it concisely enough, is simply that the use of leverage in housing markets makes the need to treat the house as a financial asset easier for policymakers.
It is of course true that if interest rates are too high, it gets much harder to justify buying in the first place and, super importantly, if housing prices go down the use of leverage makes everything harder, not easier, as we learned in the Great Recession.
The whole “manage supply so that returns on housing are good, but not too good so that they remain affordable” thing is just kind of a ridiculous tightrope to try to walk.
I’ve settled on the whole homeownership fetish being a bad thing that should be discouraged. Spillover effects are nice, but people relying on real estate as their primary investment, which they end up locked into if they bought at a favorable interest rate, just seems to be a much worse externality.
I’d much rather just focus on housing supply. If you get rid of all the ridiculous zoning our urban areas have, markets will do most of the work to build affordable housing. And government can do the rest by handing poor people cash to buy housing. Or by managing low income housing on its own.
Then instead of relying on their residence appreciating to bankroll their retirements, people can hopefully just park more cash in retirement accounts instead of saving up for a down payment on a house.
Another quick idea to increase supply and adapt the inventory to changing household characteristics is to enable "accessory units" or "granny flats" in existing structures. There are a lot of one and two person housefholds in houses big enough for six. Carving out a smaller unit adds a dwelling unit and may make a place for a live in helper for an older person. A general principle is to increase density. Which helps make public transport and "walkable cities" more feasible.
The Singapore-style asset framing also concedes a zero-sum intuition about upzoning. People also seem to think that upzoning is zero-sum. So, they assume that, under liberal land use, some people win (renters) and some people lose (homeowners), and the wins and losses sum to zero. Like there’s some kind of conservation of value over the metro. So, in the zero-sum view, homeowners lose their investment if renters get a break.
But upzoning is positive sum. Everyone gets to move within their budget to where they want. So, over the entire metropolitan area, aggregate land value increases, because everywhere it’s being put to a higher better use.
People think that you can’t get something for nothing, which is generally true. But with upzoning, you get something for allowing something. So the zero-sum constraint is inapt and wrong. Like people genuinely and wrongly think that it’s too good to be true that homeowners would be better off, except a few far flung exurbs, under liberal land use. The homevoter hypothesis is right in that homeowners tend to oppose upzoning, but only because homeowners misunderstand
I'm a large scale housing developer (42 years in the business) based and active in CA and major housing markets across the country. I'm far less confident than you that housing supply will increase, at least in a consistent pattern in states and regions across the country.
Best case to me is that your analysis holds in states that build a lot of housing, and won't in states that don't build a lot of housing, resulting in asset inflation in those latter places
If words converted into action CA would lead the country in housing production. But of course the opposite is true. Since moving to CA in 2001 I've listened to a couple decades worth of optimistic and bullish talk about how this year's brand new ultra special housing policy/program is going to kickstart housing production. Gavin has given us 8 years of utter BS on this subject. But the results have been always been the same...complete failure insofar as the actual results; ie number of units subsequently produced are concerned.
Special interest demands in CA and many other blue states have attached to housing policy like barnacles on a ship's hull. And with the same result. And then of course there's the incompetence that leaves me and my fellow builders sitting on completed homes for six months because LA DWP and SoCal Electric have completely failed in providing service to new housing projects. Just one of many examples.
CA produces 2.8 housing units per year per 1,000 people. The national average is about 4 units per 1,000 people. (Places like FL are up in the 5-6 housing units per capita.)
While the CA Yimby movement has had great success in improving the entitlement/land use problem, there remains a vast regime of housing-killing processes and regulations, combined with terrible inefficiency at all levels of local govt and public utilities.
Put differently, in spite of a much more favorable land use landscape in CA, we developers find it impossible to supply homes above a 2.8 unit per capita rate. It's not because there aren't buyers (and renters) who want to buy more housing units and developers who want to build more units, it's because we can't. And this part isn't going to change.
In FL and TX where I also build it's possible to turn up supply, but not in places like CA, MA (build there as well) etc.
Bottom line for me working this business each and every day for 42 years is that high cost blue states with historically dismal rates of housing production (with NYC as an exception maybe) won't be able to create the add'l supply you posit and thereby sterilize the housing asset inflation forces that a Harris Administration price subsidy will create.
Alternatively I do agree that in places like TX, AZ etc that can turn on the supply spigot should be more immune.
MA is currently going through a (painful) process to rezone portions of towns for dense transit-oriented development. The reality in MA is that greatest Boston is "built out" - everywhere you can put a suburban style house, there is a suburban style house there. Homebuilders are resorting to insane measures like blasting ledge and using massive earth moving equipment to create lots where SFHs can go.
All of the land that's sanely commutable to Boston is built out. Maybe some states would let SFH suburbs sprawl all the way out to Springfield, but Massachusetts is not Texas. Terrain also becomes a factor - Massachusetts is quite hilly.
The logical next step is to build "gentle density", gradually converting existing old SFH neighborhoods into small apartments. BUT the blue-state zoning sclerosis kicks in then. THE SINGLE most politically charged topic is building an apartment next to a single family home - people LOSE THEIR MINDS about this. MA's suburbs are more conservative than you think. Plus, MA's car dependent suburbs have tons of traffic, which people view as a valid reason not to build ANY additional houses.
So of course instead of building small apartments when it's time to knock down an aging 50s ranch, builders put in 3,500sqft "mcmansions". I don't know who buys these, but I steer clear. They're UGLY - somebody recently knocked down a 1700's house for one of these McMansion hell houses.
Of course the problem is political - single family neighborhoods like it that way and vote, and any city councillor who doesn't toe the line gets replaced by somebody who does.
Meanwhile nobody from the condo complexes in my town ever shows up to the city council or engages politically at all. This may be because all of the condo dwellers are like my cousin, who dreams of owning a single family home himself, and views living in a condo as a temporary embarrassment he'll hopefully get over soon. A "transient" self concept gets in the way of political organizing. Homeowners view renters as "transients" not worthy of political representation, and many of the renters seem to agree! It's the classic American nation of temporarily embarrassed millionaires.
Isn't Gavin's problem that local governments have jurisdiction over real estate development, not the state?
I'm convinced the solution is to build up the boulevards, which are often hideous in California. It seems to have been very effective in Minnesota:
https://www.pewtrusts.org/en/research-and-analysis/articles/2024/01/04/minneapolis-land-use-reforms-offer-a-blueprint-for-housing-affordability
Thank you for your service. Sounds snarky, but I mean it. Building homes is very important!
CA can choose to repeal its zoning enabling act, it just hasn't
Please include a link to what you’re referring to. I don’t understand: a state law..?
California passed a Standard State zoning enabling act in 1923. Zoning was not considered even firmly constitutional until 1926 (Euclid v Ambler). Zoning isn't as old as you think.
http://www.tnlanduse.com/SSZEA.htm
100 years seems old enough.
I’m not opposed to zoning in general, though. I think cities should be laid out intelligently. I just disagree with NIMBYs about what would make a city nice, and I see how their preferences have led to exorbitant rents and homelessness.
As I wrote above, in Marin and parts of the E. Bay there *is* a lot of new building along/adjacent to transit corridors. Much of it is even "urbanist", i.e., mixed use, with apartments over offices over storefronts.
I like what Sacramento does in downtown and Midtown (the places where your address is the intersection of a number and a letter).
It appears zoning doesn't exist. On a single block, you can have a midrise office building, a midrise apartment building, a stucco shitbox apartment with carports, a Victorian house converted into a business, a Victorian house that's still a house, some other kind of house, another apartment, and another midrise office building. (In areas south of the Capitol, there are also more industrial uses mixed in, like car repair shops and light manufacturing).
I'm wondering how this happened.
What was the rate in California a decade ago? Is 2.8 the same, and improvement on an even worse rate in the past, or a continued decline?
"It's not because there aren't buyers (and renters) who want to buy more housing units and developers who want to build more units, it's because we can't. And this part isn't going to change."
Could you explain a little more about the "can't"? I assume it's a death-by-a-thousand cuts situation, but could you describe in detail some of the blockers you face as a developer?
I can’t speak for this guy, but I think the points about general inefficiency, connection to utilities, etc are clear. You can have an extremely permissive land-use regime, but if it takes 10 years to get a hook up to the electric grid, you may as well make new housing illegal.
My brother-in-law is a 30+ year contractor (kitchens, bathrooms mostly) in Berkeley, CA; who says pretty much the same thing.
The only exception--in Berkeley anyway--are several thousand new rental units in large, multistory buildings (mostly along the Shattuck Ave corridor serviced by BART and bus lines) that the city somehow greenlit.
Where I live, in Marin Co., the permitting process for new builds, rebuilds on an existing foundation, or even renovations can take 1-2 years. But like in Berkeley, large multistory apartment buildings are popping up along the Hwy 101 road/rail corridor.
I have seen the new buildings on Shattuck. They are glorious!
College around Rockridge should go up five stories, too. And University all the way down to Hwy 80. And Ashby and Telegraph!
These Boulevards would come to life with more pedestrian traffic!
So many of the new units have come online that rents are down in the area. I know because a friend of many years who rents out a granny unit to Cal grad students has complained that she's now getting 10-20% less than before.
Why do you say NYC will buck the trend?
Great comment. There’s of course no silver bullet. Out of curiosity, if you were in charge of housing in CA, what are the top 1-2 things you’d change to promote more building?
The White House gets it. I noted utility company delays. This is CEQA. And there are many many more of these type of impediments that will make increasing housing supply in CA structurally difficult given the state's populist governance tendencies. (People in CA hate private side housing developers.)
Housing supply in CA will not increase so as to sterilize the asset inflation forces that will come with a price subsidy.
https://x.com/Rafamonsta/status/1825238819589025821.
“ And for middle-class Americans, most of their wealth is the value of their home:”
People just don’t save, do they? Anyone with a decent job who invests 10% of their income is never going to have their home equity be the majority of their wealth.
If your home equity gets 30% of your income, then your retirement fund needs to appreciate three times as fast as housing to be a majority of your wealth.
Your home equity doesn’t get 30% of your income, there’s a lot of interest in there, particularly in the first decade.
Even more until the Almighty Federal Reserve decides to cut rates.
Wonder why Noah never even comments on Fed policy.
That’s not how a mortgage works. To use round number at 7% on a $200k loan your first payment is $164 in principal and $1,167 in interest.
https://www.calculator.net/amortization-calculator.html
Depends. If your house in CA is $1M, appreciates 2%, and is 80% leveraged, you’re making $20k a year on a $200k down payment, before considering mortgage payments.
If you’re buying a $1 million home you should be maxing out your 401k which for a married couple is $46k/year.
What can be done to encourage older people to move along and not stay in the big suburban and exurban houses that they bought when they started families? It seems like there are a lot of old single people living alone in houses that they can’t really afford in terms of keeping up with continuing maintenance and annual property taxes, and our local and state governments respond by giving seniors deferrals and even exemptions from property taxes. That creates a perverse incentive to put off selling as long as possible, and there are neighborhoods designed for families that are clogged with retirees.
Plus people just have so much STUFF that they're unwilling to downsize into a reasonably sized home
My British in-laws find this American trend crazy. They moved a couple of years ago from a SFH to a small 2-bedroom flat and they say that's just the norm there. Save a lot of money and get to travel more! Agree on the senior freeze property tax policy - not helpful in opening up more SFH homes for young families.
Oh there’s lots of criticism of folks who have second homes or that let out Airbnb’s in the media
That’s true, and there is absolutely NO skepticism about the wisdom of old people “aging in place” in huge, expensive, and car dependent houses. There was an insane NYT story about home elevators a few months ago and all the old people were like ‘Yeah, we good..we have an elevator and we paid a shit ton of money for a wheel-in bathroom.” To which a few of us who had actually cared for our aging parents who refused to move were screaming AYFKM??? WHAT HAPPENS WHEN YOU CAN’T DRIVE??”
I’m 64..I’ve got the battle scars from dealing with all of the problems caused by elders refusing to move and I’ve got the timeline sorted out and I’m on a waiting list at a continuing care community. When I’m 70 we are selling our house and moving. We’ve already downsized once from the house where we raised our kids to a stair-free ‘60’s rancher, but it has a yard. I want to leave before I get too decrepit to make new friends or put down new roots.
Yeah I mean my mom *upsized* after we were grown, her new house is 3000sf and she’s in it by herself - but she did move there to be next door to my sister. 3000sf is a lot for one person, especially one that doesn’t have rooms full of books like me
Ideally single seniors would share a place with another senior. I wonder why this doesn’t happen more. I guess it is more complicated legally and you definitely need to be very compatible.
I think when you’re a single senior you get pretty set in your ways. At least my mom is. Plus, she’s in one of those neighborhoods that necessitates a car where everything is on an acre lot and there aren’t even sidewalks (it’s Mississippi, so land is cheap)
Daniel Herriges investigated this for Strong Towns in 2022.
https://www.strongtowns.org/journal/2022/7/27/is-wall-street-actually-taking-over-the-housing-market
"Is Wall Street Actually Taking Over the Housing Market?" (Applying Betteridge's Law of Headlines, the answer is NO.)
Herriges: "A wave of sensational headlines in 2021 sparked a lot of discussion with the claim that one in five American homes are bought by investors. This sounds massive, but two pieces of nuance were lost in most of the reporting. One is that this isn’t new: one in five actually represents a decline from the 2013 peak, when investors made up 29% of home sales. The other is that “investors” is being used in the broad sense of the term, not the Wall Street sense. A 2015 Federal Reserve study found that large investors made up just 1–2% of all single-family purchases from 2012 to 2014, while other investors made up 18–19%.
Large institutional investors are picking up the pace of their activity, but they actually own a smaller percentage of the nation’s housing stock than you’d think. Americans for Financial Reform estimates that, as of June 2022, private equity firms owned real estate rented by around 1.6 million households. This includes at least 1,071,056 apartment units, 275,468 manufactured home lots, and over 239,018 single-family rental homes. These numbers sound big, but they equate to only 3.6% of all apartments and 1.6% of rental homes. "
Investment firms did buy a lot of houses in Memphis after the spate of subprime foreclosures, I had a friend whose husband (a pretty douchey guy) works for one of those firms. They definitely run it like a slum lord, avoiding repairs and never giving deposits back to people from what I was told. But they did do some necessary repairs to make some of the homes habitable, and they kept the market in some neighborhoods from actual free fall, so it’s a mixed bag.
Herriges did note what you describe, that the institutional investors snapping up houses was regionally concentrated, particularly in the Sun Belt in poorer inner cities and early suburbs but where the metro areas were growing quickly.
Much of Marin Co. (north of San Fran) has strict limits on AirBnB use; e.g., requiring minimum rentals of >1 month. Found that out last year trying to find a place for my mother-in-law to stay.
Georgism solves this
I'm assuming that Noah thinks Georgism is a political nonstarter.
Can you explain?
Whatever you tax you get less of.
So on this front, property taxes suck.
Property values go up when you improve things. Thus, your property taxes go up. So if you replace your roof, reseal a driveway, do some landscaping, whatever, you're punished with higher taxes.
Under our current system, this also means a vacant lot is taxed less than a lot next door with a building. This seems perverse. It means the government is literally subsidizing vacant lots.
We should probably just tax the land and not the improvements. (i.e. you should raise taxes on the vacant lot and lower taxes on plots with improvements). That way you encourage improvements, rather than discouraging them.
There are at least two kinds of people who like the Land Value Tax and read this blog:
1. People who want more homes: They see moving to a land value tax over a property tax as a common sense nudge for improvements on land (which include housing) and a nudge against speculators holding vacant or derelict lots.
2. Economics nerds: Whatever you tax you get less of. Except for land. Since people don't make land, taxing it has this neat property where you don't reduce the amount of a good thing by taxing it. Econ nerds find this very neat.
I don't think I can in a brief comment, but this post is a good starting point https://www.astralcodexten.com/p/does-georgism-work-is-land-really
Detroit is currently trying out some form of Georgism so we’ll see how it turns out
https://www.nytimes.com/2023/11/12/business/georgism-land-tax-housing.html?smid=nytcore-ios-share&referringSource=articleShare&sgrp=c-cb
The proposal to authorize the referendum is currently stuck in legislative hell. And then Detroit still has to approve it in a referendum. Good luck seeing this before 2028 😨.
People frequently cite price concerns as a motivation for NIMBYism, but I'm not confident people are so financially aware of the impact of new housing in their home price. We're I grew up, and we're I live now, I suspect people mostly dislike change. I wonder if there's any studies on this.
I think this is William Fischel’s homevoter hypothesis - it’s about change, not direct financial motivation. But YIMBYs misinterpret it as financial because that’s an easy motive to understand. (There are a lot of political disputes that get misunderstood this way.)
I mean I think rarely has supply ever increased so much as to depress home prices. Maybe a little bit in the Great Recession, though that seemed more of a demand-side issue with subprime lending going bust. Still, at least in FL where I was, there was a boom in supply especially where apartment buildings would convert to condos because Countrywide would lend the money to anyone with a pulse. But new stuff was also being built before the crash, too, it wasn’t all just conversions.
I suspect car culture is also a huge driver of NIMBYism, because more residents in a car-dependent neighborhood means more traffic congestion and more difficulty finding a parking space.
People also dislike putting up with construction and its attendant disruptions. One of the appeals of a new SFH subdivision is there isn't going to be any heavy construction in the immediate area for decades
But once an area is all built out with new SFH subdivisions, there's nowhere to go but up. Ideally around transit hubs.
It maddening that this isn’t when the decision to build the missing middle is applied. When no one’s living in a greenfield development you can build anything.
I think you’re almost entirely talking past those of us who are skeptical of Kamala’s housing proposal: the issue is not whether she gestured in the right directions on paper, but whether she can be trusted to deliver on the less palatable and more difficult components - namely, supply side reforms. A few things suggest that we’re right to be skeptical:
- a boilerplate promise to “cut red tape”? Where have I heard that before? Oh right, every politician ever.
- promises to help along tax grants for “affordable housing”? Come on man, you’re in California - you know the “program to expand affordable housing” scam better than anyone
- $40 bn grants - haven’t you been making the point that throwing money at “abundance” problems isn’t the same thing as solving them?
- the federal land thing is a joke and everyone knows it. No one wants to say “this is less than a drop in the bucket” because that will alienate would-be allies, but you know and I know that none of this newly available land will amount to more than a few housing units.
Most importantly, getting the supply side stuff right requires strong leadership and management skills. Kamala does not have a reputation as a strong leader or manager - she has a reputation as the opposite. Happy to be proven wrong by a) her agenda not being California style “oh we’re gonna build housing but god forbid a developer gets rich” and b) her having the focus and capability to execute on such a vision. But to the extent that the real concern is what I’m describing rather than people being unaware of the details of her platform, I’d say skepticism is quite warranted.
That said - and maybe I should lead with this - I absolutely LOVE the acknowledgment that housing is never going to be purely a consumption good. Indeed this is the first time I’ve seen someone in the YIMBY camp (which I fully identify with) register the ubiquity of housing-as-savings-vehicle and the impossibility of getting prices to decline broadly. And the North Star of Singapore-style housing policy is spot on. Honestly you should just do a longer article on his subject - and knock down naive objections, eg the example of Austin circa 2023 - and ditch the excuse of Kamala’s platform to write about this.
I think the article effectively addresses most of your concerns that you have stated.
More importantly, I think you’re overlooking the fact that the federal government has very little power over local zoning and regulation. Any power that the Feds will have will come from funding mechanisms, and that will come down to what happens in the Senate and what they’re able to negotiate which no one knows how that will turn out.
The power of Kamala’s plan is that it sets the tone for elected Democrats across the country. And hopefully it will allow her to use the office of the President to brow beat blue states
I simply do not see how Noah addressed any of what I wrote. Feel free to correct me.
I am well aware of the weak influence the federal government has on housing policy - I am not the one claiming that Kamala’s policy is the right mix of supply side reform and demand side redistribution.
Again the tone Kamala is setting is that we will prioritize progressive shibboleths over doing the necessary, unpalatable work of cutting regulations and upzoning.
Time will tell how much of the hard work happens, but during a campaign is the wrong time to get specific about all the arm twisting you plan to do to various constituencies.
Totally fair.
Yes, exactly. That's great that she is talking the talk, but if you expect her administration to walk the walk, I have a bridge to sell you.
Okay some critiques based on my experience working with similar down payment assistance programs. The first big one is that the assumption that it will help young Americans is pretty questionable. DC has a down payment assistance program MUCH more generous (maximum benefit of more than $200,000) and the median age of a recipient is 33, only marginally younger than the median age of a DC homebuyer in general (36). The reason? A first-time homebuyer is NOT someone buying a home for the first time. Instead, a first-time homebuyer is someone who has not owned a primary residence in the previous three years. Secondly it's not clear if the policy would be a grant or a loan - a loan would lead to it being almost entirely unutilized in my experience (Rockville had a HPAP-style program formatted as a loan and the program had essentially zero applicants) whereas a grant may be marginally beneficial but even that I am fairly skeptical of. The lack of apparent targeting, low benefit amount, and current HUD understanding of "first-time homebuyers" makes me EXCEEDINGLY skeptical this will lead to an increase in home-ownership. And if home-ownership does not increase what is the point? You're basically copying the Home Mortgage Interest Deduction in effect - helping people who would buy homes regardless buy bigger homes.
when you say "current HUD understanding of "first-time homebuyers"" is that "someone who has not owned a primary residence in the previous three years"? or was the DC program non-HUD?
It's the definition provided within current HUD regulations. In practice this definition extends far beyond HUD - it's rare that a housing program decides to re-define a term already defined by HUD.
Noah seems to be endorsing the first time buyer subsidy without explaining why it's good policy. Sure, the effect on prices may be small, but it's still a bad policy that will benefit incumbent homeowners at the expense of taxpayers and all homebuyers not eligible for the subsidy. "Singapore does it" isn't really a justification.
There’s literally like four paragraphs dedicated to explaining why he thinks the subsidy is good
Are you at all worried about the subsidies adding to the deficit? I’m sure there will be some limits on how many people can claim them and whatnot. But there are potentially millions of first time home buys and because that group would skew younger they are more likely to make little enough money to qualify. That’s a lot of money!
They could make a requirement that the first-time buyer credit needs to be repaid when the house is sold. If they never sell it, then they keep the credit Then people who live in their new home long enough for appreciation to cover the cost of the credit, that way they get the house they wanted but miss out on some capital appreciation, and the taxpayers get their money back. If the house doesn’t appreciate, then they have the same risk as buyers who didn’t get the credit.
That's rather genius, Buzen. Well done.
Correct me if I'm misreading this, but it sounds like the $25,000 subsidy isn't helpful for housing affordability, but Noah thinks it's good because it reduces inequality (since it goes to young people whose earning potential is mostly still ahead of them). In that case, why not have the federal government instead just deposit $25,000 in people's retirement accounts when they turn 25, or something like that? That way you wouldn't reduce affordability; if people don't _want_ to buy a house, then they still get to keep the money, and meanwhile the supply they'd have used is freed up for everyone else.
If you think that home prices would be too low (resulting in a middle-class revolt) if you didn't do something like this, then I don't think that works out either. It's possible (and historically common) for home prices to be either too high or too low to balance the policy goals in this post, depending on other factors that would be independent of the subsidy. So the subsidy is likely to be either insufficient or counterproductive, depending on what else is going on in the economy at the moment.
What you instead need is a stabilization mechanism, wherein the government, acting according to some pre-specified procedure, buys up homes or cuts residential property taxes whenever home prices are too low, and sells those homes or raises residential property taxes whenever home prices are too high. That would let you target a price path.
(This is all granting that you think wealth-building-through-homeownership is socially important enough that it's worth deliberately pricing out the poorer members of society in order to facilitate it. I disagree with this, which is why I'm sympathetic to Georgism, but I suppose I can't exactly refute the notion that political economy forces us to go this route.)
I have very vivid memories of trying to get enough money together to afford a home over the years. Because of that, even though I am a homeowner now, I still identify strongly with homebuyers. I hated going through all that and don't want anyone else to do that either. My response to arguments that we can't let prices fall too much, because older homeowners lose a portion of their savings, is "To hell with them." I'm sure if I save and invest frugally I will be fine with whatever I can get out of my house when I am old.
First, I am absolutely one of the folks who screamed that Harris was subsidizing demand in a supply-constrained market, so thanks for filling out her policy a bit. Not taxing tips, playing whack-a-mole with grocery prices, and forgiving student debt are not inspiring policies, but I agree that the Harris housing policy looks quite a bit better with the supply provisions added.
Also, it is important to consider that homes are highly leveraged assets for most new home buyers. This means that if increased supply were to slow housing price increases to the rate of inflation, financial returns on homeowner equity invested remains attractive.
Leverage accounts for most homeowner equity gains in hot markets or cold. I bought a house in San Francisco in 1989. 35 years later, it is worth 6X more. I sold it long ago, but this represents about 5.25% annual growth. Inflation was 2.25%/year, so buying and holding that house earns 3% annually on the asset (less after property taxes, maintenance, etc). But if I had borrowed 80% of the money, my $100,000 in equity would have returned ~10% annually or 8% after inflation. Obviously if the market goes down (and 35 years ago, it went down sharply for 7 years), leverage would be my enemy not my friend. For years, I would have had to write a big check to sell that house.
Suppose that instead of growing 10% annually in nominal terms, the house had grown 2.5% annually because San Francisco created housing supply that kept up with demand. The house would be worth $1.2m today and the return on my $100k investment would be ~7%/year. A bit less than the stock market, which seems right, since it is less risky.
The point is that leverage makes it somewhat easier for public policy to manage the balance between a home as a consumer good and as a financial asset.
maybe I'm misunderstanding but isn't your calculation assuming an interest-free mortgage? at today's (admittedly high) 30-year fixed rate you'd be paying almost 7%/yr, which would wipe out almost all your returns
Your point is important in considering whether buying makes sense in the first place. As interest rates go higher, buying gets harder to justify, especially in markets where rents don't keep up with home prices.
Once you buy a home, assuming that you borrow 80% of the cost as this example does, every time your home gains 10% in value, your equity returns are 50%. (If you put $100k down on a $500k house and the value of the house grows 10%, you are $50k richer on a $100k investment). My point, and I probably did not make it concisely enough, is simply that the use of leverage in housing markets makes the need to treat the house as a financial asset easier for policymakers.
It is of course true that if interest rates are too high, it gets much harder to justify buying in the first place and, super importantly, if housing prices go down the use of leverage makes everything harder, not easier, as we learned in the Great Recession.
The whole “manage supply so that returns on housing are good, but not too good so that they remain affordable” thing is just kind of a ridiculous tightrope to try to walk.
I’ve settled on the whole homeownership fetish being a bad thing that should be discouraged. Spillover effects are nice, but people relying on real estate as their primary investment, which they end up locked into if they bought at a favorable interest rate, just seems to be a much worse externality.
I’d much rather just focus on housing supply. If you get rid of all the ridiculous zoning our urban areas have, markets will do most of the work to build affordable housing. And government can do the rest by handing poor people cash to buy housing. Or by managing low income housing on its own.
Then instead of relying on their residence appreciating to bankroll their retirements, people can hopefully just park more cash in retirement accounts instead of saving up for a down payment on a house.
Another quick idea to increase supply and adapt the inventory to changing household characteristics is to enable "accessory units" or "granny flats" in existing structures. There are a lot of one and two person housefholds in houses big enough for six. Carving out a smaller unit adds a dwelling unit and may make a place for a live in helper for an older person. A general principle is to increase density. Which helps make public transport and "walkable cities" more feasible.
FYI, Singapore was a colony of Britain, and the 99-year lease was a very common form of land tenure in Britain.
Still is.
The Singapore-style asset framing also concedes a zero-sum intuition about upzoning. People also seem to think that upzoning is zero-sum. So, they assume that, under liberal land use, some people win (renters) and some people lose (homeowners), and the wins and losses sum to zero. Like there’s some kind of conservation of value over the metro. So, in the zero-sum view, homeowners lose their investment if renters get a break.
But upzoning is positive sum. Everyone gets to move within their budget to where they want. So, over the entire metropolitan area, aggregate land value increases, because everywhere it’s being put to a higher better use.
People think that you can’t get something for nothing, which is generally true. But with upzoning, you get something for allowing something. So the zero-sum constraint is inapt and wrong. Like people genuinely and wrongly think that it’s too good to be true that homeowners would be better off, except a few far flung exurbs, under liberal land use. The homevoter hypothesis is right in that homeowners tend to oppose upzoning, but only because homeowners misunderstand
their asset.