What Happened to the Housing Market? | Business Casual
What you're seeing now, I think, is that people are leaving some of these really high cost areas like San Jose or Boston. They're going elsewhere and now they're driving housing costs. Up for everybody who's there at housing is a basic human need. But it is one of the most complicated and challenging things to navigate as a human being. And the housing market has been wild, especially for the past couple of years. And recent data even suggest that low housing inventories and rising mortgage rates will lead to a cooling of the market at this spring.
But a decline in home sales doesn't necessarily translate to a decline in home prices. And writer Chris Morris reported in Fortune that a quote, recent forecast from Zillow predicts a year over year rate of home price growth will hit 22% in May. That would represent an acceleration in home price growth.
So the big question is how did we get here? To give us some context on the volatile, rapidly changing housing market. We spoke with Andy Lowry, staff writer for The Atlantic and the author of the book Give People Money. Andy, let's rewind a little bit to start. A couple of years ago in February, 20, 20.
You published a piece in The Atlantic that went viral. It was called The Great Affordability Crisis Breaking America. And we are thinking a lot about the affordability crisis today, particularly when it comes to housing. So your article looked at the economic legacy of the 20 tens, and you wrote that Americans confidence in the economy was at its quote, highest point since 2000.
Right before the dot com bubble burst and the headline economic numbers looked good, if not great. But you pointed out that this apparent prosperity was not the reality for millions of Americans. What was their situation at the time. So there has been this longstanding problem in American life, which is that the cost of essentials for working families are really, really high So the cost of housing is the biggest and the most obvious. If you live in a coastal city, it is likely that housing is just straightforwardly unaffordable.
For you. By all of the metrics that we have, it's likely that you're spending 30, 40, 50% of all of the money that you're making on rent. Sometimes even more than that. So I live here in San Francisco where I just completely normal, like one bedroom apartment that you couldn't have a bunch of kids and goes for $3,000 a month easily.
And again, this is a really broad problem. It used to be that it kind of only was in some really dense high income high cost cities on the coast. So New York, Seattle, that kind of thing. That's not even really true anymore. We've seen more and more second tier cities really struggling with housing affordability in some rural areas also. So there's that.
And then housing increases the cost of a lot of other things. So child care has become really unaffordable again. Where I am.
It's not crazy for people to be paying something like 20 $500 a month for their toddler to go to nursery school or daycare. If you can get a flat and then on top of that, more and more young people are taking on student loan debt. So that kind of functions like a mortgage that you're going to keep on paying over time. This costs are often, quote unquote, affordable, but people are really paying that and it really makes it hard to spend on other bills. And then the last thing I would highlight is medical costs. So insurance costs are very, very high.
And even if you have insurance, if you get sick or need to see a doctor, it's often hundreds of thousands of dollars of out-of-pocket costs. And so all of those problems, even though the economy had been before the pandemic, doing really, really well, and even now is doing really well. It made it hard for people to feel like they were getting ahead. And the problems were especially acute for young folks who are maybe entering the labor market. Just leaving college, just leaving high school, that kind of thing. And this article is written, you know, right before this pandemic was completely unforeseen.
Obviously, well, maybe not completely as if we were paying a little more attention to what was going on in Asia. But, you know, now, I mean, you're talking to unaffordability. Pre-pandemic the pandemic threw everything out of whack. What what has the pandemic brought into light today? Vis-a-vis this affordable crisis, which you had written, is hiding in plain sight. Is it harder to ignore now? I think so.
So a few things. And so I kind of talked about four big buckets and in a lot of ways, I think all four have at least not gotten better and maybe gotten worse. So student loans there, it's actually kind of a mixed picture The Biden administration has delayed a lot of folks student loan payments, and there's a lot of effort to increase student loan forgiveness programs. But nevertheless, it's it's true that we still have $1,000,000,000,000 of student loan debt sitting on the backs of mostly young people. And that student loan debt notably has different effects for different families based on their intergenerational wealth. So it's just much harder.
So black students who are going to college, who much more likely to be the first people in their family going to college, they tend to take out more money and it tends to be really harder for them to pay it off. So there's absolutely a racial justice component there. And this contributes to intergenerational differences in wealth between black families, white families, Latino families, and also other racial and ethnic groups. So there's that.
Child care is a nightmare. A ton of child care providers shut down during the pandemic because it was a hard business to keep open. Parents pulled their kids because they were staying at home. It's it's it's a nightmare.
There's even fewer spots than there were before. Even as the economy has kind of normalized in terms of health care costs, again, we've just been through a pandemic that has killed hundreds of thousands of Americans and gotten others sick. And we haven't seen any sort of underlying reform of out-of-pocket costs or anything like that. It's you know, we're still waiting on Congress to tackle the cost of prescription medication, which they've said that they're going to do, and then they haven't. And then housing there's this moment during the pandemic where rents really came down and a lot of people left the really high cost cities and a lot of workers started working at home. But the problem is actually, in a lot of ways, only gotten worse.
We've just spread it around a little bit. And we still have is really profound housing shortages that make it impossible to solve any of the other problems. They make gentrification worse. If that's something that you care about They make it such that in many cases, a lot of our cities, you know, they seem more and more sort of like resort areas where only the very wealthy and only folks who were lucky enough to inherit from their parents or only people who are making like six or seven figure incomes can afford. And we've seen, as the millennials have tried to, especially older millennials, to try to buy homes.
They've just got beat up and been out. And it's been a really hard process. And prices are so high that it's not clear how much appreciation they're going to get on the other side.
So maybe it's not even a good investment. So in so many ways, the situation remains really bleak. Yeah. And the pandemic only exacerbated this supply demand mismatch in housing, where even before the pandemic, there was this housing shortage that has been an issue in what way was the housing shortage years in the making? How did we even get to this point? Even pre-pandemic decades in the making So here I think that the story is a little bit more regional.
And so some places like California has a somewhat slightly different problem than some other places. But California is obviously our biggest state and a lot of people live here. So the story had been kind of that building restrictions started throttling off the supply of housing in desirable neighborhoods, mostly urban neighborhoods, a really long time ago. And so people would sort of say hey, I don't want to live next to that bus stop.
I don't want to live next to that apartment building. And so more and more neighborhoods and cities became kind of transformed and preserved in amber. And the supply never caught up to demand. And you can see that very clearly in terms of prices.
And so this caused the gentrification of a lot of neighborhoods, a lot of middle income families that squeezed out a lot of younger workers are caught kind of living with their parents or living with lots of roommates. For longer than they would like to. And what you're seeing now, I think, is that people are leaving some of these really high-cost areas like San Jose or Boston. They're going elsewhere and now they're driving housing costs up for everybody who's there. So maybe you lived in a smaller city and you didn't, you know, you benefited from having relatively low housing prices, but now you're getting outbid by folks who just sort of newly arrived and that's causing gentrification in cities that we haven't seen before. And again, I think you're totally right to identify a lack of supply is the beating heart of this problem.
And the estimates are that the United States is short something like 5 million housing units, which there's only like 100 million households. It's a lot. It's a time. And it's going to be really hard to build our way out of this.
Why is why is that, though? Is it a labor shortage? Materials are costly. How do we even get to that point where there is such a supply shortage? A big part of the problem is that if you're a homeowner, say, you know, you bought a apartment in Brooklyn Heights a really long time ago, you have an unusual ability to throttle building in your neighborhood. You can show up at the local planning commission meeting and say, hey, I don't want to live next to public housing. I don't want to live next to a big building that's not in the neighborhood character that's going to affect the price of my home.
And so I think that's one thing that we've seen is that, you know, it's pretty rare know if you are a podcaster or a journalist, you can't prevent other people from producing the supply of those products. Really, hard if you are like a sandwich shop to prevent other sandwich shops from coming to your town. But if you're a homeowner, you have a lot of sway over what gets built in your neighborhood.
So this is like a really complicated, difficult problem. I think that basically one of the things that happened was we had this enormous housing crisis where there was some overbuilding in some areas and people just expected prices to go up and up. And there's a lot of speculative building in places that people didn't want to live.
And I think that we're still dealing with that after a fact as well. Because, again, it's not just about. People are always like, oh, well, why don't we just build new cities in the middle of nowhere? And it's like, well, nobody wants to live here. You have to build. Where people want to be are the ones who haven't solved the problem. If people if the only thing people cared about was housing costs, the geography of our country would look really different.
But people like living in their community with the amenities. They like most of their families close to their office. There's also a demographic related element to the surge in demand for homes. Right? Because you have people like us. I think all three of us here are in the same, you know, age range here. The elder millennials And Steiger, studies have shown even that millennials have, you know, delayed the adulting process, but have now, after all these decades, we're now at the age where we're realizing maybe we should be buying a home now.
So, you know, the largest generation ever is all surging to go buy homes at the same time. That's also driving up the prices and making things scarce, huh? Absolutely. And, you know, the issue is, you know, you always hear about people who are like, oh, yeah, my parents bought, you know, a house in the Boston suburbs for $45,000.
Prices are really high now. And so that means that millennials are going to be spending more on housing. It means that they might not see the upside that somebody who bought 30 years ago bought. In fact, socially, we wouldn't want that to be true. We don't want housing costs to keep going like we want to fix the supply problem. And it means that, you know, you have less money to spend on other stuff, right? Because you have to pay that mortgage payment or that rent payment.
And we are seeing millennials move into the market, but they're moving in older and later and they're paying a lot more. And now we have interest rates going up, which is a whole other complicated issue, but that we might be paying more in interest costs also going forward. Annie, you have written about a broken Congress and many reasons why we haven't arrived at any solutions around the housing crisis. But what comes to mind when you think about policy changes that could start to address these issues, whether it's state funded, affordable housing construction or other options, what do you think might work So there's different options for each of these different problems.
It's probably worth noting that Joe Biden has enormous unilateral authority to get rid of student loan debt. He can't touch the private debt that students take on, but the federal debt is a pretty good legal case that he could magic wand that right out of existence and just take it away from people or some large number of them. And that's not something that he's been willing to do for a complicated set of reasons. You know, something like child care. We've seen some states really zoom ahead in terms of and cities zoom ahead in terms of providing a publicly financed three K and pre-K slots or doing more to kind of intervene in the market and make sure that there are enough spots in high quality child care for infants and toddlers. But it's a place where the federal government could really you know, we've seen a lot of other national level governments in other countries spend way, way, way more on that zero to five child care bracket.
And they sort of fix the market. Their child care has this sort of awful dynamic in which the people who provide child care are often making the minimum wage or a little bit more. So these are miserably hard jobs that are really under compensated. And then but it's also very expensive for people.
The flipside of that is it's also expensive for the parents. So the government can fix that mismatch. Right. By spending more socially, spending more.
And that's something that the Biden administration tried to do with the social policy crisis, build back better. And that hasn't gone anywhere, which is predatory. Creating housing. It's tough because it's like a town by town, block by block, state by state. Right.
There's not a lot of federal housing policy sure. Ways that Congress can rearrange the carrots and sticks, they could certainly do more financing through HUD. But this is really an issue where you need you need a lot more building to get permanent at the local level. And so states like California have done a tremendous amount to try to start to encourage that allowing sort of casitas and for plex is letting people build in their own property. But it's it's hard know, there's no we don't have a government that has a kind of national level, okay. We're just going to build 5 million houses in the places that people most want to live.
You can there's no there's no way to do that here. Maybe that's true for some of our friends. You and go easy it sounds like there could be another reason why UBI is necessary here. And Annie, you've you've written a book called Give People Money, which looked at the idea of a universal basic income, a stipend to every citizen, you know, how do you think that might fit play into housing costs? Have you looked at studies of UBI that have been tried? Are those payments stipends going to housing? Is that going to help alleviate the market? What's what's your what's your argument for UBI vis a vis housing? I think it's a much stronger argument for UBI when you're comparing it to something like food stamps or for other kind of transfer payments that are sort of cash. Like this is one of these places where like UBI could be kind of difficult in this situation because you just give people the money and then it goes straight to the pockets of landlords. Like that's not a happy equilibrium for anybody unless you're a landlord, right? And so, you know, UBI, I would always say it's not a silver bullet.
There's a lot of problems that can solve. Child poverty is my favorite. We can just we can just get kids out of poverty. By giving them cash. We know we can do that.
There's really strong evidence for that. So no, no individual, we can't get out of poverty with cash transfers in this country. And that's a really great way to spend money. But if you're not working on that supply side, do I think UBI fixes the child care crisis? I don't. I don't you know, I think that that, you know, especially or, you know, is UBI going to somehow say student loan problems? No.
We have supply side problems. Too, and UBI, that clearly demands a solution. So where I think that UBI would be really, really good is in terms of tackling issues of poverty, you can can be kind of helpful in some cases for when we're doing things like heating assistance, these kind of super targeted policies where it'd be better to get some cash. We have these programs that are like, you can get broadband with this voucher and you have to go through a whole process and it's not enough to give people cash. But I think it's actually a really important thing to bring up to say like, yeah, you know, if you put a UBI out here in San Francisco, you might just make housing costs worse.
Or that might be one of the things that you do. Well, the stimulus checks during the pandemic was maybe some version, loose version of UBI, where a certain amount of money per household depending on your income. Any learnings from the pandemic, because you are so interested in while research on UBI, any learnings that we can apply from the pandemic to how that system might work in the future? Absolutely. So this is so wildly different than what we did back in the Great Recession, where, first of all, we undershot on stimulus, whereas we got much closer to doing an appropriate amount of stimulus to the size of the fiscal gap in this one, which is not to say that it's perfect at all. So is that and then second, what was really effective? So even though we saw millions of business closures, even though we saw the unemployment rate spike up really, really high, really, really fast.
Household consumption remained level. People didn't have to cut back because they got the expanded unemployment insurance payments and the stimulus checks and they worked really, really well to prevent poverty. And that's great. That showed that we could do it. We could do it even faster and easier next time if we sort of set up systems with the Fed and Treasury to get money out to people. So you could just transfer it like you get like a Venmo from a boss and there's all sorts of reports about how to do that. And the other policy that worked really well and we're still waiting for the results to come in on, was the expansion of the child tax credit to the Biden administration.
For six months. And almost every parent in America a cap to pay for their kids, food, diapers, whatever. You could use the money on whatever you wanted. And you know, we have lots of research that suggests that that's a really great way to ameliorate the effects of childhood poverty with potentially really long lasting effects that it's only six months in the program is gone. And then there is another one other lump sum payment. It's all very complicated because it's like a a refund on a tax credit.
You don't it's very, very complicated to play with this. But we we know that that reduce the child poverty rate. And since it went away, 4 million additional children have fallen back into poverty. And I think it's time we'll see what the impact of that was.
And I really do hope that Congress considers taking another look at that policy because it is quote unquote, expensive in the sense that it's a big ticket item for the social benefits are so great to making sure that kids are living in a stable home to have good nutrition, have the lights on, gas in the car, all that kind of thing to their parents. Any we we're talking about we've been talking about home ownership and buying houses. But let's discuss rent. If you're priced out of the housing market like a lot of people are, maybe the best idea right now is to keep renting in the face of of these crazy housing costs. But the cost of renting is also going up and outpacing income growth, according to recent reporting in The Guardian.
Rental prices across America have soared over the past year, with some cities experiencing average price hikes of up to 40%. First of all, what happens all the moratoriums and the rent forgiveness that was being discussed early in the pandemic, when people are really devastated and losing their jobs by the millions, that all seems to have gone away and now these landlords are reaping benefits with these rising rents. How do we shift so rapidly from that period? Maybe, what, a year and a half ago to where we are today? Yeah, there was this extraordinary, momentary period where rents declined fairly rapidly in these cities that have seen no relief in the rental market for decades. So New York people were getting a thousand and $2,000 off in rent and that that big delta, that big jump that we saw is because this stuff is ending and there's so much demand for people to come back for these special deals that got cut And we've seen the end of all of these protections for renters in a lot of places. And some places they didn't actually work that well. Right.
If you if you get illegally evicted from your apartment, you're still evicted, even if that shouldn't have happened. And we saw that happen over and over and over again in the pandemic. And it remains true that you just have outrageous disconnect between supply and demand. And so you have all of these problems in the market. You create this giant incentive for landlords to get existing tenants to leave even when they're protected by the law, because then you can fix places up and turn them around and rent them for even more.
And it's a crisis. And one thing that I think is interesting that I'm watching and I think we'll look at how this is shaking out over the next year or two, is that in a lot of places, there isn't the same demand for downtown retail. Space offices are still closed. More companies have said, okay, we're not going to go back to having a big office. You can work from home. See that with Silicon Valley companies and banks and finance companies.
So will that shift over to being rental homes instead of commercial spaces? I think that that's one thing to watch the kids that could start to bring a lot of big space back onto the market in places where it's really tough to build. That's a good point. And it does feel like, though, that it's going to get worse before it gets better. You know, inflation is rising. The Fed has signaled that they're going to raise interest rates.
How will all of this impact the housing and rental market overall, given these movements and inflation and rates? So it's complicated and it's tough. So for a long time, stuff sort of writ large was pretty cheap in the economy. So any consumer goods that was being imported was often getting better and cheaper.
So electronics is a really obvious example that it used to be really expensive to buy like a TV or the TV. And the prices actually come down the energy side. The quality has gone up a lot. But now we're seeing the cost of consumer goods, especially gas and food, really starting to spike. And this is for a number of complicated reasons.
So Russia's invasion of Ukraine is affecting commodity markets because both of those countries are big agriculture exporters. Russia's a very big energy exporter. And then we have this shift from spending on services to goods that happen during the pandemic. So people stop going out as much with they bought more stuff for their houses. And supply chains have really not adapted to that reality even two years later.
So there's that. And then third, there's the effect of all of the stimulus that's still washing around in the economy. So the Trump and the Biden administration spent something like $5 trillion in stimulus.
And people are still sitting on some of that money. They still have it in their bank account, even as these programs have plowed. And so that's raising consumer prices really, really quickly.
And companies are sort of saying, we keep on raising prices and people just keep on paying them. It's like, what does the end of that look like? Interest rates are going up. People are starting to show that they can't take on higher costs.
And so they'll stop buying as much stuff and that will reduce demand from the economy. And the hope is that we manage this through what kind of turn this off to landing, which is that people sort of slowly pull back and interest rates come up slowly. Such that prices can moderate and inflation can come down without tipping us into a recession. In the past, especially gas prices spiking at the same time that the Fed is hiking rates up can often end in recession. Because that's a really hard thing to massage. But, you know, it's tough.
And a lot of this is geopolitical because nobody nobody controls the coronavirus shutdowns that are affecting ports in Asia and making shipping things around the world hard. Obviously, the Russia-Ukraine situation is a tremendous humanitarian crisis. And who knows how long that's going to last and it shows up in American consumer prices. Biden administration has been very straightforward about, you know, we're just going to have to pay more for gas while this is going on. And this is the way that we're supporting the people of Ukraine and by implementing these sanctions.
But it's just tough. It's very chaotic. And I wouldn't be surprised if the economy softens and hopefully it just doesn't. Hopefully, we're not talking about big increases in unemployment declines and consumer spending increases.
In poverty, those kind of things. That would be really bad to see last May. Derek Thompson, who who's been a guest on the show and is your colleague at The Atlantic, advised readers to wade out the wild housing market. It's only gotten wilder since then.
And I don't know, you're talking about perhaps interest rates coming or interest rates going up is going to bring prices down. But is there a sense from you that prices will stabilize or come down at some point? Is there any value to letting it out? I mean, another realtor friend of mine said, you know, if you wait, it just you're just going to keep losing ground because the prices are don't seem to be going down anytime soon. It's tough. I it's hard to see how you know, one thing that I do think is happening is that people kind of waited through the pandemic and they're now getting situated.
And so things are normalizing to some of these price spikes or just like pent up demand coming back into the market. So you can wait that out. But as you're pointing out, you know, if you just are going to be competing with like ten people who look exactly like you and maybe even make a little bit more money than you do for every one apartment that comes out on the market that underlying structural issue, we haven't been able to affect it and change it. And so I think that people are getting kind of creative. You know, I think the ability to work from home or work remotely is going to change this dynamic for a lot of folks who may say, hey, I'm not even going to bother trying to get an apartment in D.C.
or in Seattle or Chicago anymore. I'm going to move someplace else. But it's it's hard to see how absent a lot of building the underlying dynamic changes and it's hard to see a ton of building coming online in a lot of these communities fast enough. So I think it's just a tough thing to make You know, I think as you point out, you could wait and none of this could get better for like ten years or 20 years. And so how long are you going to wait and how much time are you going to be spending money on rent and sitting on your sitting on your nest egg, if you have one, right, trying to save up for a down payment? It's a really hard and I have no advice for people because I really don't know what it will look like.
And I sincerely hope it looks better if you like what you saw and you like what you heard. You can listen to the entire episode of this podcast, Business Casual, anywhere you get your podcasts And please go ahead and subscribe to the Morning Brew YouTube channel and go ahead and click on that alarm bell, that thing right there so you can be alert at any time. There's a new video.
2022-04-09 20:34
