Housing Histrionics

Speaker 2

I'm Phil Magnus, The Economist. It is an issue, with ⁓ several huge caveats on that. And the caveats are basically come down to it's an issue on a regional and geographic basis. If you live in a very expensive urban area, let's say Los Angeles or San Francisco or Washington, DC or New York City. I think all of those are cities we're familiar with. I've lived in more than one of those. The housing markets there are... extremely competitive, extremely tight, and prices are generally very, very high. On the other hand, if you live in other parts of middle of rural America, you can find bargains still. Like I went on Zillow the other day and decided just randomly to look in West Virginia and I found I could get a 4,000 square foot mansion sitting on 15 acres of beautiful scenic hillside in West Virginia for under $500,000. Wow. And I'm sitting there thinking, This is beautiful. only problem is it's the middle of nowhere, rural West Virginia. I'm miles away from the nearest town, maybe heading into a food desert or something. Beautiful house. It'd be a great place to retire. But if I want to work in the city, that doesn't really play out the same way. Now, that same $500,000 in Washington, DC could maybe get me a condo, but there's the trade-off. That same $500,000 in San Francisco can maybe get me the storage shed in the back of somebody's lot or something. Again, there's the trade-off. And what it comes down to, yes, there are housing affordability issues, but a lot of them are geographically constrained. And then they're also affected by the local policies that are in place. Many of the cities that have so-called housing shortages, or in other words, prices have skyrocketed and gone up through the roof, basically have next to nothing in terms of a starter home. Part of the reason is they've had longstanding zoning restrictions and building restrictions. prevent expanding the housing supply. And one of the reasons behind that is they have these things called NIMBYs, not in my backyard. It's the local neighbors that every time that a new building project comes in, it's not, well, somebody purchased this land and they're going to do something economical and useful with it by putting a new ⁓ high rise on it or a new condo or a new apartment building. It's 300 of the residents of the surrounding neighborhoods saying, We don't want to look at that as we drive to work or look at that out our window or you're going to wreck our property values. Therefore, we are exercising a community veto that says you cannot build here.

Speaker 1

Yeah, the ⁓ Yimby versus Nimby wars. Indeed. Seem to be an ongoing thing. I always find it funny when the most outspoken kind of like progressive people who talk about the downtrodden happen to, you know, write letters to their representatives saying, yeah, I don't want this new thing going up anywhere in our neighborhood. You know, sometimes you'll have people make arguments about, look, we don't have the infrastructure, the sewage system. And you can understand, you could, you know, I can, I could wrap my head around that. then there

Speaker 2

All the-

Speaker 1

other times where it's like preserving the historical integrity of the place, which can mean all sorts of things.

Speaker 2

Some of it quite are ugly. mean, it's another iteration of what you had in the early 20th century. The historical integrity of the community or the neighborhood was, we want to keep this segregated or we want other people, we want them on the other side of the railroad tracks. But you see elements of that today, I think it's more classist in nature than racist. Certain communities will say, well, we are not going to allow building here because we really don't want poor people in our community. And yet these are ultra progressive, left leaning. areas of the country that are also very well off saying, well, if you make below this income level, you aren't going to be able to afford to live here. And we're actually okay with that because we're going to prevent anyone from building anything that we would view as unsightly.

Speaker 1

And you have yimbies, for example, in Austin, where they've been allowed to build and you've seen prices go down, which is great. But then you have yimbies who seem to be kind of crypto nimbies in that, yes, they want things to be built, but they also want what they call affordable housing to be a part of that. And then you start to get into these really complex screwy relationships where a certain percentage of the new apartments need to be quote unquote affordable.

Speaker 2

qualify for low income categories on the federal level.

Speaker 1

And this just might be a personal thing. mean, I've been to, you know, places all around the US, all around the world, been to some beautiful areas. And I'm like, you know what? I don't deserve to live here. Not because I'm a bad person, but because, man, you should have a lot of money to be able to live here. Look how beautiful this place is. So I would feel so weird of saying, you know what? You need to make this beautiful place more affordable so Lou Perez can live here. And it's kind of like,

Speaker 2

What

Speaker 1

right do I have to live really anywhere?

Speaker 2

It's the classic example. They're using government as the allocation mechanism of the housing market rather than the market itself. Now let's imagine a scenario where you eliminated all zoning within reason, or you removed all the restrictions on building height or land use and what you could do with a certain type of property. You allowed people, if you own this 10 acre tract of former farmland and you want to break that up into 30 housing units, that's your right to do that as an owner of that land. You you actually start to introduce market mechanisms into the local housing market because the owner of that land can now sell off those parcels. And the new purchasers of those parcels can do what they want with it. Some may build a house, some may build an apartment complex, some may build a store, but the zoning is not there to allocate it. I think in that scenario, you basically get competitive forces of the market determining how the land is used. And what it's best used is it's realized by the transactions between the consumer and the seller. On the other hand, you introduce planners in there. Well, they say, well, this 10 acre tract of former farmland is only permitted for low density rich people housing, or it's only permitted for storefronts, commercial space. You've already cut out one of the decisions that could come from a free and open market by restricting it to a certain type of use. And now, not only do you say that, but say we're only going to zone it for X, Y, and Z, we're going to put that vote on how we zone it up to all of your neighbors. And your neighbors suddenly have preferences on how you use your yard. You know, it's like Homeowners Association run amok. Imagine if your neighbors... not only could tell you what color you could paint your house, but how many people could live there and what you could do with it. And ⁓ if you could even have a house, or whether they tell you that you cannot repair your driveway next year unless you meet this particular code. Every time there's a regulation put in place on land use, it ups the transaction cost on being able to do anything with it. And that makes things more expensive in general.

Speaker 1

When I lived in Los Angeles, I remember getting some notices in the mail asking me to comment on new businesses that wanted to open up in the area that wanted to build. And what I found so strange about that was I was renting a place that I had only been in for maybe a year. I wasn't necessarily going to be a permanent resident of Los Angeles. And the idea that I somehow had the power to stop a business from developing a business which I think their intentions are to be there a very long time. Businesses tend to sign very long leases. It felt a little lopsided for sure.

Speaker 2

Yeah. You have another layer ⁓ added on top of that. If they put out a notice that we're going to have this public hearing and a democratic vote on whether the new shopping center can go in down the street. It sounds like New England town hall in 1760 style governance. It's democratic and it's fair and everything like that. But what you're actually seeing, the average person in that city doesn't care If there's a zoning permit issued to the shopping center down the street, they probably would like that shopping center there. They aren't going to go take time out of their busy day to go down to the town hall at 6 p.m. on a Tuesday to attend the public hearing on whether the new shopping center goes in. But who will attend that hearing? It's usually the people with the lowest opportunity cost in their times. It's the busybodies. It's the people that are gravitate toward like homeowners associations and local town politics. ⁓ It's those that show up at the meeting wanting to specifically control somebody else's land use and therefore they register in an outsized voice. They may even be a tiny portion of the community that wants to stop this new shopping center, but because everyone else actually has real lives and they're trying to do something with it, they don't show up at the meeting, but the busy body does. And that's what gets registered in the...

Speaker 1

And you know what I have to admit and I need to point to a previous episode we did the 420 episode where I voted no on a head shop coming into coming into town I was definitely a NIMBY for that for that topic I wasn't in me but you know that I mean that is to say you know is there you know some place for NIMBYism when it comes to community and land use

Speaker 2

raised earlier in the episode, there are certain things like public utilities insofar as they're going to be public. You know, that does put a strain on the community if there's a lot of building. Roads, another classic example. What if we privatized the roads? I'd love it. But the fact is we live in a world where most roads are public and that means public resources must be spent on maintaining and paving and expanding them. And you know, if you're saying, all right, go on a building spree, but there are no roads in the area and there's no sewage system to carry the waste away, you could be inviting a problem there. The question is, how do we do this in an efficient way knowing that roads and sewage systems are probably going to be tied up in bureaucracy? They become a market impediment. And I think the best examples are cities that are relatively unzoned ⁓ or that have relatively loose zoning regulations and therefore allow uses of land to develop. but they're also relatively nimble in putting in the infrastructure, water sewage roads as land use emerges organically. You see a lot of this in some of the urban areas of the Southern States, Texas in particular, Southern and Southwestern States tend to be much less regulated than. say the New York City area or California. And that goes into the equation here of why housing is relatively cheaper in these areas than it is in say the Bay Area or New York City.

Speaker 1

So you often see kind of this meme going around about the rise in housing costs today compared to the rise in equity in the 80s and 90s. So there's like, here's this boomer who bought a house in the 80s for a bushel of blueberries and maybe some beads. mean, look what they paid for Manhattan Island. mean, that was some trinkets and some beads and now they're selling it for a million dollars. And can millennials expect the same thing?

Speaker 2

Here's the interesting thing because there's a nostalgia element that's been overlaid on this whole housing debate. And you see this in some of these discussions about the boomers, the alleged boomer effect on the housing market. Well, what's going on there? ⁓ Well, you'll see like a meme put out and it's of a ⁓ beautiful farmhouse with a wraparound porch on a lush green yard. And there's ⁓ a child with a puppy running through it. And then you'll have some millennials say, well, this is what our boomer parents and grandparents used to be able to achieve on a working class salary. And I'm never going to have this. ⁓ I encountered one of these memes about a week or two ago that was circulating on one of these, was actually a conservative nostalgia group that's making some of the same claims as people on the left are in the NIMBY world. And I did some research. I found the picture that the house was located on that they were circulating. And was in the middle of rural nowhere, Pennsylvania, that I'm able to go on Zillow and I look up the house and it turns out it was very much affordable at the level that they were saying. And that they were pretending as if, know, this nostalgia house was a 20 minute commute from Manhattan, in which case it'd be multiple millions of dollars. But in rural Pennsylvania, it was about 300 or $400,000, very typical for a house of that type. So I think what you see going into this discussion, is ⁓ deflection away from the geography component of what's determining housing prices. ⁓ If you're a young millennial and you insist that you may only live within a commuting drive of New York City, San Francisco, or Los Angeles, well guess what? You're gonna be paying over a million dollars for an ice house. That's just the reality of it. ⁓ If on the other hand you're willing to live in Toledo, Ohio, you can find a pretty nice house for $150,000, $200,000, $250,000 in the suburbs around there. But what it comes down to is the desirability of places to live also include trade-offs. And yes, if you move out of Manhattan, it becomes much more affordable, but maybe you're in what hoity-toity upper class person in Manhattan would refer to as a food desert now. Or maybe ⁓ there's no longer a gourmet coffee place where you can get your fancy latte every morning around the corner because you're out in the middle of rural nowhere. But these are, again, trade-offs to consider. Now, what does it mean for boomers? So we hear the housing market is tied up in the fact that people are ⁓ in the prime of their- youth wanting to settle down, establish a family, whatever it happens to be. And they look, well, my parents bought a house in 1979 or 1983 or whatever it happens to be for X amount. And then we look at it today and it's actually quite a bit more. There are some parts of that story that are left out. First off, if you go back to the boomer generation, they were making this same complaint about their parents and grandparents. The housing market in the United States in, say, 1981, 1982, 1983 was mired in the effects of a major recession. It was mired in the effects of an inflationary crisis, and credit was nearly impossible to get at an affordable price. You know, there are stories of people taking out mortgages with interest rates of 15 or 20 % in that era. It is. It's like a starter home at mortgage rates that are two or three times what you can get today. And then you start thinking, well, maybe

Speaker 1

a credit card. ⁓

Speaker 2

Maybe the supposed bargain boomer house wasn't all that much of a bargain at the time. And you go back and you read the rhetoric in newspapers, it's that younger generation complaining, well, now I'm facing this horrendous mortgage rate, but my parents and my grandparents, they could get a house out of a Sears catalog for next to nothing. It's just the same debate carries out generation after generation. There is an element of it that is tied up in the NIMBYism because people get into older stages of life, a lot of their network, their value is tied up in their house. If you're in a now very wealthy area of an urban city and you have a house that you bought for $300,000 for inflation adjusted, so it's probably like $70,000 even back in the early 80s or so. inflation adjusted house, it's gone from $300,000 when you bought it. to in today's dollars, $1.5 million. And that's the majority of your estate. That's the big nest egg you're sitting on. And you're also a voter and you're a retiree and you have a lot of time on your hands. So you can go down to the town meeting whenever there's ⁓ a permit hearing on whether to build an apartment complex down the street. Well, what do you do? You go there and you be at the veto. You're the NIMBY now. And saying, don't build in my area because that's going to erode my housing now. I think that's an area where young people do have a valid complaint, is an older generation embracing NIMBYism to prop up the values of their home as basically a mechanism to preserve their nest egg. So some element of that does occur and it just speaks to the problem of the political allocation. But then again, the flip side, my very first home was a tiny little condo. And the first home that I owned, a tiny little condo. And I moved from that to another place, to another place, went through some apartments along the way, and now I own my home. 20 years ago, it was a very expensive home for me today. I'm happy because it's gone up in real estate value. This would be everything else in my neighborhood. This is just a part of the process of life. know, young people generally don't start out with a giant pile of cash to purchase a home, but you have to make decisions and trade-offs on where you live. And the simple reality, go on Zillow if you doubt me. look at a rural state or look at the ex-herbs of a major city, and you notice immediately, everywhere, the prices start going down the further out you get, because you're trading off commuting distance from downtown, you're trading off the amenities of urban life for maybe living in an ex-herb or a rural town or attractive farmland.

Speaker 1

Yeah, I'm just thinking about how I grew up there were seven of us five boys my two parents in a three-bedroom apartment in Woodside, Queens I think we were we were there at least in that apartment. We went from a two-bedroom to a three-bedroom I think we moved out when I was 12. So for 12 years, I think I don't think I slept in my bed I think we slept in the living room later on my first apartment that I owned was in Brooklyn Heights and I guess for what we got it for it was pretty, it was like, wow, I guess nobody wants to live in Brooklyn Heights. And then thankfully, years later, like the price nearly doubled. And it was like, cool. So I think a lot of it, there's sort of like this, I don't know, adventurous kind of spirit there. It's like, are you willing to go where no one where no one else wants to go where no one else wants to

Speaker 2

We're back at Star Trek again. And it weighs over the nostalgia element because there's ⁓ an element of falsehood, false memory to this nostalgia. You talk to people today as, well, my parents or my grandparents, lived in this giant farmhouse on tracks of acreage just outside of town. Well, no, actually the reality was the parents or the grandparents, they lived in a tiny starter home. in a bedroom with bunk beds and three of their other siblings, and one and a half shared baths between them that was built in 1960. So there's kind of a false nostalgia of projecting backward onto that. And I mean, it's literally, you know, one of these memes that I saw going around the other day from a JD Vance group on the right, it shows the massive farmhouse on Anchorage. And again, I looked it up, it turns out this, wasn't a historical farmhouse. It was basically a retirement purchase for a wealthy person built in 2008, made in the style to look like an 1890s farmhouse. And if you toured it on Zillow, it has the amenities of a modern game room and all the luxuries of a house that we have today. And they're like, well, wait a minute, this house that you're claiming used to be un-affordable, it didn't exist in 1890 or 1950 or 1980. It was just built a few years ago. So it's like this false nostalgia projecting onto the past by only remembering the good parts of it and forgetting that, these were tiny homes without the amenities of modern luxury. And you were stuck in a tiny little bedroom with three siblings and bunk beds and sharing a bathroom.

Speaker 1

Well, just want to say, wherever you're listening to Happy Hour Econ, you're home. And thank you for sharing your home with us because we might need a place to crash really soon. We'll see you guys next week for an all new episode of Happy Hour Econ.