Plain English with Derek Thompson - What's Going on With the U.S. Housing Market?

Episode Date: May 24, 2022

It's our first Curiosity Corner podcast! We asked you to tell us what questions you wanted us to answer, and a lot of you had the same thought on your mind: housing. In this podcast, we answer: What's going on with the U.S. housing market? Is this a bubble? Is it bursting? Why are homes in America so expensive? Why are we so bad at building houses? Why is there so much homelessness in America's richest cities? The Atlantic's Jerusalem Demsas comes on the show to share her theories with Derek, and Derek explains why he thinks every important question about the U.S. housing market has the same fundamental answer: inventory, inventory, inventory. Keep sending your questions at [e-mail]. Host: Derek Thompson Guest: Jerusalem Demsas Producer: Devon Manze Learn more about your ad choices. Visit podcastchoices.com/adchoices

What's up, guys, Rachel Lindsay here, and I am teaming up with your favorite Ringer podcasters to deliver the Bravo drama and news that you've been craving on morally corrupt. It's the show about all things Bravo. From the Housewives to Summer House and everything in between, we'll be mentioning it all every week. Check it out on Spotify and the ringer.com. Today's episode, it's about the U.S. housing market. This is our first Curiosity Corner episode. episode. Curiosity Corner is this new thing that we're doing on plain English where we ask for

your curiosities, your questions, your anxieties, and then we try to answer those questions on the podcast. And it seems like in the first few batches, a lot of you had the exact same curiosity question anxiety, namely housing. So in this podcast, we answer all of your housing curiosities. What's going on with the U.S. real estate market? Is this a bubble? Is it bursting? Why are homes in America so expensive? Why are we so bad at building houses? in the first place. And why is there so much homelessness in America's richest and, dare I say, most liberal cities? The Atlantic's Jerusalem Demsus is today's guest. She is probably the sharpest and most entertaining housing writer that I know. And she answers all these questions and more

getting into the deep roots of why America sucks so much at building, not only houses, but also building highways, building green energy projects, building basic infrastructure. But first, a couple of points about the U.S. housing market today to ground our discussion. First, the U.S. housing market is, there's no other way to put this, it's been really, really crazy. Like, if you've tried to buy a house or apartment condo in the past few years, you have dealt with so much shit. You've probably tried and failed to buy several different properties. You've probably discovered that approximately 100 people put in offers for every new home that is listed. You've probably try to offer like 20, 30% over listing and lost to somebody who went 60% over all cash.

And this is all because in the last year, just about every housing statistic you can imagine set some kind of weird-ass record. Home prices all-time high. Share of homes that sold above asking all-time high. And this craziness started before inflation took off in the broader economy, but it's probably going to come to an end now because inflation took off. Let me explain. The Federal Reserve has for years set its interest rates very, very low to stimulate demand and investment, like investment in houses, mortgages. On top of that, the Fed has been stockpiling more than $2 trillion in mortgage-backed securities. That was designed to help push mortgage interest rates even lower than they would otherwise be. But now the Fed is changing course.

It's looking at 8% inflation and saying, nope, we cannot have that. And so mortgage interest rates are rising from a record low level at a record high pace. Kind of confusing? Still true. The level of mortgage interest rates right now is not anywhere near an all-time high, but they're rising at an all-time high rate. So what the Fed is trying to do here is to cool the housing market down. Plain and simple. They're trying to cool down demand. And guess what? They are succeeding brilliantly, or tragically, depending on what side of the housing market you're on. On Tuesday, we got word that new home sales fell 17% in April. Inventory is rising across the country.

Some people are starting to worry that we are entering another housing bubble, like we saw in 2007, 2008, whose crash caused the Great Recession. So that is the context for our discussion today. If you have more questions, please, please keep sending them to plain English at Spotify.com. I'm Derek Thompson. This is plain English. Jerusalem Demsys, welcome to the podcast. Hi, Derek. Thanks for having me. So in our Curiosity Corner mailbag, our first ever Curiosity Corner mailbags, we got all these

questions about housing. And I was like, okay, who do I know who is unhealthily obsessed with housing policy, unhealthily obsessed with real estate economics? Oh, yeah, duh, it's Jerusalem. So Jerusalem, that is why you are here. I want to start with all the questions that we got about the latest breaking news, which is the very high likelihood that we are. at or near the peak of the housing market right now and the fears that we might be witnessing the popping of a massive housing bubble. So reading from the mailbag here, first names only, Al asks, quote, it seems like 2007 all over again. Am I paranoid or is the housing market not overinflated and the lending underregulated again? I would love you and your experts

takes and predictions, end quote. John asks, quote, what would a housing bubble look like in 2022-23. 2008 was caused by flimsy buyers who should not have been approved for a mortgage lending and led to a wave of foreclosures. But this time around, that doesn't seem to be the issue.

End quote. So Jerusalem, I want to start by defining our terms. Like cable news and other podcasts are going to throw around, you know, this word bubble as if it has some objective mathematical definition. But you have written directly about this.

You have spoken directly to Nobel prize-winning economist about the word bubble. What does bubble actually mean? Yeah. So this is kind of the problem, is that there's not actually a really great, specific, agreed-upon term for what an asset bubble is. I think the most interesting thing someone said to me when I was trying to track down how to define this was Nobel Prize winning economist Richard Thaler. He thinks about it as kind of an epidemiological phenomenon. So kind of like, It's the epidemic of an idea of a feeling of what one should do with one's life or leisure or what's cool. So it's not just, for instance, that prices rise really quickly.

Like, prices have risen about a lot of things. But people don't really talk about there being like a bubble in, you know, cars or anything like that. There's not that kind of discourse around it in the same way there is around housing. So it's not just that there's a run up in prices, but also sort of like this idea that, you know, everyone's kind of getting in on it because, you know, that's what's cool or that's, like the thing to do or that's what smart financial people do. And so that kind of accompanying frenzies, I think what people really get at when they mean there's a bubble here. It's not about the fundamentals. There's like something else going on. Right. It's not about the fundamentals of supply and demand. It's about a social epidemic of perceived coolness. And then that social epidemic pops.

Like for example, people are talking about a bubble in NFTs in the crypto market or a bubble in cryptocurrencies. And the thinking there is that the cryptocurrencies themselves or those NFTs aren't necessarily doing anything fundamental. People were paying a million dollars for them because they thought they were really cool. And then all of a sudden they kind of changed their mind. They were like, oh, they're not cool anymore. And so the value fell from a million dollars to whatever, a $1, zero. So a bubble, I think, just in really simple terms, a bubble is something that pops. Like, defined narrowly, a bubble is something that inflates and inflates and then it pops. And so when people think about it in terms of the housing market, what they're really saying is, is the housing market going to pop?

Are prices going to fall not just 1%, 2%, 3? Are they going to fall 20? Are they going to fall 30%? Our real estate value is going to be decimated in my local market. So let's make the case for and against a housing bubble happening right now. Jerusalem, make your best case that we are in or about to be in a housing bubble right now. Yeah, so the best case is just looking at how crazy these prices have gotten. So Harvard economist Robin Greenwood and fellow researchers sort of look at 40 times that stock prices have

increased over 100%. And they do find that when that happens, when a quick price boom occurs, that there is an increased probability of a crash. So we have some of the fundamentals available for a crash to occur in this market, which is that there's been a massive run-up in home prices. They are higher than they've ever been before. Median home prices above $400,000 was unthinkable very recently. And so that's one of the big things. And the second thing is this idea of this epidemiological phenomenon is obviously there, right? You hear these absurd stories of people offering to name their children after the seller of a home.

It's my favorite story. It's my favorite story from Redfin last year that a buyer offered to name their firstborn child after the seller and yet was rejected. Was rejected. I think it's kind of creepy. So that's, I would have rejected that, honestly. I agree. It's good for humanity that that offer was rejected. Exactly. But that's not the only thing, right? Like there are these phenomenon of these buyer love letters which have become, you know, super common for people to write these letters explaining like, like, you should pick me because, you know, I have two kids and we'll go to the Catholic church nearby or something like that. And obviously there are a lot of fair housing implications there we won't get into. But all these types of actions and behaviors are ones that kind of indicate that there's something, this frenzy is not purely just a lot. decision being made about I want to buy a house for X, Y, and Z reasons. And so that kind of frenzy is there. There's like, even when you talk to real estate agents, they talk about the type of

behavior they're witnessing and these like often even very, very upper class or upper class neighborhoods where people are like jockeying in line. Like they have to hire security guards to make sure like they can bounce people who are behaving inappropriately. So this sort of phenomenon is clearly there of people engaging in this way. So those things are are pretty true. Just to stop you right there, I think you're absolutely right. I think it's important to say that there is unsustainable behavior in the housing market. We are not going to have love letters written forever, I think. We are not going to have offers to name firstborn children after the seller for the next few months or years, God willing. That kind of behavior might be a kind of, you know, a social bubble, right? That might pop. But what Al and John are fundamentally asking is, are housing prices a bubble. right? So look, just about every housing statistic you can imagine set some kind of weird-ass record in the last two years. Home prices hit a record high. The share of homes that sold above asking hit a record high. The number of available homes, sometimes called inventory. That hit a record low.

So it's been record, record, record all across the board. And that seems bubble-licious. But I think you and I agree that this is probably not what most people would think of as a housing bubble, or at least we are unlikely to see prices decline 10, 20, 30 percent in some of these major markets. So tell me why you might be a little bit skeptical that we are in a housing bubble right now. Yeah, so there are a few reasons. Firstly, when you think about, I think a lot of times the most recent housing market phenomenon people really remember is the Great Recession. There are a lot of differences between what happened then and now, and primarily it's the types of people who are able to buy housing.

So post-Great recession, there's a bunch of credit tightening that occurs, a credit- tightening standards that occur in order to make it more difficult for people who may not be able to afford it to buy homes. What we now see is that the lower bound of credit worthiness to qualify for a mortgage has gone up significantly. And the people who are buying homes are often pretty wealthy individuals and people who are able to bid out ahead of 10, 20, 30 people in many cases. These are individuals who can make all-cash-offers.

many cases. And so, and I think a lot of people feel this reality too where they see like it is not possible for someone to find a starter home. It's not possible for regular people to get out of rental markets and to go and buy their first home. And so, you know, so I think in many cases, that's one of the reasons why you shouldn't try to analogize this situation to what we saw during the Great Recession. It's a very different population of people who are getting involved. So we have a higher floor of creditworthiness. Lending conditions are more strict. Number two, Number three, it's an epidemic of cash offers rather than an epidemic of subprime mortgages. Like those are kind of the exact opposite, right?

Like it's very secure to say, I have all the cash. I'm buying this house with all of my savings rather than to go into debt in order to get a subprime mortgage that you can't afford. Relatedly, we're not seeing a wave of foreclosures. And then this is really important. And I know that you've written about this. So I want you to comment on it as well. inventory is really different. So inventory is the availability of unsold homes in a local area.

And when inventory is low, as people trying to buy houses in, let's say, Los Angeles, Denver, Boise, Washington, D.C. are certainly recognizing when inventory is low, housing prices go crazy. Bids go over asking. Everyone, like a house goes up for sale and you get 20 offers in the first few days. So that's what we're seeing now, and that is, this is so critical, the opposite of what we saw in 2005, 2006, 2007. So in 2005, there's this economist Bill McBride who famously calls the housing crash, and he calls it because he's looking at the statistic of existing homes, months of supply in inventory, and he sees it surge from about four months of supply to eight, nine, 10 months of supply over the course of a few years. Right now, we're at two, maybe three

months of supply. This is a totally different economy. And that's why he says we're much more likely to enter a situation that's akin to the late 1970s, early 1980s. That's a period when we saw housing prices rise. We had high inflation. The Federal Reserve comes in. They say we can't have this. They jack up mortgage interest rates. It cools off the housing market. Real prices fall a little bit, basically housing stalls rather than crashes, and then we come out on the other side, basically just fine in the 1980s, at least in terms of the housing market. We did suffer a pretty serious recession in that period. That seems to me like what we're going to see in the housing market, not a crash, but a

stall. Do you agree that inventory is a key statistic to look at here? Certainly. I mean, I think that it's really difficult to imagine that a bubble could pop in housing when there are so few homes available and the demand is still pretty strong. Like, we're going to talk a lot. I mean, you've written about this recently, Derek, about how this demand is cooling off as mortgage rates rise above 5% for the first time. The 30-year fixed rate mortgage has risen above 5% for the first time since like 2010 or something. And so, you know, all those facts are true. But at the same

time, you're still seeing like, I think 59% of homes sold above list price in April. So it's not a situation where this cooling is leading to the fact that like there's no one trying to buy homes anymore. I have, you know, people texting me. I do housing policy, but guys, I can't help you with your real estate asking me about whether or not they should be sell, they should be scared to sell their home in like a couple of months. Like, I mean, I'm not going to tell you what to do or not, but this is not a situation where we are precipitating a massive crash or anything right now. The demand is pretty strong here. The fundamentals about, you know, the largest generation in American history, the millennials are still entering their prime home buying years. That's true.

It's also the case that these are, especially this is a generation that is experiencing remote work in a different way than any generation before has and therefore has the ability to purchase homes in a larger array of housing markets, like their parents were kind of constrained to job centers in a way that this generation may not be to the same level or is definitely not to the same level. But overall, we're going to see continuing strong demand for new homes. We can see this in the home construction start numbers. And so that's pretty clear. That's all great. And I love the fact that you broke it down that way, that there are some forces that are clearly acting to push down home prices, right? Mortgage rates are rising faster than they've increased in the last 50 or 60 years. That's the rate. What's important to point out is that the level of mortgage interest rates is lower than it was in any year of the 1990s or early 2000s. So the rate is rising really quickly, but the level is still historically low.

On the other side of the ledger, you have inventory being low. There's not a lot of houses to buy. That's going to keep housing prices high. And number two, really important point that you just mentioned, demographics. The millennial generation is the largest generation in American history. The average age of millennials right now is something like, I don't have the number right in front of me, but 32 and a half. It's within a year of like 32, 33. That's prime home buying territory. So you have a demographic wave, you have low inventory and you have historically low mortgage rates at the same time that the state of people's finances over the last few years, less spending on leisure during the pandemic, all this cash that was given to them by the Trump and Biden administrations, people have a high amount of savings. This is not 2005-2006 people.

This is not. I know it feels like we're at the top of a mountain of housing prices. But the other side of that mountain doesn't necessarily have to be a sheer drop-off. We might just be at a high plateau, and housing prices will sort of stabilize for the next few years, fall a little bit in inflation-adjusted terms like they did in the late 1970-tribute in the 1980s. But I really, really don't think we're going to see a crash. I want to move on to the second category of questions that we got, which is that for the average person, you know, trying to buy a house right now, it really doesn't mean.

matter, whether we, you know, call this a bubble or just a sharp increase. It's like that you're going to stall. The real concern is that a lot of people want to buy a house in these metros like Los Angeles and Denver and Austin, and they can't afford one. And that brings me to the next question in the Curiosity Corner mailbag. It's from Jake. And Jake asks, quote, Hi, Derek. Anyone looking to buy a house today can tell you how overwhelming the process can feel. I am a 38-year-old college grad. My salary is higher than I ever thought it would be, and I've been diligent about saving throughout the years.

I feel like I've been doing everything right, but housing is still out of reach. I'm in Los Angeles where housing prices just won't stop rising. End quote. Jerusalem, this is a topic that you've written about so much and so well. Why is housing in America so damn expensive? Yeah. So to simplify, there are two reasons that prices rise.

There's demand and there's supply. So demand is high, right? We talked about this for many reasons. Like people want to buy homes. Like people are forming families or they want to move out of having roommates, whatever it is. A bunch of millennials out there. Exactly.

And that's kind of constant, right? I mean, obviously it can rise for different factors. But in general, people are going to live. They're going to need a place to live. They're going to have kids. They're going to have families. That's going to occur. So the big policy lover then comes with supply.

How many homes are there? And in healthy functioning markets, when there's strong demand. I mean, you can see people want to live in Los Angeles. They want to live in D.C. They want to live in Boston. These are the so-called superstar cities in the United States. When you have strong demand in any kind of market, the natural thing for the market to do is to provide that asset. So people try to get in. They want to make money. They build a lot of homes, and they make money, and then prices drop because there is a supply that is responding to that increased demand. So the breaking point in American housing markets is that we have not allowed supply to

respond to the increased demand for housing. And this is not just something that occurs in Superstar Cities. It's obviously very true in Los Angeles where your reader asked this question or your listener asked this question. But it's true across the country. And the reason why we're not able to build enough housing is actually pretty simple. We have made it illegal to build many different kinds of housing and we have made it illegal to build the types of housing that people really need in order to afford entry-level homes. So for instance, in most places across the country, there are these things, actually across the entire country, there are these things called zoning codes, which delineate the types of homes and properties that are allowed to be built on any piece of land in the

entire area. And most places are zoned for single-family homes and not just single-family homes, but there are homes that have, you know, they have to be larger, maybe it has to be set back from the street a certain number of feet. They have to be set away from their neighbors, a certain number of feet. And this sounds like really trivial when you're like talking about it. It sounds very boring. Like how could this affect the total supply of homes? But when you take all of that land that's only allowed to be used for the specific type of housing, you're essentially creating a built environment in which only very large single family homes can be built over large lots of land. And that means that you can't build densely, right? You can't have 10 people living on one,

one plot of land. You can only have maybe one family, even if that family doesn't want that large of a house, those are the only available options. I think a lot of people who have looked for homes have seen this very recently that the actual types of housing that are available in their area, there's not a lot of diversity. It is basically you have to pick this one type of house. That's fantastic. I just want to disentangle the root causes here of our inability to build. And we really do suck at building shit in this country. I know this is an obsession of yours. It's a huge obsession of mine. Just some examples. In that last decade, Samson, Francisco has built about 700,000, has created about 700,000 jobs and built less than 180,000

housing units. So they've added four new jobs for every one new home that they've built. That sucks. And that's guaranteed to increase housing costs because you're bringing in all these jobs and not building nearly enough houses to put the people who are doing those jobs. Another example, it took four years to build the first 28 stations of the New York suburb. at the beginning of the 1900s. It took four years to build the first 28 stations

of the New York subway. It took 17 years to build the Second Avenue extension. That sucks. We are getting slower at building old technologies, like subways. We're also bad when you compare the US to other countries. So in Copenhagen, in Paris, in Madrid, it costs about $200 to $300 million per mile

to build a subway. In San Francisco and Los Angeles, it costs just shy of $1 billion, right? three to five times more expensive to build every single mile. You've done a great job of explaining why this is the case. And two of the explanations I'd love you to talk about here are the rise of environmental regulations and something that you've called citizen voice. Now, those are going to sound like a good thing to a lot of people, like environmentalism,

citizens, those are not scary words. These are good words. But you have, you've made a really clear case that environmental regulations and citizen voice are key forces behind our inability to build. Say more about that. Yes. So first, with the environmental regulations. So we see the rise of these regulations happening in the 70s. The National Environmental Policy Act is the national one, but we also see state versions of this, like a handful, about a dozen states have their own versions of this. Most popular is, or most well-known is California's California Environmental Quality Act. And these, you know, the fundamental problem here is not that we are

trying to protect the environment. The fundamental problem here is that what these regulations do is they create an opportunity for people to infinitely sue and block things from occurring. So many of the complaints that are people are levying are not actually environmental complaints. I grew up in Maryland and there is a, I was promised when I was very young that I would be able to ride this thing called the Purple Line. And it was going to take me from my husband. home to this other area where I was going to go to high school. And everyone told me I was going to be able to, this is still not built. This line was not built. And I am, you know, well past high school. And so the fundamental complaint that some of the people were making, there was a Chevy Chase,

there was a group of homeowners that were complaining about this purple line and in a very wealthy suburb of Chevy Chase. And what they said is that there are some environmental concerns that they have. So they sued under this policy. The environmental concern they levied is that They believe that there was an invertebrate inside somewhere near where the line would actually be built and that there needed to be some studies done to ensure that you weren't going to disrupt this invertebrate. When people asked, you have evidence that this being exists, there was no evidence provided. Was it as vague as there is an invertebrate? Yeah, like a vague species exists in this space.

And if building happens, this vague species will be disrupted and placed out of its invertebrate. environment. Unbelievable. Exactly. Yes. And the thing is, everyone can hear this and everyone understands that what's happening here is that these group of people do not want a rail line being built near their community. Some of the comments being made were about the types of people who ride mass transit. Some of it was that they felt it would disrupt the view from the country club. That's not an exaggeration. That is literally what they were concerned about. But what ends up happening is that instead of levying those concerns and allowing public officials to decide, like, hey, are these concerns legitimate, are you actually destroying some kind of beautiful view that is like really valuable to

residents? Instead, they're able to use these so-called environmental regulations to sue and stop and block projects. And this delay is what is so costly. In general, what happens is that you have to hire a bunch of lawyers on the other side to try to defend the project. Often, even before that even happens, you have lawyers and you have developers anticipating this type of behavior from local residents. And so they don't want to engage in that. So they try to build. in ways that have become a lot more costly to try to avoid this. They come to people with projects. They're already trying to mitigate for perceived conflict that they think is going to occur.

And so that drives up the cost of projects to begin with. But in particular, these environmental regulations are creating the availability for people to really run up the costs. And this is happening with housing, which the technology is obviously, really obvious. We know how to build houses. And it's really problematic in spaces like transit, where we actually have a lot of things we want to innovate on and how to build that effectively. I want to put a point here, which is that

Jerusalem and I are environmentalists. Like, you love the environment. I love the environment. I don't want to assume too much love of the environment on your behalf, but you've seen like someone who cares about the environment. But it's important to see how these kind of environmental regulations can cascade in a way that turns out to be bad for the environment. So we know that there exists in America and in every country,

probably for decades, maybe even hundreds of years, this instinct of nimbism, not in my backyard. People, when they own property, don't want other people to build near their property because they want to preserve their views. They want to preserve their housing prices. What some of these environmental regulations have done is placed in the nimbie hands, a weapon that is extremely powerful and useful to lodge against any potential builder. So what happens is that the price of building goes up and up and up as someone who wants to build a new solar project, wind project, housing development has to pay for all these lawyers to overcome the environmental regulation hurdle. It does something else, I think. It makes it harder for construction companies and builders to get better at their job.

How does someone get better at their job? They practice. This is obvious. You don't have to go full 10,000 hour rules here. This is obvious stuff. if you practice more, you get better at what you're doing. If we make it harder to build, if we make it harder for these kind of infrastructure projects and energy mega projects and apartment buildings to be built in the first place,

the groups that build these places will get worse at figuring out the kind of efficiencies that other countries seem to have figured out to build more efficiently. That's how I think you get the full domino effect here. We've placed the weapon of environmental regulations in the hands of ancient nimbism and they are using it to reduce density and reduce clean energy construction projects, which irony of irony is bad for environmentalism. The second thing I want you to talk about here

is the rise of citizen voice. What is citizen voice? Yes, so I can't take credit for this term. It was actually coined by Leah Brooks at George Washington University and Zach Liska, who's at Yale University. And they wrote this paper, and essentially they wanted to look at

something that we have practiced doing, which is building highways. And so what they look at is they find that they kind of discard the normal explanations. Like, oh, is it like unions? Is it that we're building in places now that are harder to build in? Like we've already built in the easy places. Now you have to have a lot more expensive stuff to build around there. Are we paying for important things like environmentalism and like climate efficiency, climate efficient building structures or accessibility? And they discard a lot of these explanations and what they're able to find and they narrow it down to is this thing they call citizen voice. And environmental regulations are a part of this.

But the idea is that, especially around the 1970s, there is a growth in these local groups, whether they're homeowners associations or they are, you know, their citizen groups, public citizen groups, especially if folks who are familiar with Ralph Nader will, like, really remember the Naderites. And a lot of these groups have really valuable goals that they're trying to pursue. whether it's consumer protection or environmental protection or whatever it is. But what ends up happening is that instead of creating systems of democratic governance, where people are actually widely represented and then their interests are aggregated by their elected officials

and then decisions are made, instead we create things like the National Environmental Policy Act or just a culture of solving these problems through lawsuits that is not done in our pure countries, like Italy or France, to have much better rates of building transit. than we do and other large infrastructure projects. And we have inculcated this culture of, you know, just a few people can cause a lawsuit and create these kinds of delays. So this rise of citizen voice is not just, is not this like innocuous thing where now people have more democratic power and that's important.

They can levy their concerns. What it does is that it concentrates power yet further in the hands of people who, you know, can afford lawyers, can afford to get really involved in the local decision making and end up capturing local government for their own ends. And this isn't a situation where there is, you know, equal capture by any citizen who wants to show up. It really is predicated on the idea that you have the money, access, and power to hire a lawyer and get involved at this level. And so there's really good research showing that the kinds of people who weaponize citizen voice are, you know, older, they are wealthier and they're more going to be homeowners. And this biases us

against change. These are not that these are not legitimate views to have, but when they're the only views that are represented both at the local level and increasingly at the state level as well, you have a situation where, you know, no one wants change. If you're older and you kind of want your community to say the same, you're going to be biased against something new coming up. And those views need to be balanced against what about younger people who want to buy their first homes?

What happens for them? What about for individuals who haven't lived in this community before, someone who's moving because of a good job in the area? Those people are not counted for when it comes to citizen voice. And so it's become a real problem. that was very well stated. And I think it's so interesting that what you're seeing here in trying to understand why is housing in America so expensive is this tangle of selfishness and good intentions.

Like some of this is pure selfishness. Some of it is just my house is worth a lot of money and I want it to stay a lot. I want it to continue to be extremely expensive. And I don't want any condo buildings in my area. Sometimes it's racism. Sometimes it's I don't want any people who might not be my, color of skin to live in this area. But a lot of this is a tangle of selfishness and good intentions. Citizen feedback is important. That's what democracy is. But too much citizen voice in the

concentrated in sort of upper middle class complainers who can pay for a lot of lawyers to stop building across their neighborhood, that has negative downstream implications for people that can afford housing. Environmental regulations, also good. We should want to protect the environment. But if it hands nimbious, a powerful Swiss army knife that they can use whenever anybody wants to build anything within sight of them, that is bad. And it's important, I think, that we point out how this works out intergenerationalally. I feel like I know a lot of people that are nimbies who are maybe older parents. They say, yeah, I don't really want anyone building around my beautiful house. I don't really want anyone building in my neighborhood.

But if you ask them, you know, how their kids or maybe their grandkids are faring in terms of trying to look for a house. They're like, oh, it's impossible. There's nothing available. It's like, think intergenerationalally. The reason that nothing is available for them to buy is because there's too many people like you who use their wealth and use their connections to stop the kind of construction that would alleviate some of this housing constriction. Yeah, the two things I want to make clear, though, is that one, in other countries,

they are able to protect their environment without empowering this kind of, you know, malcontent class of individuals. I don't think anyone thinks the United States is the premier protector of environmentalism or of the environment. And I think that that's clear when you look at the administrative state in peer countries like Italy

where they are able to evaluate different projects on their environmental concerns and then make a decision because their local bureaucrats are empowered to do so. The second thing I'll say is that this is not, I think, actually a function of this is what's popular, right?

Like this is a very small group people. I don't think, and most people listening to this, know who their local elected officials are at all, or even what their local zoning board, where they meet, what they do, and how they engage. This is a very small group of people. And that's why it's so anti-democratic is because this group of people believes that it is democratic for them to engage in politics in this way. But really, their voices are really being made primary over everyone else's concern around housing affordability. And even folks who end up opposing kind of housing a new infrastructure in their neighborhoods. Often, like you said, Derek, don't see how it affects their children. And also, secondly, don't see how it affects

themselves. There's like a real problem right now with folks who are aging into their retirement years in these large homes. And large homes are often, these are inaccessible for them. A lot of, there's a high rate of seniors who can't even get to the second floor of their houses. They never ever use it. This is unused space for them. It's inaccessible for them to get to important places in their home, perhaps the bathrooms up there or whatever it is. And then, secondly, there's nowhere for them to downsize while remaining in their communities. And they still have to pay property taxes while they are expensive, you know, homes appreciate and value, they're still forced to pay high, they're getting to pay property taxes on them and they don't

have a higher income and they don't have a place to downsize and actually liquidate that asset while still remaining in their communities. So I think one thing that's really important here is that, yes, there's intergenerational problems, but people are really screwing. themselves over as well. Yeah, you can actually say the screwing over themselves as well. Yeah, you can use harsher language if you wish. I think you're right. I think it's important to point out that it's not just a failure to think intergenerationalally. It might also be a failure to think about the future, period, your own future, not just the future of your children and grandchildren. I want to move on to the third bucket that we were asked about, which is in some ways,

the exact opposite of bucket number two, and in some ways directly related. And it is not the difficulty of buying a house if you have a great job. and make a good amount of money, but the phenomenon of homelessness, which is rising across the country. Steve asks, quote, Portland native here, I would be interested to hear you analyze homelessness, facts, causes, fixes. Nobody really seems to have a grasp of these other than, quote, tense or ugly, not in my backyard, please, end quote. So we got a lot of questions about homelessness, which I was really gratified by, because this is a really important issue. And I really love Steve's breakdown of facts, causes, and fixes. So Jerusalem, let's start with facts.

What's the most important fact to know about homelessness in America? The most important fact is that roughly 5% of Americans have experienced homelessness at some point in their lives. And this is something that's really important because really measuring homelessness is incredibly difficult. We do these things called point in time estimates where we try to just measure on one point in time how many people are homeless. But in general, like, it's really hard, right? It's obviously a very transient population. And it's also important to understand that homelessness is not a stock problem.

It's a flow problem. And what I mean by that is that it's not just like there's just one group class of individuals that are the homeless and we need to help them find housing. It is that there is a flow of people who are both coming in and out of homelessness all the time. Someone loses their apartment without having a second option. They're homeless for a time being they may find a way to go stay with a friend or a family member, they are no longer homeless, that can happen again if that housing situation doesn't come

through for the long term. Really important fact, and just to put a number on it before I feed it back to you, in the study that I, the studies that I found of the homeless population, and again, this is, this is a rough estimate because this is not an easy census to take. But it estimated that one-fifth of the homeless are, quote, chronically homeless. That means without a home for at least a year or homeless repeatedly within three years. A fifth. That means that 80% of the homeless, population is not chronically homeless. They are flowing into, as you said, this stock of homelessness and they will flow out. That's not to minimize the horror of being homeless for any period of time, but one of the difficulties here is that there is this high churn of the homeless population,

which can make it hard to study. But let's move on to causes. What are the root causes of homelessness? In my estimation, there's a bit of a debate online, or at least in some of the material that I read, between whether homelessness is primarily a phenomenon of housing supply, again, our old friend inventory, or whether it's about crises in individuals' lives, whether, for example, this is mostly about drug abuse in San Francisco, or poverty and trauma in Detroit or New York City, Washington, Washington, D.C. What are the root causes of homelessness as you understand? Yeah. So the best book about this is called Homelessness is a Housing Problem, which will indicate to listeners already where I kind of fall on this. The authors are Greg Coldburn, who's a professor at the University of

Washington and Clayton Page Alder, who's a data scientist. And so I think the question is always, I think this debate is always really confusing because it's hard to know what exactly people are talking about. It is obviously the case, right, that. that you can know an individual who has a drug problem. And then because of life choices they make or unluckiness or whatever it is, they end up becoming homeless. And that can be true for a lot of people, that there's drug addiction involved,

that there's poverty involved, that there's losing jobs, that there's getting divorced, that there's difficulties and problems with their landlord or whatever it is that are leading them to become homeless. And those are the individual stories we hear that we know of in our communities that lead people towards this, you know, really horrible outcome. But that's different than what is the question,

of why is there high homelessness in some places and not in others, right? Like, why is it the case at Los Angeles, San Francisco, Seattle have high rates of homelessness? But places like Miami, Dallas, Houston, we don't see those kinds of rates of homelessness. It's not the case that people in like Dallas or Houston or Miami don't have drug problems that they don't have poverty, that there isn't unemployment. There's something else going on here that is causing this problem. And I think it's important to think on kind of a historical timeline, too, gotten used to this at this point, I think the idea of modern homeless camp cities has become

kind of ubiquitous in a lot of major American cities. But this is not normal. Like, there's been poverty for a lot of American history. But the camp homelessness where people are camping out in front of, you know, big office buildings or whatever in major American cities, this is not something we saw even when people were poorer than they are today. I think that's what's such a strange part of this phenomenon. And why, while even though only a small number of Americans are actually experiencing homelessness is high on people's minds, is that it's really incongruent to see such a wealthy society incapable of making sure that people can remain at the very basic level just housed. So when we're talking about the root causes of homelessness, what I'm talking about here is

why is there this kind of regional variation in homelessness happening and why is it the case that places these wealthy cities are facing this problem? There are these traditional narratives, I think, that we saw, especially during the waning years of the Trump administration, where they said, you know, Blue State governance is the problem. And then, you know, Nancy Pelosi and Gavin Newsom pushed back and said, no, it's that the federal government isn't giving enough funding. The actual answer here is that homelessness is a function of rent prices and vacancy rates. When people experience a high degree of, of, you know, susceptibility to becoming homelessness, right? susceptibility to having access to being poor or to losing their jobs or whatever. The question is, when that emergency happens, when you become addicted to drugs, when you become, when you lose your job or you get out of, or you, you know, get a divorce or whatever it is, are there cheap housing options available for you to live in until you get back on your feet? And that is really the question here. So these researchers that I pointed to earlier, they look at this, they look at the variation across cities and they find that the really key thing is when cities have low vacancy rates, when there are very few apartments available for rents and rent prices are high, then you see rising rates. of homelessness. And I think that when you think about the story like this, that there's going to be emergencies, that there's going to be problems in people's lives. The question is only when that happens, what is the local housing context available to them? And so when you look at places like

Los Angeles, I mentioned earlier, these are places that have not allowed for a large amount of affordable housing to be built, small units, small homes, things that are going to be affordable to people who are in really bad conditions, things that they can rent for short periods of time. these are not housing options that exist anymore in major American cities. I want people to hear the common theme to all three buckets here because we're asking three different questions in this episode. Number one, are we in a housing bubble? Number two, why our house is so expensive in major metros like Los Angeles? And number three, what are the root causes of America's homelessness crisis? In answer number one, I said we are not in a housing

bubble because inventory is so low. And when inventory is low, it's very, very difficult to be in a housing bubble. 2006, 2007, so the opposite, really high inventory. So the answer to question one was inventory is low, therefore we're probably not in a major housing bubble. Question number two, the answer was also inventory. Why is it so difficult to buy a house in Los Angeles? Why is it so difficult to buy a house in, say, Washington, D.C., Denver? It's because inventory is so low. There aren't a lot of houses available. And as a result, supply and demand, when supply is low, Demand is high. Prices are really, really high. That's why it costs 70% over-listing to buy that house that you want in Denver. Question number three, what is behind our homelessness phenomenon? Well, you just answered it. In markets where you have really, really low inventory where supply is very, very low, it's not that that inventory being low causes homelessness, but rather that it makes the local population, especially those in poverty or suffering from drug addiction, more susceptible.

to homelessness if one more thing in their life goes the wrong way. They flow into the homelessness population. A couple stats to put on top of that analysis. The states where homelessness is highest by rate are Hawaii, California, New York, Oregon, Washington State. What are the states have in common? Well, you could say they're all built near an ocean. Okay, that's fine. They're all also blue. They're all run by Democrats. That's kind of interesting. I'm a Democrat. I kind of want Democrats to be better at housing policy. But it turns out that in a lot of these states, it is difficult to build houses for, again, the reasons that you've talked about. Environmental regulations tend to make it harder to build. Citizen Voice tends to make it easier for the NIMB's to block building.

And you see how these sometimes well-intentioned laws can have negative consequences. If you make it easy to block the construction of new housing projects, you also reduce inventory and make it easier for people who are already vulnerable to slip into homelessness. And this isn't just my analysis. This isn't just your guesswork. Zillow did a study in 2018. The title of that study is, quote, homelessness rises faster

where rent exceeds a third of income. And where does average rent exceed a third of income? Guess what? It's in the same pricey coastal markets we've been talking about this entire episode. New York, Boston, Los Angeles, San Francisco, Seattle, probably also Portland, where our question asker lives.

This is where housing inventory is too low, which means that people who tend to be high poverty or have other problems in their lives like drug addiction, enter a state of extreme vulnerability, they are significantly more likely to flow into homelessness. Let's fix this problem. All right, we've done facts, we've done causes, let's do fixes. What is a fix to the homelessness problem?

Yeah, I mean, you pretty much summed it up. cannot fix this problem without providing people homes. And at some point, it's like very simple, right? Like the word that we're saying is homelessness, we need to make sure that people can have homes. But at the same time, it's like very difficult to overcome a lot of these local barriers. And the real concern that I and a lot of homelessness advocates have

is that there's increasing frustration for people about rising homelessness in their communities, both from, I think, an altruistic perspective of like they're concerned about people. And also concerningly, from perspective of, you know, not wanting disorder in front of them, not wanting to see that kind of, you know, poverty in their face,

in their parks, in their communities. And so when that happens, often people turn towards, you know, kind of militarism and using the police to kind of clear out encampments, even in very liberal places, like Los Angeles, we saw tent encampments being cleared by the police over the last couple of years.

And that kind of quick fix attitude, I mean, it is something that is a completely understandable when people are facing a crisis and they want it fixed. But I want to understand. score here, until you figure out a way to make home price, or to make rental prices lower, you cannot actually solve this problem because there's not a stock of people to clear. This is a flow of individuals coming in and out of this space. And so that is the fundamental thing here.

And I think that there is attempts to build permanent supportive housing, which is, of course, you know, a good aim. It's increasing the housing stock. It's dealing with that inventory problem. It is stimmed by the same exact forces that we see stimming regular housing. So in Los Angeles, for instance, a very liberal city by any respects has approved $1 billion about six years ago in order to build permanent supportive housing. Very few units have actually been built because time and again, even affordable housing developers are being stopped from being able to build these units because people don't want them in their communities in Los Angeles. This is true, not just in L.A., but in places all across the country.

And so you have this problem where people are going to continue to be homeless until we figure out a way to house them. And the reaction by locals to kind of give up in frustration and turn to quick fixes is going to create a lot of issues. And it's not actually going to solve the root problem here. Even shelters and things like this, there are obviously things that people can do to alleviate the problem. But there are many reasons why people choose not to go to shelters, which I think is going to be pretty consistent into the future. I want to end on this point because it's such an important point. Money alone cannot solve this problem. if you give all the homeless people in Los Angeles

enough money to rent an apartment for the next year, that will help some of the homeless population of Los Angeles. But some of them might not be able to find an apartment. And even if they all did, homelessness is a flow, not a stock. So in X years, you would simply have more people

flowing into homelessness because you haven't built more housing. You can give money to the city of Los Angeles or to the state of California and say, go forth and build. But guess what? the money alone doesn't build. What builds is permits. And if you can't get a permit because of environmental regulations and citizen voice, the money does shit. So money solves some problems,

but it does not solve every problem. You have to focus not only on the supply side, on the demand side, but also on the supply side. Sounds like supply side progressivism. Shout out Ezra. This is a really important way to think about solving the problems, I think, that we have in this country, that a lot of them are not just about what can we do with the Treasury purse, but how do we actually build in this country and how do we overcome the rules and the mentalities that keep us from building? Jerusalem, Demsus, thank you so so much for joining. We will love to have you back on this podcast to answer more Curiosity Corner mailback

questions very soon. Thank you. Thank you very much for listening. Plain to English is produced by Devin Manzi. If you have a comment, a concern, a question, an idea for a future show, please email us at plain English at Spotify.com. That's plain, no space, English at Spotify.com.