This summer, Philip and I finally managed
to buy a new house and I am in love with it.
- But let me tell you, it wasn't easy.
We had to search for almost a year,
put in multiple offers,
and routinely had to go 15% above asking price.
- The housing market here in Central Texas,
like most places, feels out of control.
The median home price in Austin
has almost doubled in the last few years,
which reflects a trend in many places across the nation.
Some of this can be blamed on the Coronavirus pandemic.
The cost of construction materials went way up,
construction of new homes slowed way down,
and a lot of people canceled their plans
to put their houses on the market.
I mean, who would want a bunch of strangers
touring your home with a deadly virus on the loose?
- But, like lots of economic and social trends,
COVID only accelerated things that were already in motion.
There are deeper reasons why it's getting so expensive
to buy a house in America these days
and the solutions feel pretty far off.
(cheerful music)
- To really understand what's going on
in the housing market today,
we have to go back to 2008.
When the last housing bubble burst. (popping)
Years of reckless lending by Wall Street
had artificially inflated the market,
sending home prices soaring.
When it finally became clear
that too many people had taken out predatory loans
to buy overpriced houses,
the whole thing collapsed, taking the U.S. economy with it.
Real estate values plummeted,
thousands of people lost their homes,
and there were too many houses on the market
with not enough people who could buy them.
- When a market reacts to a shock, it tends to overreact.
Construction of new homes fell from 2 million a year
to less than 500,000.
The decade following the great recession
had the fewest number of homes built
than any decade since the 1960s.
- There's also fewer existing homes
being put up for sale.
Advances in medicine and nutrition
have kept the baby boomers healthier and more productive
longer than their parents.
So, they're not ready to retire,
sell the house, and move to a condo in Florida just yet.
- Meanwhile, millennials,
who've had to delay home buying
for financial reasons like stagnant wages and student debt
are finally ready to enter the market in big numbers.
Mortgage rates are at historic lows,
which means more people can afford to get a loan.
The rise of remote working means that more workers
want houses away from city centers,
but there's just not enough units available.
That means bidding wars
and rising prices across the country.
- A report by the National Association of Realtors
estimates that to make up the shortage,
the U.S. would have to build over 2 million homes per year
for 10 years,
more than we were building during the last housing boom.
So far, the rates on permits for new homes
are nowhere near where they need to be to hit that goal.
- One reason is that,
well, America is a little rusty at building houses.
When construction slowed way down during the 2010s,
demand for skilled tradespeople dried up.
A lot of boomers retired from careers like carpentry,
plumbing, and electrical,
and far fewer young people
entered the fields to replace them.
Since it can take years for someone to become proficient,
we are currently experiencing a massive shortage
of skilled tradespeople just when we need them the most.
Developers often have to delay construction
to find professional labor,
sometimes even shipping them in from other regions.
This means fewer houses built per year at higher cost.
- Any cities are implementing programs
to attract and train new skilled tradespeople.
But in the meantime,
there's a much bigger obstacle
to building our way out of this housing shortage:
zoning laws.
Believe it or not,
in most of the United States,
it's illegal to build anything
but single-family detached homes.
No duplexes, no condos, no apartments,
not even a granny flat.
- Many of these laws date back to the early 20th century
and allowed white homeowners to stop any development
they feared would lower the value of their property.
Today, these laws are strictest
in big wealthy cities, like San Francisco,
New York, and Seattle.
- Here in Austin, there has been a long campaign
to try to rezone much of the city
to allow for denser residential areas called CodeNEXT,
but it's been stuck in legal limbo for years
due to the tireless opposition
of mostly white affluent homeowners
who want to preserve the look
and demographics of their neighborhoods,
regardless of skyrocketing home prices
and surging houseless population.
This social group also tends to have the highest turnout
in local elections across the country.
So, if you wanna serve another term on the city council,
you better vote against that affordable apartment building.
- Law professor David Schleicher argues
that these zoning restrictions
impact the overall economy as well by suppressing wages.
For example, when an area experiences
a period of economic growth,
the higher wages should attract job seekers
from across the socioeconomic spectrum.
But if zoning laws prohibit the construction of new homes,
the only people who can afford to relocate there
are already wealthy.
In other words, if you're a janitor living in Reno, Nevada,
you could conceivably make more as a janitor
in Silicon Valley, except there's no housing there
in your price range.
- California is a prime example
of the dangers of NIMBYism,
short for "Not in my backyard!"
Some even call it a BANANA state:
build absolutely nothing anywhere near anyone.
Despite a decade of high output and employment,
skyrocketing home prices
have forced many middle- and low-wage workers
to relocate to other states.
What should have been a boom economy for everyone
was only available to the affluent educated professionals
who could afford to enter bidding wars
over the small inventory of existing homes.
- NIMBYism also affects our ability
to build infrastructure in America.
One mile of commuter rail in the U.S.
can be several times more expensive than in Europe.
One reason is that European governments
typically have more power
to plan and execute infrastructure projects
from start to finish.
In America, even us small group of local homeowners
can derail any building proposal they don't like,
often using historical
or environmental concerns as justifications.
These delays and legal battles
drastically drive up the cost of construction.
- Organizations from the Urban Institute
to the National Association of Realtors
are calling on governments
to make it easier to build new construction.
President Biden has proposed including
in his infrastructure bill, financial incentives
to areas that are willing to relax their zoning laws.
Though, that may not be enough
to persuade wealthier school districts
that don't need the money.
- One possible solution to the housing shortage
is for the fed to raise interest rates.
If mortgages are more expensive,
fewer people will want to buy a house.
But the lack of housing affects the rental market as well.
And simply making it harder for people to become homeowners
doesn't address the underlying problem.
- Owning a home is still the primary method
of building wealth for the vast majority of Americans.
It's something to pass on to your children
and offers the security and freedom of knowing
that you're not at the mercy of a landlord.
- In some ways, the problem is simple.
There aren't enough homes to go around,
but fixing it may require a fundamental power shift
in who gets to decide what gets built and what doesn't.
- [Julia And Philip] And that's our two cents.
Thanks to our patrons
for keeping Two Cents financially healthy.
Click the link in the description
to become a Two Cents patron.
(cheerful music)
- If you wanna know more
about the shortage of skilled tradespeople,
check out this episode of "Future of Work"
on the PBS Voices channel.
(cheerful music)