I have a pet theory that one reason the widely held notion that the economy is increasingly inequitable is actually because we are engaged in a vicious cycle of equity-seeking that we can't afford.

1/

https://twitter.com/GaryWinslett/status/1920965760274379202

We have a collective sense that healthcare is a human right, and also a sense that improvements in healthcare are singularly beneficial. If $10 million of R&D would save a life, who would argue against that spending.

2/

Tyler Cowen has an old talk where he warns that depending on explanatory stories with villains in them lowers your IQ by 15 points. Marxism is like an institutional commitment to that. It lowers your IQ by 50 points.

1/ The most dangerous people are the ones who are smart enough to create compelling explanations of the world even after the 50 point hit.

There are a few of these in housing. You would assume they would be rabid supporters of returning this key human need to abundance.

2/

For those claiming the federal government can't do much to help increase the supply of homes:

Before 2008, the avg. value of homes getting new Fannie Mae mortgages was about $250k and the avg. current value of homes paying off existing Fannie Mae mortgages was about $250k.

1/ By 2009, the avg. current value of homes paying off existing Fannie Mae mortgages was down to about $200k. That year the avg. value of homes getting new Fannie Mae mortgages was about $330k.

2/

It's a shame that optimal Fed policy looks like it will settle out at 2% CPI excluding shelter and 4% CPI shelter inflation, which puts core CPI at 3%. This will be interpreted as a failure of monetary policy. So, they will have to tighten.

1/ Then, at the same time, Wall Street funded new build-to-rent single family homes will skyrocket, leading to a backlash, which will put a lid on maximum new housing starts, and that will stick rent inflation at 4%.

2/

Lots of great stuff in the CEA report, and it is great to see a whole chapter on housing, which covers all the issues surrounding housing smartly.

But it is infuriating for what is missing.

1/

whitehouse.gov/cea/written-ma… ALL of the post-2008 worsening of housing supply has been due to tight underwriting at the federal agencies. The White House basically has total control over that.
They have a button sitting on their desks that relieves every post-2008 symptom and they won't touch it.
2/

These stories are popping up everywhere. It's is all great. It's the news we've been waiting on.
But, I reiterate: rents aren't going to reverse the excess of the last 30 years because of 100,000 extra units.
1/
Austin rents nosedive 12.5% in December therealdeal.com/texas/2024/02/… Here are Zillow estimates of US median rent and rents in Austin and Minneapolis.
Rents are down in Austin! But, this is going to require a years' long process of building and building and building to add up to anything.
Anomalous data in trade articles isn't very informative.
2/

I realized tonight that I had made a prediction before the 2020 election that has pretty much played out.

In his private dealings, Trump appears to be a vexatious litigant when deals go sour.

1/ Our courts make it very easy to abuse people with baseless claims that cost the counterparty thousands or millions of dollars. I’ve been on the receiving end of that with a sociopath I had to deal with.

2/

Score one for "correlation isn't causation". 😂😂😂

Some version of this underscores an amazing amount of market sentiment. Like, go anywhere and suggest that mortgage rates don't have much to do with why houses in poor parts of LA sell for 14x local incomes, and you'll get just incredulous responses. "What kind of idiot are you?"

I am convinced that one way housing has become a vicious cycle is that we have made the long-run supply curve downward sloping, so that things can only get worse.
You can see this happening in real time in Arizona with our recent rent inflation and the debate over SB1117.

1/ SB1117 is just basically various versions of, "Hey, let's stop imposing a heckler's veto on new homes."
And the most important opposition to it is from the left:

2/

ICYMI: If you're involved in housing affordability, you should read my paper!

1/

Price Is the Medium Through Which Housing Filters Up and Down: A Proposal for Price/Income as an Indicator of Housing Supply Elasticity mercatus.org/publications/u… It has been clear for a while that inadequate urban homebuilding has put a fence around some important cities. To get in, you have to pay up.

Cities with higher incomes have higher housing costs (even higher costs as % of those higher incomes. That is really weird!)

2/

It seems like the housing problem comes down to “awareness”.

Like, this phenomenon has emerged:where housing would be just and useful, the political response to building it is frequently “no”.

One naturally assumes our governance isn’t that bad until one is aware that it is.
1/

https://twitter.com/HalSinger/status/1596885039127531521

So, I’m sort of sympathetic to a take like this. I would probably have a similar reaction if I hadn’t already seen enough to go, “oh. We sort of sidestepped our way collectively into just being really dumb about this.”

the solution seems too easy if you haven’t seen the problem.

I wonder if the literature on agglomeration economies would have gotten as much attention if it had all gone to consumer surplus rather than being captured as rents where housing is obstructed. Since rents and excess profits generally show up in measurable ways and consumer surplus doesn't, I suspect that agglomeration economies have been overstated, or at least San Francisco, LA, and NYC's ability to create them has...

1/

A thread.

1/

Boise: A Case Study in the Housing Boom, by @KAErdmann kevinerdmann.substack.com/p/boise-a-case… The Boise "bubble" has been over for a year now, yet no collapse in prices.

2/

Sorry. This may just be repetition, but I'm finishing up something where the point is just so obvious, and I have to get it off my chest.

We now have 2 decades of a pattern where the cities with the most expensive housing lose population during putative building booms...

1/ and the cities where that population happens to flow to, of course, have lower home prices, but upon receiving those flows, have brief price spikes.

Just, for a moment, set aside all the complaints you might have about the tax code or private equity...

2/

Interesting paper attempting to come up with a more cyclically sensitive rent inflation measurement. The focus of the paper is to argue that post-2008 QE was more stimulative than previously thought...

1/

Housing Rents and Inflation Rates @SSRN papers.ssrn.com/sol3/papers.cf… because rents declined more than the CPI suggests and then inflated more after 2009 to make those declines back up. There was more deflation than we thought in 2008-2009 and more inflation after.

That's all well and good, and I think this is probably accurate.

2/

This post discusses the 3 conditions of housing supply (surplus, normal, capacity) as we approached the 2008 crisis.

1/

Categories of Housing Contraction, Part 2, by @KAErdmann kevinerdmann.substack.com/p/categories-o… Key moment (which I talk about in BftGU), is Ed Leamer presenting his widely cited paper at probably the most pivotal moment in the housing boom and bust: the Fed's August 2007 Jackson Hole meeting.

Here was the state of housing starts at the time.

2/

amazon.com/Building-Groun…

A "shout it from the mountaintops" thread!

"Rising Home Prices Are Mostly from Rising Rents"

See the full paper at Mercatus. This is the first of 4 papers coming out soon, so there is much more to come.

1/

mercatus.org/publications/h… The Famous Bubble Graph: The Real Case-Shiller Index.

But, this graph purportedly showing a bubble really just shows that rents have been rising for 40 years! Adjust for rising rents, and it mostly just gets more volatile, which is due to rising rents.

2/

This sort of comparison should drive home something very important about American housing, monetary policy, and the business cycle.

All over financial discourse, you see this cynicism about inflated American asset values, housing being at the center of it...

1/

https://twitter.com/issiromem/status/1557231570934673408

Those long-term Case-Shiller real home price graphs are maybe the best example of what you see.

And the idea is that it is Fed overstimulus, low interest rates, over-indebted buyers, etc., that has created this fake economy that just needs a whiff of reality to collapse.

2/

OK. A little more talk about my home price model.

To recap, here, I have an estimate of the effect of mortgage access, persistent local supply constraints, and cyclical factors on the aggregate national average home price.

1/ Today, I want to talk about the supply factor in the Closed Access cities. These are the cities for which population growth is limited by housing supply. Basically, outmigration is driven by financial distress. The more distressing, the more people move away.

2/

Hearing builders talk about the effect of interest rates on their sales, I think one can see some of the disconnect between the seemingly obvious connection between interest rates and housing markets and the lack of correlation between rates and home prices.

1/ Certainly, some potential buyers have cancelled orders or stopped shopping. Others have changed their orders to reflect new borrowing constraints.

Commonly, a buyer might get rid of some upgrades or shift to a smaller floor plan.

2/

I shared this graph the other day.

(To revisit: I have developed this model of home prices based on my research on the importance of supply constraints in housing markets. I can disaggregate supply vs. demand forces down to the local level.)

1/ Anyway, I consider this credit access estimate a lower bound on the importance of tightening standards.
You could think of the "supply" component as reflecting low tier rents & the credit component reflecting low tier price/rent, so that combined they reflect low tier prices.
2/