Metropolis

The Good News About the Insane Real Estate Market

You’ve lost your 10th bidding war. Are you radicalized yet?

Real estate open house signs in Indianapolis.
Follow the arrows to see your dreams dashed. Michelle Pemberton/IndyStar/USA Today Network via Reuters Connect

It’s a cutthroat competition for a scarce resource, pitting neighbor against neighbor and reinforcing the inequalities the pandemic has so cruelly exposed.

I’m talking of course about the housing market, which continues to hit milestones: record-low inventory; median home sale price up 13 percent from last April; prices up 18 percent in left-for-dead San Francisco, at 15-year highs in relatively affordable cities like Chicago, and out of control in places like Austin, Texas; Boise, Idaho; and Bozeman, Montana. In Bozeman, the owner of a local construction company stood on a winter day downtown with a cardboard sign: “PLEASE SELL ME A HOME.”

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Anyone wading into this blood sport has memorized the indignities: If you want the house, waive all contingencies. If you want the house, escalate way over asking. If you want the house, bid before you even see it. If you want the house—sorry, you lost to an all-cash offer.

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The causes of this crisis are many (pent-up demand, the soaring stock markets, low interest rates), but one stands out: Not enough homes! There are more real estate agents than there are homes for sale right now, and it’s not particularly close. New York City, for example, built fewer new homes in the boom years of the 2010s than during the depopulating 1970s, and has built fewer new homes in the past half-century than it did in the 1920s alone.

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The promise of the pandemic’s remote-work revolution—a geographic reshuffling that might revive struggling regions and free knowledge workers from high-cost cities—has not yet panned out. Instead, everyone is going exactly where they went before. Far from changing the geography of demand, COVID-19 has given us a housing market that is basically the same, but worse.

Not great. One unfortunate, paradoxical effect of rising home prices is that they seem to lock in opposition to new housing. Joe Homeowner, obviously, is having the time of his life. But for buyers, too, new market-rate housing gets more and more out of reach as prices go up and up. It’s hard to blame tenants for scoffing at new construction when every new unit comes to market at five or 10 times the median income. Instead, this fuels the widely held belief that new housing makes neighborhoods more expensive.

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But maybe the current crunch is sufficiently dramatic that it can convince new tiers of buyers that housing supply matters. Even “luxury” housing. (“Luxury housing,” as Nolan Gray writes in the Atlantic, is a marketing term, not an official classification; in reality, new “luxury” apartments are usually cheaper than the existing older houses nearby.) No matter how many cranes you see, your city almost certainly isn’t building enough new units.

In a way, the housing shortage couldn’t come at a better time. The president’s infrastructure plan offers grants to communities that ease barriers to constructing infill housing in central, walkable neighborhoods—the type of housing we should be building. Such efforts have also gathered steam at the state level. The stars are aligned: We need more housing and we have the perfect place to build it. Not just in walkable places, but in places that aren’t yet walkable but would be with a little well-placed housing, commerce, and institutions. (Billions in mass-transit investment wouldn’t hurt either.)

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Matt Yglesias writes this week that we get housing scarcity in spite of widespread agreement that abundance would be better, because the housing shortage fosters a kind of prisoner’s dilemma: Every city would be better with new housing, but having it on your block or in your school district comes with real costs. Let someone else build it.

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But this diagnosis isn’t quite true: I don’t think most people even believe there’s a housing shortage. Their evidence to the contrary lies in downtown cranes, vacant apartments, far-off suburbs, and low-cost cities. Instead, the consensus has settled around a shortage of affordable housing—a phenomenon supposedly detached from the slow drip of new construction.

That view filters up to politicians, who feel little pressure to remedy the situation in the name of either racial justice or economic growth, in spite of growing pressure on both fronts.

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What’s happening now in the real estate market feels like it is of another order of magnitude than past price run-ups in expensive places. A colleague looking for houses in the D.C. area lost on a house that went for $100,000 over asking price. Her agent saw a house with 10 pre-offer inspections and 32 offers. Her friend bid on a house that went for $320,000 over asking.

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Sadly, those who win these all-out bidding wars will probably, suddenly feel that there is enough housing, and yes, we need affordable housing, but really affordable housing, you know? (And not here!)

But for every winner there will be many losers, and maybe the process can radicalize these would-be buyers, and their friends, and their parents, and the people they talk to. There really aren’t enough places to live. Those people can channel their frustration with bidding wars into political activism aimed at housing suppressants like parking requirements, restrictive zoning, and density limits. If appeals to neither historical wrongs nor economic growth get the job done, a strong dose of self-interest can’t hurt.

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