Emily Peck: For a while last year, buying a house was like Game of Thrones without all the murder, of course. The pandemic fueled a home buying frenzy, as many were desperate to trade in urban life for suburban spaces, surrounded by nature and spurred on by very low mortgage rates. But there weren’t enough homes on the market. Demand was so intense that homebuilders had to get creative.
Speaker 2: They started having these elaborate lotteries.
Emily Peck: That’s Connor Doherty. He writes about housing for The New York Times. He’s recounting a story about Eric and Jez early in the mine who are ready to buy a new five bedroom home in River Islands, California. They had the money for a down payment. They were pre-qualified for a mortgage. Typically, that’s all you’d need in the new home market. Buyers don’t usually go through bidding wars, but in this case, they weren’t the only ones who wanted the house. So the developer did something really unusual.
Speaker 2: They were one of, I think, a dozen or something families that had been qualified to buy. So then the builders said, okay, we’re going to have like a zoom lottery.
Emily Peck: All the potential buyers crowded on a zoom call with their hopes resting on winning the lottery. For the Mayans, the magic number was 32.
Speaker 2: On the screen is a sales person in the dream home on a like a marble countertop. And they have some sort of like lotto ball thing. And all these numbers are, you know, jiggling around in the in the in the, like, turning ball. And then they pull out like, this is who wins the right to buy this, you know, five or $600,000 home or whatever it was. And it’s like 32 and they start crying and you know, we get the house.
Emily Peck: That was a year ago. These days, the real estate market in the U.S. is in a very different place.
Speaker 2: Now we’re in a situation where interest rates are rising. People are pulling out of deals rather than having lotteries to get in them. And one thing that is freaking a lot of people out is that they’re seeing homes sell for less than their agreed to purchase price. Right. So you agree to buy a home for 500,000 and then you see that a similar home has just sold for 460. And then mentally you’re like, well, I just lost $40,000.
Emily Peck: A boom bust cycle and real estate isn’t new in the U.S., but the current one highlights a long festering problem. There aren’t enough affordable homes for everyone who needs one. When the economy is booming like it was last year, developers build houses, but not enough of them. So values go up and bidding wars ensue. Pricing people out of homes they otherwise could afford. Then when the economy slows down, as it’s doing now, people have less cash and developers have less incentive to keep building. The shortage remains. Freddie Mac estimates that there’s a shortage of about 3 to 4 million homes in the U.S..
Emily Peck: So today on the show, what is the solution to the housing shortage in the united states? I’m Emily Peck filling in for lizzie o’leary and this is what next TBD a show about technology, power and how the future will be determined. Stick around. The housing market today looks a lot different now than it did a year ago. The Federal Reserve just raised interest rates again, which is expected to slow down the market even more. People are paying less for these new homes. Deals are slowing down. In some areas, open houses are empty and bidding wars are a thing of the past. To hear Connor explain it, there’s a simple reason.
Speaker 2: Pure and simple. Interest rates. Interest rates are way up. So interest rates have jumped from, I think, you know, three ish at the beginning of the year to close to six. It’s five something that’s like hundreds of dollars a month. And it’s not just that it’s hundreds of dollars a month. It’s hundreds of dollars a month on top of this massive gain in prices, which is, of course, hundreds more dollars a month. And eventually people just run out. People do blink. At some point, you can’t keep going up.
Emily Peck: And we should note, like the Federal Reserve raising interest rates, which is why mortgage rates went up. They wanted to cool off the economy and part of the economy is cooling off the the housing market. This was what’s happening now is intentional. This is what, you know, Fed Chair Jerome Powell wanted to happen. Right.
Speaker 2: Exactly. And I hesitate to speak for the Fed. Yeah. Try a little bit.
Emily Peck: Please.
Speaker 2: I think in their heart of hearts, if they could slow down price growth but cheap homes being built, if there were some way to engineer that, which there isn’t, because interest rates are a pretty blunt tool. I think they would wish for that. Right. Like if you could cool off prices, but keep everybody working and keep production happening and keep building happening, people would want that. Right. People still want homes to be built, but they want the crazy bidding wars to slow. And the pickle here is and as we’re going to discuss is how do you make that happen? How do you keep building so that we don’t make our housing shortage worse in the future, while at the same time cooling off these crazy price increases that we can all agree are unsustainable?
Emily Peck: Yeah, and that’s the pickle at the heart of of everything and the heart of the the piece you wrote in The New York Times, which is that the market’s cooling the the bidding wars are going away. But that means the builders are going to pack up and go home and stop building houses. And we have a housing shortage in the United States still. Can you talk about the housing shortage and sort of how we got here to it?
Speaker 2: So we have a. Long running housing shortage in the United States. I was born in 1977 and people were writing articles and books about America’s housing shortage in 1975. So before I was born.
Emily Peck: Oh, my God.
Speaker 2: In, I believe, 77 or 78. Time magazine had a cover story that said, like I think it said, sky high housing. And I had a picture of like a like illustration of like a house floating away from a young couple and all the things we sort of hear about, Oh, people are having fewer children because homes are so expensive and people are delaying marriage or moving to a different place. Everything like minus zoom was like the same.
Speaker 2: Right. And I think that at times we’ve papered over that either with a temporary economic boom or with migrations to other places where homes are built cheaper. And of course, during the big financial crisis, we essentially tried to make homes, quote unquote, cheaper by making the financing of them really exotic such that anybody could get them. So we’ve but we’ve never really tried to address this problem at its root, which is there just aren’t enough homes.
Emily Peck: Even before the pandemic hit, sending Americans around the country scrambling for more square footage, the U.S. was short about 3.8 million housing units. And this lack of supply drives up demand, pushing up prices and putting homeownership out of reach for many.
Speaker 2: This leads to the thicket of policy questions that are zoning and land use regulations, which is the stuff of local city council meetings. But generally speaking, we make it really hard to build different kinds of housing in the United States.
Emily Peck: Zoning laws in the suburbs and cities where people want to live tend to be fairly strict and complex, often favoring large master planned communities of single family homes or in cities. Think massive condo buildings.
Speaker 2: But there aren’t a lot of like duplexes and triplexes and no cute little six unit buildings, but there isn’t a lot of that. And whenever you do see that. It’s often in an old neighborhood, meaning it’s something that was built a long time ago. And it’s often. Illegal to build more of something like that. And so this kind of like light density is what we lack. And I think that makes it harder to increase our housing supply. We have made it very difficult to satisfy the need for housing.
Speaker 2: And as we were leading up to one of the really vicious things that happens is housing is a very boom bust market.
Emily Peck: I was thinking about the chart of new home construction. And if you if you pull back the time series, it really surged in the time leading up to the financial crisis because builders were finally like, Oh, wow, we can really sell homes and they’re going for a lot of money and, you know, exotic mortgages, whatever. Like, this is great.
Speaker 2: You can buy one even if you have no income.
Emily Peck: Yeah.
Speaker 2: Who can afford ninja loan? No income. No job or assets?
Emily Peck: Yes. And then after the financial crisis, builders were like, oh, my God. I mean, I remember all the articles from back then of these.
Speaker 2: Back when we were colleagues.
Emily Peck: Yes, back when we were colleagues at the Journal. And there are all the articles that you wrote and all these people wrote about the empty housing developments in the exurbs that no one wanted to move to anymore. And they were gross and, you know, swimming pools were empty and blah, blah, blah. And if you look at the chart, like the builders never really ramped back up until like last year. And now if I understand your reporting, they’re ramping back down again, like we’re never going to catch up.
Speaker 2: As you were saying, the housing is this really boom bust market. And I suppose in booms that’s okay, right. Because we’re satisfying a lot of housing demand. But the problem is during the bust. It’s not like housing demand totally falls off a cliff. It’s just the builders aren’t able to build it for the profit margins they want and things like that. Right.
Emily Peck: Yeah.
Speaker 2: Housing is this totally fragmented industry where you you can have developers who sort of spend years or decades planning projects and getting financing for them and getting government approval for them. And then you have all the way down to day laborers who are hired by the hour and to get all those different pieces to kind of, you know, orchestrate together. If you will. Mm hmm. You need a boom.
Speaker 2: Right. And the problem is, when there’s a bust, they all just scatter. The homebuilders stop building housing and then lay off construction workers who, of course, then need to find another job and might go find a completely other industry. So everyone scatters, but they can’t just, like, put it all back together easily. That worker has gone and found another profession and might be doing better there or might live in a different place.
Speaker 2: The architect might have moved on to different kinds of projects. It’s a person who builds lots that homebuilders then build on. They might not have built as many lots because demand was so low. It’s just there’s so many different, longer term things that have to be kind of churning along. And when those slow down, it takes a really long time to start them back up. And so the housing shortage is in many ways kind of a product of how much we under built during these busts in many ways. Our housing shortage isn’t a product of the homes we aren’t building today. It’s all the homes we forgot to build a decade ago.
Emily Peck: When we come back, is there a way to make up for those homes we didn’t build a decade ago?
Emily Peck: There’s a header in my planning document that says, how can this be fixed?
Speaker 2: So that’s the question.
Emily Peck: Yeah, I mean, I mean, reading everything you’ve written and just thinking about this for a long time, like nothing I’ve read really points to a world where this problem gets solved. Like I was on a call with White House officials and they were talking about, you know, what they’re going to do for affordable housing using money that was in the American rescue plan.
Speaker 2: I think I think I was on that call.
Emily Peck: Yeah. And it was like none of it seems. Significant. It just seemed like they’re going to fund, you know, a project here or a project there. But fundamentally, nothing’s nothing’s changing. Like there’s nothing coming. Like, if you think back to the New Deal, the federal government created the suburbs. They created this dilemma they created back then like a housing boom. But I don’t there’s not that’s not coming this time. There’s they’re not going to. Are they is something coming from the government and regulation something.
Speaker 2: So it’s it’s crazy to think about, but we had a crazy housing shortage after World War Two. There were stories of people living in chicken coops. I think in New York, someone a couple famously like lived in like a department store window. What for? For for like a a day to publicize their apartment search. And then, as you sort of pointed out, through a ton of government action, the rate of housing production like exploded. We’re building something like 100,000 homes a year and then it was like a million within like three or four years. So you’re right, there have been times when when we have had, especially relative to the population, insane building booms, the likes of which are just sort of inconceivable in our current industrial structure.
Speaker 2: Where this led me to is that one way or the other and I try not to be ideological about this. Somebody has to backstop the so-called counter-cyclical demand, meaning building homes so when it’s not profitable to do so. And in many other countries, that is a public function. Sometimes it’s a public bank, sometimes it’s just public housing, whatever you want to call it. And so around the country, a lot of people have started. This is really just at the legislative level, kind of revisiting this idea of public housing.
Emily Peck: Once considered the province of lower income Americans. The idea of public housing is getting a new look in some regions like Colorado and California, where state governments are coming up with ways to finance homes for middle income people.
Speaker 2: Obviously, it’s getting rebranded as social housing or it’s there’s a whole bunch of different ways people are talking about it than how we think of public housing. Either way, it’s sort of saying, can the government step in and through either loan programs or just building it themselves, try to keep builders building or just fund nonprofits who would do whatever? There’s all sorts of different ways to do it, but they all sort of amount to how do you keep people employed and keep construction going so that we don’t develop these shortages from downturns?
Speaker 2: I don’t really see another way around it. There are all these things governments do to try to make life easier for. People who can’t afford housing. We have Section eight vouchers and there are rent control at local levels. But all of those measures don’t really do that much if the supply isn’t also being dealt with. If you give a bunch of people who can’t afford a home money to afford a home, and there’s ten of them, and then there’s one home, I guess it’s great that you’ve that that you’ve actually helped those folks. But if there’s still only one home. Nine of them aren’t that much better off.
Emily Peck: For too long, the Federal Government’s been focused on demand, helping people pay for houses, but without much thought about how many houses would actually get built.
Speaker 2: So having a better control over the supply and having some sort of way to be asking the question, not just how much does housing afford, but do we have enough of it? And if we don’t, how do we keep producing it? I think that that’s the question we need to start asking, and we just basically don’t ask that question. Nobody is ever asked that question. They kind of just go, well. There’s a building boom. Great. There’s not a building boom. Well, that’s because nobody wants to buy housing right now. Like, nobody ever goes. Like, how much housing do we need? So someone has to find some way to build those units. And until we start asking that question, how many of those do we need and how do we build them? And if someone won’t do it, what’s going to pay for it as a government or whatever until something like that happens? I just really don’t see. This getting, quote unquote, solved.
Emily Peck: But what do we do when builders don’t want to build homes? The federal government is usually the big mover when it comes to big problems. So I asked Connor, is this something that happens at the national level? Turns out not really.
Speaker 2: The federal government, I should say, has all sorts of power over housing, through the FHA. You know, Fannie, Freddie are technically private companies, but they have this implicit government guarantee and that creates a large market for mortgages. So there are all these like large scale financial things they can do and have done, right? Mm hmm. But when it comes to where is housing going to get built, what is that housing going to look like? Who is going to live there? Meaning, what is the house likely to cost? Is that going to be near a dump or a or a lovely park?
Speaker 2: Right. All those questions are basically adjudicated by city councils and or county governments. Right. And the only people who really have control over them are states. So cities need to either. And this has happened. You know, either decide they want to build more housing. Critique of that view is that developers build housing, cities don’t build housing. But my point is they have to either make it easier to build housing. Right? Or the states, which is what’s happening in California, can just like make them do it. Or they can start writing more liberal zoning laws and more liberal land use laws for them.
Speaker 2: Now, that’s a very controversial move because housing and housing supply has always been has historically been the province of local government. Mm hmm. And if you go to a city council meeting, essentially all they talk about is housing and land use. So when it comes to this question of where are we actually going to build it and what’s it going to look like? I think that is by and large a local question. I think that the federal government can give them a bunch of money. But that’s about it.
Emily Peck: That is extremely discouraging. Hearing you talk about it because it’s a nationwide housing shortage with a fundamental mismatch between private industry and public demand and public good. And the idea that it’s going to get solved on the local level, like city council meeting by city council meeting seems. Improbable.
Speaker 2: Yeah, I go back and forth on this. On the one hand, it would be nice to think that a bunch of people could show up to Congress and. Finally shake hands and cross the aisle or whatever. I’m being silly and optimistic, but. Right. And then say we’ve solved the housing crisis here. We’re going to do it right. On the one hand, that sounds good. On the other hand. I’m not sure it’s necessarily appropriate for like people in Washington to be like writing zoning codes. Don’t get me wrong. That would never really happen. But they could do. I guess you could do incentive things. You can use the power of the purse to to get legislative outcomes you want.
Emily Peck: Any bottom line here, Conner, are we going to see the housing shortage go away in our lifetimes?
Speaker 2: I think it’s up to the next generation. The one thing I’ve noticed and this is pre-dating this pandemic thing we’re talking about and the specifics of the housing market right now is that a lot of younger people have kind of absorbed this idea that we have a housing problem and we need more of it now. Sometimes you’ll see people who are more lefty being like, This is why we need social housing and profit is all bad and blah, blah, blah, blah, blah. And then you will see people who are more libertarian ish and or moderate ish being like, No, this is why we need less regulation. And, you know, we’re making it impossible to build.
Speaker 2: But if you just sort of step away from that argument and go, wow, they’re fundamentally agreeing on this thing, oh, we need to make it much easier to build housing and we need more of it. And the people who say we shouldn’t be building because it will like harm to the neighborhood. They’re like sort of our common enemy. I feel like that shift generationally and this sort of absorbing of that value will turn out to be long term. Very important.
Emily Peck: Connor Doherty, thanks for coming on the show.
Speaker 2: Thank you for having me.
Emily Peck: Connor Doherty writes about housing for The New York Times. And that’s it for our show today. What next? TBD is produced by Anna Phillips and Evan Campbell. Our show is edited by Jonathan Fisher. Joanne Levine is the executive producer for What next? Alicia montgomery is vice president of Audio for Slate.
Emily Peck: TBD is part of the larger what next family TBD is also part of Future Tense, a partnership of Slate, Arizona State University and New America. If you’re a fan of the show, I have a request for you. Become a Slate Plus member. Just head on over to Slate.com. Slash, what next? Plus to sign up. We will be back Sunday with another episode. I’m Emily Peck filling in for lizzie o’leary. Thanks for listening.