Ben Keyes
Appearances
Fresh Air
The Housing Shortage, Explained
But it's also a function of mobility patterns and where we've moved in this country over the last really 50 years. We've been moving into the danger zones. We've been moving into harm's way. The population of Florida has quadrupled since 1970. And when you look at the reports of
Fresh Air
The Housing Shortage, Explained
The insurers and then the reinsurers, which is the industry that insures the insurance companies, they point especially to the larger concentration of residents in risky areas as being the main contributor to rising insurance premiums.
Fresh Air
The Housing Shortage, Explained
Yeah, I think this is one of the challenges where the incentives are especially misaligned. Local governments generally want to have more of a tax base. They want to see more properties in their municipality. And that means that they're willing to allow development on swamps and marshes and rivers. and other sorts of risky areas. You see the development into the wildfire risky areas.
Fresh Air
The Housing Shortage, Explained
So I think that there's some misaligned incentives at a municipal level. What you then have at the state level is potentially more room for some discipline there to impose tighter rules and restrictions. But at the end of the day, we're operating in a world of a housing shortage. And so anything that we do to raise housing costs is going to be unpopular.
Fresh Air
The Housing Shortage, Explained
That's right. I mean, I think we can characterize the current state of the housing market as being deeply unaffordable. That's a very expensive market right now. High home prices and high interest rates making entering the housing market or moving up the property ladder very challenging. And I think you can trace back
Fresh Air
The Housing Shortage, Explained
And restricting the areas where people can build and increasing the material quality that they're going to use is going to raise those costs even further. And so that's the tension that we're facing right now in the context of the housing shortage makes all these issues unbearable.
Fresh Air
The Housing Shortage, Explained
There's one bright spot on making these climate-related adaptations that I think is going to be a model for a lot of places, and this is Alabama's efforts to fortify the roofs in hurricane-exposed parts of the state.
Fresh Air
The Housing Shortage, Explained
Um, there's been a large program in Alabama to, um, provide grants, uh, at the state level, um, and a recognition that, um, you know, doing this ex ante is far cheaper, um, than replacing all of these roofs ex post. And so, um, providing grants to, um, help homeowners afford upgrading the quality of their roofs. It's been supported by the insurance industry.
Fresh Air
The Housing Shortage, Explained
Uh, they offer discounts on, uh, on the insurance premiums thereafter. If you've If you've gone through this fortification process. And so I think there's a number of these pilot programs, which are still, for the most part, quite small, but are quite successful. And I think we're going to see more of these play out across the country. You know, insurance markets are regulated at the state level.
Fresh Air
The Housing Shortage, Explained
And so that sort of creates those 50 different laboratories that we hear so much about for different states to be able to try out new and different things.
Fresh Air
The Housing Shortage, Explained
I think some of these will have true impact. I think they are big enough potentially to create enough units to make housing first be a major element of a reduction in homelessness. And certainly, the Biden administration has tried to align efforts at a number of different levels. One of the challenges with homelessness is that it is ultimately a very local problem. because people are mobile.
Fresh Air
The Housing Shortage, Explained
some of these issues back to the financial crisis of 2008, where we saw a collapse in construction. And so we just stopped building houses. We stopped building apartments for a few years there. And an even longer, I would say, structural change in our ability to build and our willingness to build. And so those two factors have really driven a shortage of housing. And now we're seeing estimates of
Fresh Air
The Housing Shortage, Explained
And so they're going to move around to locations where they're going to find a better quality of life. And what form that takes for those on the streets might be quite different. But this is one of the challenges why you need sort of state and federal coordination. You can't simply have programs that are a one-off program in one city.
Fresh Air
The Housing Shortage, Explained
And so seeing things that are more broad-based is an important challenge. element of this, I think it fits into a broader network of support that needs to be provided, whether that's drug treatment, whether that's mental illness help, whether that's just related to food insecurity and job training and other needs.
Fresh Air
The Housing Shortage, Explained
But in terms of what we've seen in the homelessness space, housing comes first and solving that problem first seems to be the way in which better solutions follow.
Fresh Air
The Housing Shortage, Explained
Yeah, Minneapolis reacted responsibly to a local housing crisis. They were seeing this lack of affordability and a lack of units, and they took meaningful steps to make it easier to build in the city of Minneapolis. And I think this is something that is going to be used as a model soon. around the country. We're hearing from a number of cities that they're looking into this in much more detail.
Fresh Air
The Housing Shortage, Explained
Again, this isn't about building skyscrapers on every corner. It's about sensible densification, especially around transit, where we can reduce dependence on cars. And so this is relaxing single family zoning and lot sizes. So allowing for things like duplexes or four-unit, very small multifamily developments.
Fresh Air
The Housing Shortage, Explained
This is related to parking requirements and some of the other things that might be required in an apartment building that take up a lot of additional space where units would otherwise be useful. So there's a number of things along those lines that I think when combined with transit-oriented development, so developing near where public transit is available,
Fresh Air
The Housing Shortage, Explained
can greatly relax some of these affordability constraints. And we've seen this play out in Minneapolis already. And it's an early stage because building takes time. Acquiring land, acquiring financing, and actually getting the buildings built is very time consuming. And so I think we're still in the very early days of measuring the consequences in a city like Minneapolis.
Fresh Air
The Housing Shortage, Explained
But thus far, we've seen prices grow more slowly in Minneapolis than in many other cities. And I think that that is something that we should keep a close eye on and potentially think of those steps as a model for other local governments who say, we want to do something about this that isn't necessarily drastic.
Fresh Air
The Housing Shortage, Explained
It's not going to change the fabric of our city or the culture of our city, but it's going to allow more development to happen, bring more people into our cities and allow them to afford living there so that they're not simply fleeing to less expensive markets.
Fresh Air
The Housing Shortage, Explained
It's huge. It's huge. I think we see a lot of people who move into a neighborhood and then refuse to think about how their house was built. So at some point, your home was built in that neighborhood. And it's sort of this idea that, well, the current number of houses in our community is the exact right number, even as our nation's population grows and grows. And so I think there's a tension there.
Fresh Air
The Housing Shortage, Explained
Now, some of the concerns and complaints are quite valid when we think about traffic, when we think about congestion, when we think about scarce numbers of seats in the local public school. Those are all reasonable concerns, but they're solvable problems. You know, when you look at the nimbyism movement. You know, one of the challenges is related to who has voice in our communities.
Fresh Air
The Housing Shortage, Explained
as much as 4 million houses that were short, if you think about where we need to be as a growing population and growing household formation.
Fresh Air
The Housing Shortage, Explained
And when you look at the zoning meetings where these proposals are discussed, they're often held early in the evening on a weeknight when people with young families can't necessarily attend. And when the only attendees are those who currently live in the community, not those who would benefit by moving into the community. And so, you know, there's a real tension there.
Fresh Air
The Housing Shortage, Explained
And I think we've seen over the last few years a softening of those positions, a recognition that it's not just about my house, but about my children's houses and my grandchildren's houses and where they're going to live. We're seeing these initiatives in a number of different cities and even states passing now. That is, are seeking to override some of the strongest, nimbiest urges.
Fresh Air
The Housing Shortage, Explained
And you can see where they're coming from. But in the long run, that type of position just isn't tenable as a nation if we are going to address the affordability crisis.
Fresh Air
The Housing Shortage, Explained
Well, we have to be excited about what's happening in New York City, which just recently – is dedicating itself to adding 500,000 units over the next 10 years. It's an incredibly ambitious goal. New York hasn't built like that since the 1960s, but in many ways, that's what we need.
Fresh Air
The Housing Shortage, Explained
We need a return to a period where people are comfortable with the messiness of construction happening around them as we find ways to accommodate so many missing housing units. So I'm excited about that plan. I want to see it move forward into some more specifics, but I think there is a renewed support for development.
Fresh Air
The Housing Shortage, Explained
And this is growing out of a movement, a recognition that is a long time coming. And so I think where we see some bright spots is the fact that city governments that are in many cases the critical choke point for development, looking for ways to cut red tape, to improve their zoning code, to make life simpler for developers, and ultimately get units built.
Fresh Air
The Housing Shortage, Explained
And so I'm excited to see what happens in New York. And that will be a test case going forward if they can hit that ambitious target.
Fresh Air
The Housing Shortage, Explained
Yeah, the silver tsunami sort of sounds like a low-budget Marvel superhero. I think generally in the housing market, things move quite slowly. And so what we're talking about is a generation essentially turning over its housing to the next generation. And that's unlikely to cause a flood of housing or
Fresh Air
The Housing Shortage, Explained
or some dramatic glut of housing, I think ultimately it comes back to the question of, are the houses near where the jobs are? And if the houses are near where the jobs are, then that can be very desirable and would be something that would relax some of the pressure on these high-cost markets.
Fresh Air
The Housing Shortage, Explained
But when you look into the data, and Zillow had a nice report on this recently, a lot of those mismatched houses where you have older homeowners with a lot of extra bedrooms, a lot of those are located in in some of the Rust Belt cities, your Detroit's and your Buffalo's and cities like that. And so that's not necessarily where the jobs are being created.
Fresh Air
The Housing Shortage, Explained
And so what you need to find is that kind of alignment. I think there's also sort of a taste alignment that, you know, we'll see how that plays out. If younger generations are interested in the same McMansions in the suburbs and the exurbs, or if, you know, now that they've spent more time living in
Fresh Air
The Housing Shortage, Explained
It is a bit of a puzzle, right? I think we can separate out the factors into three main areas. One is the high cost of materials and labor. And we've seen an inflationary episode where we have a very high cost of building materials. We are also in a very tight labor market. So there are not a lot of you know, laborers who are available to build. So that's one category.
Fresh Air
The Housing Shortage, Explained
In denser environments because they can't afford to move into the suburbs, whether they're now looking for those townhome row home experiences. And so I think there may be a question there about tastes as well. So I think it is going to be a very gradual process. I don't expect anything like like a tsunami. I think it's going to be a much more gradual process.
Fresh Air
The Housing Shortage, Explained
process where homes will be passed down over time. The other thing that happens when homeowners age in places is they tend to cut back on the upgrades and the repairs to the house. Usually much older homeowners are not the ones who are upgrading the kitchens and renovating the spaces.
Fresh Air
The Housing Shortage, Explained
And so there's often some large fixed costs that are necessary to bring those properties up to the level of the neighborhood. And so I think that's one more way in which this isn't going to be an immediate solution. That said, there are a lot of people who will ultimately move into those homes.
Fresh Air
The Housing Shortage, Explained
And so, you know, there's going to be a process where we'll see that generation turn over their homeownership stake to a younger generation. And that is going to create opportunities.
Fresh Air
The Housing Shortage, Explained
I think you've captured it well. Detroit's a city that was declining for basically 50 years, a really prolonged period of losing population. And that's very challenging for the built environment. You have a street grid. You have houses built everywhere. that are not able to be moved.
Fresh Air
The Housing Shortage, Explained
And so as the population of a community shrinks, you are then faced with all of the challenges of urban decline, where you're trying to right size the city, right size the services that are provided, which schools should stay open, all these kinds of challenges. And, you know, in that case, the housing market adjusts
Fresh Air
The Housing Shortage, Explained
At the speed of depreciation, it adjusted the speed at which these properties ultimately lose their value and reach that kind of floor of, you know, please take this property off of our hands. At this point, we are seeing some of these upticks, as you're describing, in rent growth. We're seeing a resurgence in a number of different ways. We're seeing jobs drop.
Fresh Air
The Housing Shortage, Explained
Returning to Detroit in certain ways. At the same time, the land bank in Detroit, so the city government, owns about 20% of all of the parcels in the city of Detroit. And so what that means is they're taking these parcels off the market. And at some point, there will be opportunities to redeploy those parcels for sale and for development.
Fresh Air
The Housing Shortage, Explained
You alluded to the sort of investor strategy in a place like Detroit. That would have been a very poor strategy for a very long time as you had to wait decades in many cases for some of these neighborhoods to turn around. And some neighborhoods still have not turned around or are now much depopulated relative to to where they were before.
Fresh Air
The Housing Shortage, Explained
And so as an investment strategy, you're really looking for that type of upswing where you're buying low and selling high. And I think then that there are going to be those targets of opportunity where you have neighborhoods that sort of meet that profile, where there's potentially some job growth there.
Fresh Air
The Housing Shortage, Explained
Potentially you're near a good school district or near public transportation that's going to get you where you want to go. So I think that's where those opportunities come up. And that's usually a sign of a community where there's at least the potential for some upswing.
Fresh Air
The Housing Shortage, Explained
No, it doesn't. But if we take a step back and we think about the state of the housing market, in a sense, we've traded stability for a lack of affordability. And so what we've done in the housing market by underbuilding housing, we've kept supply scarce, and that's increased housing values. We've also, during the recent COVID period, kept people in their homes.
Fresh Air
The Housing Shortage, Explained
Another category is related to financing. It is very challenging to finance many of these large building projects. And it's not always as easy as it might seem to obtain financing, especially multifamily financing. So building apartment buildings, the financing there is quite challenging.
Fresh Air
The Housing Shortage, Explained
We avoided having the foreclosure crisis that we went through earlier. during the global financial crisis. And in doing so, what we've done is we've allowed a great deal of home equity to build up for the baby boomer generation, for older homeowners who own their homes. Many of them own their homes outright with no mortgage attached.
Fresh Air
The Housing Shortage, Explained
And just looking at the numbers, there's an enormous amount of housing wealth that we've built up In the US, we have about $35 trillion in home equity in the United States. And that is disproportionately held by older homeowners who have owned the homes a much longer period of time. And so for those groups, the house represents, in many cases, their largest asset.
Fresh Air
The Housing Shortage, Explained
And that is a great success story for those generations. And it's provided a great deal of economic stability for older families. But it comes at a price. And it comes at the price of affordability and access for the younger generations.
Fresh Air
The Housing Shortage, Explained
So first, do your homework and figure out the cost of housing in the market that you're looking in, both for owning and for renting. I think it makes a lot of sense to continue to rent in markets where prices are high and interest rates are high.
Fresh Air
The Housing Shortage, Explained
In many cases right now, you'd be better off putting your savings into something that's delivering a safe, predictable return that might be more safe and predictable than returns on housing. So from an investment standpoint. Investing elsewhere is very sensible.
Fresh Air
The Housing Shortage, Explained
And then I think as you're approaching the decision to buy a house, think long term because there are large fixed costs to buying a house in terms of transaction taxes, in terms of broker fees, title insurance and other costs. That need to be rolled into that cost when you're doing an apples to apples comparison. The right comparison isn't just comparing the mortgage payment to the monthly rent.
Fresh Air
The Housing Shortage, Explained
And then on top of that, there's a challenge with rising insurance costs and property taxes. And so you need to take a view on, can I afford the property insurance? flood insurance, wind insurance, other supplemental insurance policies in a few years when those may be more expensive than they are today. So I think it takes a more careful budgeting approach than we've seen in the past.
Fresh Air
The Housing Shortage, Explained
And in many of those cases, my sense is that that's going to come out on the rental side of the ledger rather than owning given our current affordability crisis.
Fresh Air
The Housing Shortage, Explained
And then the third is related to zoning and land use restrictions and other policies that create a lot of hoops to jump through and make it challenging for developers who would like to build, you know, build at the scale where they would like to build.
Fresh Air
The Housing Shortage, Explained
And so each of those three factors, financing, construction, and zoning are all putting downward pressure on the ability to create more houses and more housing units where people would like to live.
Fresh Air
The Housing Shortage, Explained
Yeah, well, I think this ties back to one of the fundamental misunderstandings of how tariffs work. But basically, if we're going to raise the costs of construction materials, that's going to raise the cost of building a home. Now, a lot of the materials that are used for construction are domestic.
Fresh Air
The Housing Shortage, Explained
So we do have a lot of those in the U.S., but we also import a number of construction materials like lumber for things that would be covered under NAFTA from Canada. But the simple math is that if we are going to impose additional tariffs on building materials, it's going to be more expensive to build rather than less expensive to build.
Fresh Air
The Housing Shortage, Explained
So that's going to only make the affordability problem worse.
Fresh Air
The Housing Shortage, Explained
Well, first, I think the impact of a policy like that would have impacts that are so devastating to many communities in the country that the effects on housing affordability feels second order or even third order. But I don't think that there is a strong connection between this idea of removing immigrants from our country and making housing more affordable.
Fresh Air
The Housing Shortage, Explained
And there's a couple of reasons for this. One is... that immigrants and undocumented immigrants make up a large fraction of the construction workforce. So it's been estimated by Pew that 14% of the construction workforce are undocumented immigrants. And so it is going to make labor costs more expensive to build, and that's going to drive up the cost of housing.
Fresh Air
The Housing Shortage, Explained
The trade-off there from a housing market standpoint, we're talking about this in a very narrow sense, is that there will be fewer people in this sort of numbers game of supply and demand. But if we think about the types of housing that immigrants and undocumented immigrants tend to locate in, they tend to be renters and they tend to locate in low-income neighborhoods.
Fresh Air
The Housing Shortage, Explained
Now, of course, that's not uniformly true, but that's where they are concentrated. And so if we're thinking about the high cost of homeownership, Removing undocumented immigrants from the pool of potential homebuyers is simply not going to move the needle on affordability.
Fresh Air
The Housing Shortage, Explained
As we're thinking about the big picture, this incoming administration has sort of framed tariffs and removing immigrants as a panacea for all of our problems. And neither of those things are going to make a dent into our housing affordability crisis.
Fresh Air
The Housing Shortage, Explained
So I think there's two pieces where we might see some headway. One is related to federal land that's in urban areas. That's already where the jobs are and where we already have high demand. So one example of this is an assessment that the Biden administration did with the U.S. Postal Service and looking at the location of post offices, whether there's additional space available.
Fresh Air
The Housing Shortage, Explained
for redeveloping some of those spaces, right? Why have a one-story post office when you could have a five-story post office with four stories of apartment units up above? And so that's been an initiative that's going on. There is federal land in cities. There are a number of federal buildings. And the USPS is one that has quite a large footprint.
Fresh Air
The Housing Shortage, Explained
When we're thinking about this federal land out west, I'm pretty skeptical that we're going to see cities spring up out of whole cloth. That just takes an enormous amount of coordination and effort, and it would need a significant amount of private buy-in to locate firms there. You could potentially see those having some uses for energy generation, so solar farms, wind farms,
Fresh Air
The Housing Shortage, Explained
other kinds of things that do require that space and where there may be more desirability out west. And so thinking about ways to encourage our energy transition on that federal land seems promising. But as a solution to our affordability crisis, I just don't see it.
Fresh Air
The Housing Shortage, Explained
Yeah, it's a fun one. And I think the nice thing about that is When you start walking around cities, when you put on your housing hat and you think about where could more people live, you start to see opportunities everywhere. You see buildings that are small for their space. You see areas with big side yards. You see old office buildings that could be converted to residential.
Fresh Air
The Housing Shortage, Explained
And so when you put those glasses on of how do we reach housing abundance, in these places where the jobs are located, you start to see opportunities everywhere.
Fresh Air
The Housing Shortage, Explained
Yeah, there's a neat example of this. It's not housing necessarily, but in West Philly near Penn's campus, there's a McDonald's on the corner. And they basically tore down the McDonald's. That was a one-story traditional McDonald's with the usual McDonald's roof and everything. Difficult to put apartments or additional use up above that. Well, they tore that McDonald's down.
Fresh Air
The Housing Shortage, Explained
And now there's a building there with McDonald's on the first floor. And so the McDonald's has returned. The retail is still present. But now we're using the space above the McDonald's more efficiently. smart opportunities that we're going to need to see happen at a scale we haven't operated at in decades.
Fresh Air
The Housing Shortage, Explained
Yeah, you hit the nail on the head. Certainly, we've seen this kind of development in a place like Tokyo, which has kept housing relatively affordable by building intensively in the city. And that has required... A forcefulness that we are not comfortable with in the U.S.
Fresh Air
The Housing Shortage, Explained
in many cases when it comes to having community oversight over what gets built, a zoning code that requires a lot of hoops to jump through. And so there are a number of ways in which a city like Tokyo has cut the red tape. and recognize that some historic buildings can coexist next to large apartment towers.
Fresh Air
The Housing Shortage, Explained
And so I think that's maybe an extreme example where the pendulum has swung in the direction of development, but we just need to loosen the gears. And so looking to a city like Tokyo as an example is potentially a promising one.
Fresh Air
The Housing Shortage, Explained
Well, we know that the president can't affect mortgage rates, but I'm not sure that he knows that the president can't affect mortgage rates. This is something that is very challenging for the executive office to influence. Mortgage rates are set usually off of the 10-year treasury rate, and the 10-year treasury rate is determined by the bond market. It's determined by the willingness of...
Fresh Air
The Housing Shortage, Explained
long-term bondholders to demand a certain return in exchange for the bond. Part of the reason that we're seeing high mortgage rates is a high 10-year treasury rate. And that's because those bond investors are anticipating inflation. They're anticipating that this new administration is going to keep the Tax Cuts and Jobs Act in place. That's going to continue to worsen our federal deficit.
Fresh Air
The Housing Shortage, Explained
That there's probably more and bigger tax cuts on the horizon. And that the tariff policies that have been proposed would likely be inflationary. And so, you know, it's largely inflation expectations over a longer time horizon that are driving that 10-year treasury rate and ultimately driving the mortgage rate.
Fresh Air
The Housing Shortage, Explained
And so because mortgages are these very long-duration products, the president has very little scope for directly influencing mortgage rates. And when we think about the policies that they could implement, keeping inflation down and having a very disciplined fiscal policy is probably the main thing that they could do directly.
Fresh Air
The Housing Shortage, Explained
I think there's a very direct line to be drawn between rising climate risks and the costs of homeownership in the form of property insurance. And property insurance to me is the most direct way where we're seeing the effects of climate change on Americans' pocketbooks. And in just the last three years, 2020 to 2023, my research with Phil Mulder has shown that
Fresh Air
The Housing Shortage, Explained
That property insurance has gone up by over 33% on average in the U.S. and over 50% in the areas of the country most exposed to climate risk. And so property insurance, over 50% in the riskiest zip codes.
Fresh Air
The Housing Shortage, Explained
And that's, you know, the places that might come to mind are places like Florida and the Gulf Coast, wildfire zones in California, but also some surprises like parts of Oklahoma where they're hit with a lot of hailstorms and tornadoes. And there we've seen big run-ups in property insurance costs.
Fresh Air
The Housing Shortage, Explained
And so what this has done is it's made the sort of predictability of homeownership a little bit less predictable. Yeah. And usually when you think of buying a house, you say, well, I'm kind of locking in my costs. I'm taking on a fixed rate mortgage and I have a predictable path of my expenses. And what's happening in property insurance markets is unraveling that.
Fresh Air
The Housing Shortage, Explained
And we're seeing these big increases. And I worry a lot for homeowners who had bought on a fixed income or were sort of constrained in how much they could afford. And now they're seeing their insurance costs rise sharply. And so this is a reflection of climate change and our changing climate, which is inducing more frequent and more severe disasters.