A County in Maryland Came up With a New Way of Building Affordable Homes

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:16)

And I'm Tracy Alloway.

Joe Weisenthal (0:17)

Tracy, let's do another housing episode.

Tracy Alloway (0:20)

Why not? Let's do it.

Joe Weisenthal (0:21)

No, you know, I think I've said it before to you. I don't know if I've said it like on the show. One thing I like about housing episodes is like, no matter what, it is just like this permanent source of anxiety for everyone.

Tracy Alloway (0:33)

Well, everyone has an opinion on it.

Joe Weisenthal (0:35)

Yeah, and where everyone was born to short housing, you know, they need to cover their housing short at some point, and if you have, you know, if you don't have a house, you're anxious about rent and house prices going up.

If you have a house that you own, you might be anxious about it going down, et cetera. Like there's just, there will never be an era of any market in which I don't think like some people are like anxious about housing in one way or another.

Tracy Alloway (0:55)

Well, okay, so housing is a perennial source of interest for sure, but I also think we're kind of in this unusual moment for housing as well, because no one, as we've discussed on multiple episodes at this point, no one is quite sure what's going to happen to the market. And there's been this discussion of perpetual supply shortages of housing. But at the same time, there's this discussion of as interest rates go up, whether or not we're going to start to see an impact on prices. It just feels like there's a lot of uncertainty at the moment combined with these sort of long-term structural issues.

Joe Weisenthal (1:28)

Totally, and it feels like there's something, you said structural, and it feels like one particular structural flaw in sort of the way we do housing development in this country, which is that, and we see it right now, which is that the Fed has been trying to fight inflation, cool things down, a big source of inflation over the last few years have been rent prices, so you want to get down rent, so you raise interest rates and hopefully that cools things down, and maybe that works, maybe it doesn't. But one effect that seems to have is it seems to impair the supply side as well.

Tracy Alloway (2:00)

Right.

Joe Weisenthal (2:01)

And then you're like, okay, maybe in the short run, you cool things down and rents go down a little bit, but you actually set yourself back, it would seem, in the long term goal of having affordable housing abundance.

Tracy Alloway (2:12)

Yes, so I remember Jerome Powell specifically said that they wanted to bring house prices down. Well, I don't know if he explicitly said that, but you know, something along those lines. They wanted to impact the housing market, bring prices down in order to bring inflation down, which makes a lot of sense. But on the other hand, people want affordable housing for obvious reasons. And if you're sort of crushing that market, you can imagine a lot of people are gonna be upset.

Joe Weisenthal (2:38)

Right, there was a question to Powell. It was sometime early this year, maybe last year. I think it must have been last year. And someone was like, oh, what would you say to someone who wants to buy a house and they see mortgage rates shooting up?

And he's like, well, yeah, it's tough, but then we'll cool things down and then things will be better. But all that's really happened is prices are still really high, supply is impaired, rates are up. So housing affordability is basically the worst level in like five decades, or maybe ever.

So clearly-

Tracy Alloway (3:04)

No, I think on record, according to Jim Egan over at Morgan Stanley.

Joe Weisenthal (3:09)

Yeah, yeah, I think you're right. And so then the question is like, what are we doing here? Do we need a different model of housing development beyond what we have in the country right now, where we have like developers and home builders sort of fluctuating how much they build based on various market conditions?

Tracy Alloway (3:23)

Well, absolutely. And I think historically, there have been sort of two dominant ways of tackling the affordability problem in the US housing market. And it's either we build more houses, more supply, which as you just pointed out, can be difficult in the current interest rate environment. And even if we do build more housing, because developers are a savvy bunch, they tend to build more expensive houses for people who are going to pay a higher price so that developers can make more money.