A Guggenheim Executive's Radical Plan to Build Millions of New Homes

Tracy Alloway (0:02)

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Joe Weisenthal (0:18)

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

Tracy Alloway (0:24)

And I'm Tracy Alloway.

Joe Weisenthal (0:25)

So Tracy, something that we've touched on a few times is the sort of, I guess I would say, perverse situation by which the Fed is raising interest rates in an attempt to get inflation back to target.

And it seems like they're kind of having some success there, and maybe we might begin a cutting cycle. But in the process of raising rates, you constrain supply of housing in particular, which is a big affordability crisis, one of the big long-term upward sources of pressure on prices.

Tracy Alloway (0:57)

Right, so higher rents and house prices are part of the higher inflation story. And one way of dealing with higher prices is to build out supply, right? But if you're raising rates to offset inflation, then building out that supply becomes more expensive and there's more uncertainty and people don't necessarily want to do it. And then just to add to that, against that whole backdrop of inflation, I think it's funny how fast this kind of faded into the background, but we still had that mini banking drama crisis or whatever you want to call it from last year, which did kick off some credit tightening, particularly in commercial real estate and commercial real estate, as we've mentioned a number of times on the podcast, includes multifamily residential.

Joe Weisenthal (1:43)

Right, so there's all this stress and in the short term, it seems like rate hikes have probably had some effect on cooling the economy, but there are long-term costs associated with that. Everybody is aware of this and there does seem to be, according to many economists, this sort of deep structural housing shortage and the effort to fight inflation constrains that. So the question is, is there some solution here? Do we just have to accept that this is the reality?

Tracy Alloway (2:12)

Yeah, I guess the big question is, how do you get people to build more?

Joe Weisenthal (2:15)

Yeah, right.

Tracy Alloway (2:16)

Especially-

Yes. Yes. Especially at a time when there are incentives out there that seem to be working against doing that. So you have the higher interest rates, so maybe now is not the time when you wanna spend a bunch of capital to build something new. Maybe you wanna wait for interest rates to go down. And then also, this is a controversial statement, but I saw you tweeting about it earlier today, Joe.

But I do wonder if you're a property developer and you're building luxury apartments and there's all this question about population density and zoning and things like that, maybe part of the incentive is you don't wanna build that much because you could make money just by constraining the supply and seeing prices go up.

Joe Weisenthal (3:01)

That's right, and there's certainly, the way people talk about it is that if you're a developer and you own land, you have a real option. And you don't have to build the moment you acquire the land and you can wait until stronger conditions.

So it's actually like getting the policy mix right. People focus on zoning and I'm sure that's an aspect and then the housing supply chain and labor and all this stuff. It's a multifaceted challenge to do it, but we need some ideas here about how we're actually going to produce more housing units in this country.

Tracy Alloway (3:35)

Yes, and you mentioned multifaceted. We have the perfect guest to talk about this very multifaceted and nuanced issue of how do you build more multifamily in the US?

Joe Weisenthal (3:46)

That's right. We have truly the perfect guest because he might even, I think he's even going to give us a solution or at least a partial solution to this challenge. We're going to be speaking with Jim Millstein. He is the co-chair currently of Guggenheim Securities.

Previously, he was the Chief Restructuring Officer at the Treasury from 2009 through 2011 So he was dealing with a lot of AIG stuff at the time right in the wake or in the sort of immediate time of the great financial crisis. Previously to that, he was at Lazard. He's also done work on Fannie and Freddy or attempted to look into the challenge of restructuring these big housing banks that we have in this country.

And maybe he can shed some light on possible situations to at least alleviate some of the financing strains of the housing problem. So, Jim, thank you so much for coming on Oddlobs.

Jim Millstein (4:38)

Well, thanks for having me.