Is There an Extremely Simple Fix for Affordable Housing?

SPEAKER_2 (0:02)

Bloomberg Audio Studios, podcasts, radio, news.

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 (0:27)

Obviously, we're a little distracted these days because there is so much news all the time. It doesn't feel like we have much time for sort of classic episodes where we talk about some big idea. But one thing that we had heard a lot over the years, really, is that for the public, when they think about inflation or they think about the cost of living, housing costs are really central to their view.

Tracy Alloway (0:51)

Right, and you see this not just in house prices, but also in rents, right? Everything has gone up since the pandemic, and people don't like it. People don't like it when the cost of housing, shelter goes up.

Joe Weisenthal (1:06)

People don't like when the cost of gasoline goes up. People don't like when the cost of eggs for certain. But I feel like when it comes to the cost of living, everybody must have shelter, basically.

Tracy Alloway (1:18)

It's also a big chunk.

Joe Weisenthal (1:19)

It's a huge chunk of the consumption basket, the consumption of shelter. And we've had prices going up for like, I don't know, 15 years or something like that. Even the rate hikes didn't do much to slow house prices, they slowed other housing activity. But it is a real problem, and it gets to the center of like, what people call the American dream. And we've talked to people over the years with different ideas, you know, Yimby types, they talk about zoning, or people say there should be some sort of more public investment, et cetera. I don't think like we've fully cracked it. And certainly policymakers have yet to solve the problem.

Tracy Alloway (1:55)

Right. Although it is interesting, it's like one of the few bipartisan areas where both sides of the aisle will say that housing supply is an issue and they want to do something to rectify it.

Joe Weisenthal (2:10)

So, coming back to the great financial crisis, do you remember in 2010 or something, or maybe middle of 2009, there were actually some people that proposed raising, destroying empty houses just to get the supply demand imbalanced? What?

Tracy Alloway (2:26)

I don't remember that at all.

Joe Weisenthal (2:28)

This was absolutely a thing. So we were like, well, why don't we just pave over a bunch of existing houses, and then we won't have this glut, and then the prices would keep falling, and then we can, this was a, I'm going to Google this while we're talking, but hopefully no one ever took that seriously. It would be absurd because now we're in an era of housing scarcity. But that was a crazy time.

Tracy Alloway (2:48)

There was a lot of craziness in the 2008 to 2012 era.

Joe Weisenthal (2:55)

One of the things that we know about crises, look, there was all the subprime lending, all that stuff. And so afterwards, there was this big impulse to say, we're never going to allow things to get that crazy again. We're never going to allow people to buy a home with no down payment, no documentation, and terrible credit scores again. Anyway, we're going to be talking to someone whose argument is that we may have overshot.

Tracy Alloway (3:19)

Great, I'm excited.

Joe Weisenthal (3:20)

All right, I'm really psyched. We do have the perfect guest, someone who's writing I've followed for a long time. And the gist of his argument is that we overshot that various post-Great Financial Crisis policy changes in pursuit of bubble avoidance are the cause of our housing shortage today. We're going to be speaking with Kevin Erdmann. He is an affiliated scholar at the Mercatus Institute, and he is the author of the book Building From the Ground Up. He's a great newsletter. Kevin, thank you so much for coming on Odd Lots.

Kevin Erdmann (3:52)

Yeah, thanks for having me.

Joe Weisenthal (3:53)

That's true, right? Weren't there some headlines about bulldozing over houses? I mean, it was like a weird time because there were three things. There was the home price appreciation, there was the amount of housing that was being built, and then there was the liberal lending standards, mortgages to people couldn't afford them, and then there was also the financial engineering around it. There was just a lot going on in those days.

Kevin Erdmann (4:14)

Yeah, and there were people that proposed that green span even. I think in Hank Paulson's book, he mentions that green span sort of half-jokingly mentioned it. But the idea that you would even think of it is crazy. In fact, I actually wrote a post at my Substack recently that Tyler Cowen interviewed Joe Stiglitz very recently, and Joe Stiglitz was still basing his ideas of what happened in the recession on this idea of overbuilding. He talked about there were all these low-quality houses built in Las Vegas that basically were built where nobody would want them, and made some quip that the best thing about them was they were so poorly built that they wouldn't last long or something. And the crazy thing about that is that they're actually, if you look back at the data, there wasn't actually a building boom in Vegas. There was a price bubble, but the rate of homebuilding never actually increased in Vegas during that time.