The Homeownership Puzzle

I was listening to The Ezra Klein Show the other day where he was speaking to Representative Jake Auchincloss of Massachusetts about some of his ideas Democrats should discuss if they want to win majorities at the federal level, including the presidency. He has some interesting thoughts on what it would take for Dems to win back voters on economic issues. But the big one is housing. Specifically, home ownership.

We’re still in a once-bitten, twice-shy post-Great Recession stage when it comes to housing. It’s clear from the price of homes on the market, there’s a shortage of supply. We have simply not built enough housing stock so the prices of real estate are more affordable to more people. The last time we attempted that, it was rife with fraud. So much so, that it crashed the economy and threw a lot of folks out of work — including me.

But housing isn’t a one-size-fits-all thing. When politicians talk about building more housing, they are talking about apartments, single-family homes, condos, and townhomes.

But what about your average person? What do they think when they hear the term “housing?” Is it home ownership or renting? Because with home ownership, you have a chance to build wealth — or fall into foreclosure if you miss too many mortgage or tax payments. With renting you’re paying someone else’s mortgage in exchange for a tenuous housing situation that is subject to yearly rent increases — or the threat of eviction.

What I sketched above stands in contrast to the dream of homeownership. That dream is premised on stable economies, jobs that pay enough to afford rent or mortgage payments, and neighborhoods that feel safe and secure. None of that is a guarantee in our capitalist economy. People lose jobs, families split, neighbors are hostile to one another, and, soon you see decline and desperation creep into communities, cities, and whole regions. Controlling those wild swings in economies is the job of the fed and politicians. Neither of these folks are well-liked or trusted by voters. How do you reverse that decline in trust? For politicians, it can be as simple as delivering positive outcomes to their constituents. Ezra Klein and Jake Auchincloss both agree that politicians aren’t doing enough big stuff for voters to feel like the system is working for them. One idea is to get states like California and Massachusetts to build more cities. And not smallish projects. Big ones. Like enough housing to accommodate 20,000-30,000 people. Cities that don’t require people to commute, where the housing isn’t built like it has been since the 20th century, but rather using current construction methods like modular homes (versus so-called “stick-built”). Using a modular method (where the homes are largely built in factories and shipped to a property), construction times decrease. This is not a frictionless process, though. Trade unions can be largely excluded from the process since it would mean factories would have to have collective bargaining agreements with unions — and what capitalist wants that? Too much zero-sum thinking means ditching radical ideals like making sure that union folks who build these homes can also afford to buy one. And, just for the record, you know that I’m being facetious with this being a radical idea.

But back to the Klein and Auchincloss Show…

At one point in the episode, Auchincloss made this unexamined comment that begs for a deeper analysis:

We go out there, and we say two things simultaneously. We say: Boy, we need more affordable housing — housing should be cheaper. And then we say: You should build wealth by owning a home.

Well, which is it? Because the two things can’t be true at the same time. You can’t have housing be a commodity that declines as a share of wallet over time and have housing be an asset that you expect to appreciate over time.

Is that accurate? Have these guys never heard of the term “starter home?” For a few generations in the U.S. people were able to buy their first home for a relatively low price, live in them for 5-7 years, sell them, and trade up. Yes, these starter homeowners build wealth. Not at the rates of say Californians — who have become accustomed to ungodly prices for real estate — but at a rate that doesn’t shut out the next group of potential homebuyers. It means that the starter home market doesn’t appreciate as fast as it does for other tiers. It also means that home builders have to get back into the business of selling starter homes at a rate akin to the post-World War II period. That’s where you can strike a better balance between accumulating wealth and maintaining affordability.

If this was impossible, we would not have seen this dynamic play out for several decades. It’s only because we have a system of interest groups that don’t want to budge in terms of their business models. Banks, builders, land owners, trade workers, politicians, NIMBYs, realtors, and the like are dug in (ha!). The only way to disrupt this kind of gridlock we’re experiencing is for Dems to take big swings with housing — like building new cities. If a state government takes the initial risk, the other interests will want in on the action. Cities did this for tech by giving them tax credits and special loans. Hey, Tesla got one from the Department of Energy back in the day. Twitter, and other tech firms, got tax breaks in San Francisco. And let’s not forget that Section 230 of the Communications Decency Act protects online platforms from being held legally liable for third-party content. These were all choices made in political systems. Politicians were rewarded with gobs of money for their campaigns, and tech bros played along like they were small d democrats, until their wallets fattened to the point that they started believing they were fascist gods.

What this shows is that people have power. You make consistent demands from the system, vote people in who can deliver on those demands, and the next thing you know, you have the government doing things to help folks get into homes. It sounds simple, but it’s not. It takes being tenacious and not falling into the divide-and-conquer strategy that many with wealth and power use as socioeconomic and political wedges. Okay, that’s the politics of it. Why have starter homes started to go the way of the dinosaur? Well, have a look at this CNBC video and it kind of explains how we got into this mess: