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Why Is Housing So Expensive? Transcript
Jessica Dill: Good morning, everyone. We are having a little bit of technical difficulties with Scott Frame, so I'm going to pretend to be Scott Frame as we start. I'm Jessica Dill. I am the director of the Center for Housing and Policy at the Federal Reserve Bank of Atlanta. I'm very happy to welcome you here today to a fireside chat that will address a very timely topic: why is housing so expensive?
We have two very distinguished speakers with us this morning, each of whom have devoted a considerable part of their career to researching housing and economic development. Our first speaker is Federal Reserve Bank of Atlanta president and CEO Raphael Bostic, who will lead the conversation. Dr. Bostic came to the Atlanta Fed in 2017 and previously was the Judith and John Bedrosian Chair in Governance and the Public Enterprise at the Sol Price School of Public Policy at the University of Southern California.
That was a mouthful, Raphael. His articles and peer-reviewed academic journals over his career cover topics such as homeownership, housing finance, neighborhood change, and the role of institutions in shaping policy effectiveness. Joining President Bostic this morning is Professor Edward Glaeser, who is the Fred and Eleanor Glimp Professor of Economics and the chairman of the Department of Economics at Harvard University. Professor Glaeser is a prolific scholar having written over 200 papers on cities, housing, infrastructure, and economic institutions.
He's also the author or co-author on several books including his most recent book Survival of the City, which was published by Penguin Press earlier this year. Before turning things over to President Bostic, I do want to mention that we will earmark roughly 15 to 20 minutes at the end of the conversation for audience questions, so feel free to submit those questions via the Q&A portal in your Zoom app. Without further ado, Raphael, please take it over.
Raphael Bostic: Well, thank you, Jessica, and you did a fine job filling in for Scott. I'm sure we will keep you on the roster for future opportunities to do that if it's called upon. My title at USC is one of the longest titles you're ever going to see, so don't sweat it; you did a fine job with that as well.
Good morning, everyone. It's really good to see you all. I'm glad that you're able to join us for this conversation. I'm really excited to be able to talk with Professor Ed Glaeser. I've known Ed for many years now and he has been just a great thought leader in terms of urban economics, in terms of housing, and in terms of how economies evolve over time. I want to make sure that throughout the conversation, we touch on a bunch of that stuff. We'll focus certainly on housing. But first, I just want to say welcome, Ed, it's really good to have you with us.
Edward Glaeser: Oh, it's great to be here with you as well, Raphael. Thank you so much for talking to me.
Bostic: Very good. Let's just jump into this. I thought what I would do is just start with the current environment and the current context around COVID-19 and the pandemic. I wanted to get your thoughts on what you think the pandemic has meant and done for housing markets in the housing landscape over the last two years. How has it affected and changed things?
Glaeser: It's a great question, and I'm not sure we even know the full answer because it has been such a fragmenting force on housing markets. It's made it more difficult to sell; it's made it more difficult to buy. I'll tell you what I think I know from the facts. We know that in general, housing prices have gone up sharply across the country. Whatever affordability crisis you thought we had in 2019, it has only gotten worse. We know that there has been a bit of a leveling, in the sense that between 1996 and, let's say 2016, there was a shift of housing prices towards the city centers. Urban cores did better than urban peripheries.
During the pandemic, for understandable reasons, people were afraid of the high densities, wanted their own private space, so there was a leveling where prices particularly went up on the urban edge. It has been less disruptive of new construction than I would have thought, but as you know I certainly have the view that America needs to be building more particularly in its most productive metropolitan areas. I think we still haven't seen fully what the pandemic will do. I mean, I think we're still at a moment which we're sorting this thing out.
Bostic: When you mentioned the leveling and we've seen that here in the Southeast, in the Sixth District, where a lot of workers have just said if I can work remotely, let me go live somewhere else. Let me go to another smaller community that's maybe less crowded, maybe has a lower cost of living, and we'll see if that shakes out. I'm curious as to whether you have a prediction about whether you think that the broadening and the spreading out of the workforce and firms is likely to continue so we'll get to see more balanced and equilibrated housing markets across metro areas. Or do you really think, there's been a lot of discussion about cities and superstar cities, and how does this all play out?
Glaeser: It's a great question and I'm not sure, partially because there are multiple forces at play. One force, as you said, is a certain amount of leveling between, let's say, Silicon Valley and Austin, or between Silicon Valley and Houston. The second force of the Zoom economy is that it's become easier to live on the absolute edges of Silicon Valley and just come in two days a week.
In some sense, that has increased the catchment area of our greatest metropolitan areas like Atlanta, so I see these two forces battling against each other. My own view is that this is unlikely to be some sort of a death knell for our most productive metropolitan areas. Even if commercial real estate prices were to drop 15 to 20 percent, that would just be pushing back 10 or 15 years, and I'm not arguing that that will occur. As long as prices remain to equilibrate the market, office buildings will get filled. Not right away, perhaps, not as long as people are afraid of Omicron or further variants, but I have enough faith in the functioning of real estate markets that I think the space will eventually be occupied or potentially reused.
In Boston, we're in the midst of a great real estate boom, commercial real estate, because of the conversion of offices into labs. There's so much demand for lab space that we're moving from one to the other. I think the one area where I feel fairly confident is this has got to be a boon for those smaller and midsize cities that were good at attracting highly skilled people beforehand. If you have a really high quality of life, if you're a place whether it's Austin, Texas, or Vail that was a sort of mecca for the skilled, that's got to be attractive for startups who are going to say let's relocate away from Silicon Valley. I don't think this is any kind of a salvation for former Rust Belt towns that were never any good at attracting skilled people beforehand. I don't see why they're going to relocate to these places. Now cheap housing is just not enough in the US.
And remember, as you know quite well, that the Zoom revolution was a very uneven event. In May 2020, which was the high point of America Zooming, 68.9 percent of Americans with advanced degrees were teleworking, 5 percent of high school dropouts, 15 percent of people who only had high school degrees. We need to remember that this is a very elite phenomenon and likely to impact what elites do but much less likely to impact what ordinary people do.
Bostic: That's actually a very interesting observation. Listening to you reminded me of a book that James Fallows wrote just several years ago where he was trying to understand what makes those midsize cities that were successfully growing. I think about places like Greenville, South Carolina, and places in the Central Valley, for example, where we saw significant growth, like Fresno and Merced.
Thinking about research and a research agenda, it'd be interesting to see if there are the trends that we see in population growth and firm growth; whether we see that split continue where some of these towns continue to grow and others continue to struggle. I'm particularly curious about what's going to happen in these older industrial cities. You talked about the Rust Belt. We have many of those cities in the Southeast as well.
We had a lot of factories and production that were driving cities like Albany, Georgia, for example, where there's a huge Mars plant. They've been trying to reposition themselves and I think some of them are seeing there's a potential opportunity with this remoteness of work and ability to do that to grow. It'll be interesting to see how that all shapes out moving forward.
I want to now turn to your book Survival of the City. In it, you do some study of plagues and pandemics, which is somewhat prescient, I would say. Can you talk a little bit about what drove you to want to write that book and what you were hoping to accomplish?
Glaeser: Mostly I was hoping to mentally survive lockdown. I think that was the primary thing. I was trying to find something that could engage with this unprecedented phenomenon, something that would give me an excuse to educate myself about it, to work with my longstanding co-author David Cutler, and to hopefully write something that was useful. I knew a little bit about the history of plagues and cities when I started writing it. I learned a lot more as I wrote it.
It is certainly true that there are demons that come with density. As much as cities do miraculous things that enable human beings to work with one another, to learn from one another, to be pathways out of poverty into prosperity, they're also places in which pathogens thrive. They're also ports of entry not only for goods or people, but also for diseases. All of these downsides of urban density, worse than crime, worse than traffic congestion, worse than high housing crisis, is contagion.
Our first well-documented urban plague is the Plague of Athens, in 430 BC. They may have existed earlier. There's one hypothesis that, in fact, the Bronze Age collapse more than 3,000 years ago was related to a disease outbreak, but the Plague of Athens is well-documented. I think the biggest takeaway, at least from my thinking about these 2,400 years, is that the impact of the disease is always mediated by the strength of civil society at the moment in which the disease strikes.
When plague comes to the Roman Empire in the second century of the Common Era, it's a demographic catastrophe, but in fact the empire soldiers on. This is the period of the four good emperors, which Gibbon extols as being the happiest moment in the history of mankind, and the empire stays solid. By contrast, because the Plague of Athens hits at a point in which Athens is already at war with Sparta, it ends up being much more destabilizing. The most extreme of these events occurs at this edge in which the future of Europe hinges on a precipice in which the Western Roman Empire has already fallen.
Then in the 530s AD, the emperor Justinian is prepared to retake Italy and reimpose the Pax Romana on the western world. Just at that moment when his warlord Belisarius is reconquering North Africa, is reconquering Italy, the Black Death shows up. Yersinia pestis, the bubonic plague, comes to Constantinople—a completely destabilizing event. Belisarius becomes just another warlord in the Mediterranean and we descend into centuries of warfare, rural poverty, political chaos, because we're already so unstable.
At least for me, one of the reasons why I wanted to write the book was when the terrorists hit the Twin Towers 20 years ago, it felt to me like we were in a very strong place when it came to urban America. It felt like we had come back out of the very difficult times of deindustrialization in the '70s and '80s and that we'd reached some sort of pragmatic consensus on what cities should do. By contrast, over the past 15 years, despite the ongoing success of many cities, this felt to me to be an increasingly fractious urban community and an increasing sense that the success of cities is not being shared by everyone. That, I think, has made cities feel weaker and less able to come together in the face of the great onslaught of a disease.
Bostic: That's very interesting. I definitely want to come back to the idea that you raised about the city not working for everyone and the economy not working for everyone. We have a tagline here in Atlanta, an economy that works for everyone, because I think that's an important goal and objective. I'd love to dive in a little more on your thoughts about how we get back to that as we move forward. But just staying on your book, what lessons do we have moving forward? Do you have a couple of things that we might focus on to help us get through this and to make sure that our urban spaces and our housing environment stays supportive and stable?
Glaeser: The most important moment in the history of disease, in a sense, occurs in the 19th century, which is a time in which our cities come together to fight the plague. Nineteenth century was one of the early periods of globalization and along with globalization came global pandemics. In the early decades of the 19th century, it's about yellow fever, mosquito-borne illness emerges out of Africa, comes to the Caribbean, comes to the East Coast. After 1817, cholera emerges in the Ganges Delta and is carried along with the British army, with the czar's army.
Kill rates from the disease were between 10 and 20 times the death rates from COVID-19, so they're really fairly deadly events. People continue to come to the cities partially because it was a poor world. If your alternative is dying of starvation in Ireland for sure or maybe dying from cholera in New York City, you'll take the risk of the cholera in New York City.
Cities got better because of just an enormous amount of undertaking that combined infrastructure. That required institutional innovations to fund the infrastructure, mostly around clean water and sanitation. It required incentives, so we needed what we would call Pigovian taxes, or fines levied on tenement owners who didn't connect to the water system, which were enforced not by crooked cops but by an inspection force that was beholden to a group of doctors in the Board of Health. It required a set of experts. None of this happened by just trusting the government. This happened by ordinary citizens organizing to save their own cities.
I think that's the largest lesson today. Even if the solutions are more likely to be federal for many of these pandemics rather than local, it really does require all of us to recognize that this is not a one-time event. This is not something that we can sit back on. We've had warning signs of pandemic for 20 years. We had SARS, we had MERS, we had H1N1, and we really need to do the steps that are necessary to try to pandemic-proof our world, some of which involves public health steps in the US, some of which involves global monitoring of public health, all of which probably requires more robust international alliances than the WHO. I think it also requires more engagement with the cities, the developing world which don't yet have clean water. We all have a stake in improving the quality of sewers in sub-Saharan Africa and India, because the diseases that are bred anywhere can go anywhere. We really need to reduce the risk that antibiotic-resistant superbugs are going to emerge out of these areas.
Bostic: Well, just to piggyback on that, the way we get to more difficult viral and contagion agents is by allowing them to mutate more. And that happens more when there are more infections. There is very much an interest for all of us to reduce the frequency and the breadth of infection that happens across the world. It's very interesting that you mentioned US cities in the late 1800s and the public health movement as being so critical. I think a lot of us take for granted the existence of that infrastructure, and don't really think hard about where it has come from or how it arose.
We've got to think about the effort that we all need to do to make sure that happens in today's era moving forward. One of the things I would just add on this before we actually get to the question that Jessica raised at the beginning about housing affordability is that you mentioned civil society and the collective nature of response, and that it happens street to street, and house to house, and city hall to city hall. As I look forward, I'm hopeful that we can get more of that where everyone understands that we all have a responsibility to the collective public health as we move forward, and that's the way we really get beyond this and move into a more orderly future and an orderly economy. But that's for a whole another conversation; we could do a whole lot on that.
Let me turn to housing affordability and ask the basic question of why is housing so expensive? You noted earlier that house prices have gone up a lot through the pandemic, but you also know that in many places across the country, housing affordability had been a longstanding problem. Why do you think housing is so expensive?
Glaeser: I'm going to answer this in three levels. On the most basic level, I am a straightforward ordinary economist and I blame supply and demand for pretty much everything related to prices. The housing affordability crisis reflects the collision of robust demand, particularly for our most successful metropolitan areas, with very restricted supply. I'm thinking about places like New York and San Francisco and Los Angeles, and increasingly cities in the Sun Belt as well, which previously prior to 2010, I would have said were models of providing affordability, including Atlanta, Dallas, Houston, Phoenix, because they permitted enough housing.
Now, why is it that supply hasn't been enough to meet demand? This is very different than America's past. I mean, in the 1920s, New York City was building 100,000 units a year to meet the robust demand for that metropolis and the city stayed affordable. It's a combination of geography, which is difficult in some cities like San Francisco. Even more importantly, it's about regulations that have been enacted. Bit by bit at the local level, there's not one regulation that you can point to, although if you wanted to choose one it's minimum lot sizes, but there are a thousand different ways to say no to a new housing project.
Every time you say no, you make it more difficult for a family to move into a successful labor market. You make it more expensive for existing renters to survive in that area. Now, if I want to push that further back, why do we have these regulations? To me at least it's a symptom of something that's even worse in American society. I don't know if you remember this book The Rise and Decline of Nations by Mancur Olson, but it's a book that came out in '83. I read it in graduate school, and it tells a tale of societies which when they're stable, they gradually get taken over by cabals of insiders who figure out how to rig the rules against outsiders.
I read this in graduate school and said, yeah, well, maybe. Maybe this sounds like Japan under the Tokugawa shogunate or England in the 1970s. This doesn't sound like America in the time of Reagan where we can always move to Texas if you're not happy with the existing rules. Over the past 40 years, 30 years, I decided that Olson really was quite prescient, that in area after area, whether or not we're talking about rules that protect incumbent businesses or incumbent professionals, or we're talking about housing, insiders have figured out how to rig the system against outsiders. I think that's ultimately deeply unhealthy, because it's really critical that our cities as well as our country be a place that welcomes outsiders and creates opportunity for all.
Bostic: I think that's a more general statement. You could take this idea of inclusion and embracing a broader society and community and apply it to a whole host of areas such as innovation and other things that really contribute a lot to economics. Housing is actually important in this. That's an interesting answer. I want to stay on that last point around the protection of insiders because a number of states in recent times, California, Oregon, Minnesota, have intervened to try to curtail the ability of local governments to block density. I'm sure you're aware of some of these. What do you think of these initiatives? First of all, given what you just said about Olson and his thesis, are you surprised that this is happening? How do you think about them? Would these sorts of things be sufficient? Are we going to need to have more happen?
Glaeser: Oh, am I surprised? Yes. I mean, I'm surprised and delighted. Is it small? I mean, is it part of these baby steps is the YIMBY movement, the Yes [In My Backyard] movement, just a sort of very sort of starting thing? Yes. But when you see a dog playing chess, you don't ask how we do against Bobby Fischer or Garry Kasparov. Twenty years ago, when I started working on this stuff, the idea that anybody apart from a few economists would find this as important area to work on seemed fanciful to me.
The California law, for example, which is supposed to fast track two-unit developments, I think that local communities will find lots of ways to block those if they want to block those, but it's a step in the right direction. I think it also shows the right level of action. The federal government, and you must have had the same experience, I have certainly had conversations with HUD officials since the 1990s where they said, oh, we'd love to do something about this, and the best they can come up with is typically figure out some way to give nice awards to communities that seem to be doing good things for affordable housing.
But it's very hard for the federal government to do this. The entity that has all the power over cities are state legislatures. State legislatures are empowered, and there are multiple models. The most extreme model is something like Massachusetts Chapter 40B, which was something that was put into the 1960s, which basically gives a get out of jail free card for developers who are crafting affordable housing units in communities where there are no affordable housing units. They can basically bypass the local zoning rules and go to state zoning rules. That's an extreme version. There are lots of other versions. Chapter 40R and Chapter 40S in Massachusetts provide financial incentives to communities to build more, that as an economist there's a lot of appeal to that. I like the idea of making federal infrastructure spending tied to local building. That becomes illegal if you actually phrase it in that particular way as an attempt of the feds to use the spending to change local rules. If you say that, look, the benefits of local infrastructure are going to be based on how many new homes are built to use that infrastructure, and so naturally, as part of cost benefit analysis, we're going to want to direct that infrastructure to its spending for the places that are more elastic, then I think it becomes constitutionally feasible. But I like this movement. I think we're going to need to see a lot more.
Bostic: Having been one of those federal officials that met with you in the past, there is a lot that the Feds would like to do, but it is very difficult given that land use is inherently a local issue. The notion of jurisdiction and the feds coming in and telling local communities what they can and can't do with their land is fraught and it's very, very difficult.
Glaeser: I remember that well. I was always completely convinced of your deep sense of sincerity and wanting to do something about it, but it's just very, very hard.
Bostic: Yeah, it is very hard. And it is interesting to see those places where state laws and constitutions have been helpful and make a big difference. In New Jersey, for example, their constitution led to the Mount Laurel case, which really pushed to get more affordable housing built. I will say, the state legislatures aren't always fully supportive of these things and, as you noted, put up some roadblocks to try to slow the pace of this change. But having these things in places has got to be critical as we move forward. I wanted to also ask you, people talk about the affordable housing crisis. Do you think it's a crisis? Is that the right way to be thinking about this? Is there a narrative that you think could induce locals to be more willing to invest in housing and perhaps sacrifice some of their insider comforts to use the language that you used earlier?
Glaeser: I think convincing suburban homeowners that they want to allow more housing nearby is a losing game. I have certainly tried those conversations over the past 15 years and it's very hard. It's not like too many homeowners think that cheap housing is particularly desirable thing. They're quite delighted by the rise in housing. Moreover, for many of them, they're just motivated by the fact they don't want the inconvenience of this.
I do think that one of our jobs is to peel away the narratives which give ideological support for this. In the cities, this is typically about preserving neighborhoods, in some ways preserving historic neighborhoods. In the suburbs, it's typically about some sort of environmental goal. Most of the time, the environmental case for these land use restrictions is nonsense. If California doesn't build in the Bay Area, it means those houses get built somewhere else. They get built outside of Houston. They get built outside of Las Vegas.
Coastal California, the Bay Area, is the most environmentally sensitive place in the country to build, at least by the measure of carbon emissions. It's the place that has the most-mild winters, the most-mild summers. In the work that I did with Matthew Kahn on the Greenness of Cities, we certainly find that, ideally, you would be building a ton of extra housing there if you wanted to reduce America's carbon emissions. And yet, the opponents of building have actually decided they're environmentalists, and the environmentalists pushed them to move that building elsewhere.
We can push back on that, but actually convincing suburban homeowners that it's in their interest, that's very hard. You've got to do it more at the state level or larger jurisdictions where you have entities, banks, builders, businesses, renters who actually understand that there's an upside for them in new construction, in order to have allies at the table who will actually fight for affordability. Is there a crisis? I don't know. It's not a very economics language for us to use, especially since we tend to think of crises as being short sharp shocks and this is a 40-year-trend.
The one thing I would say is it's not a ubiquitous American problem. America still has lots of areas that are affordable, whether or not that's in the Sun Belt areas that's still a lot of growth or in former Rust Belt cities. It is a very localized phenomenon, but it's localized in America's most productive areas and the fact that we aren't allowing those areas to grow is in some sense hampering our economic dynamism for the country as a whole.
Bostic: That's right. And yeah, when I think about this, it's a very complex issue. You have neighborhood preservation narratives that are often used. You have lifestyle narratives that are used. I used to teach a class in affordable housing and one of the things I used to always lament was the fact that so many of the developers don't have the resources to remind people after the housing is built what has happened in these neighborhoods, and that all the things that they're afraid were going to happen actually didn't happen. Things oftentimes wound up being better than they were before because that blight had been removed and transitioned into something that was actually more productive. Other things that I tried to make the case of, and you spoke to this a little bit, is that if the housing doesn't go in your town, it's still going to get built probably three towns over and then people are going to have to drive through your town to get to where they're trying to go.
In many instances, how we develop our housing creates negative externalities and costs through congestion and other things that are productivity destroying, and also just day-to-day living harmful, and that we all need to understand that there are implications for these things moving forward. I will agree with you. In too many instances, those things are not the things that are going to carry the day, in part I think it's because also these things are decided deal by deal and not necessarily with a whole holistic plan in mind. It's easy to shoot a hole in one thing here or one thing there if it never is raised that if you don't do this and the whole plan falls apart, and that's something that's quite difficult.
I just want to remind those who are listening, if you have questions, please do get those together in the chat. We're going to turn to that in just a minute, but I wanted to close with two things. First, when we think about housing and we think about land use, it's hard to do that without talking about local fiscal policy and the reality that in many instances these restrictions and constraints that are put on housing markets are actually in some instances a device to raise funds or to control what you need to spend on as a local jurisdiction. First of all, do you agree with that how we finance local governments actually influences zoning decisions and how jurisdictions think about what development looks like?
Glaeser: Yes, I think it's important. I think that, in fact, Massachusetts used to have a rule in which it was easier to tax new housing at a much higher rate than old housing. The Massachusetts Supreme Court got rid of that for quite understandable reasons. I think that helped further make the case against new construction.
Bostic: You might think of these almost as taxes like these zoning taxes, do they outweigh the benefits in terms of negativity and when we think about what happens to housing markets?
Glaeser: I think there's so much value being left on the table that we should be able to permit plenty of new housing, and at the same time make sure that our local governments are properly funded. Instead of having a seven-year wait, you can have higher impact fees that go together with as of right building that happens within six months. Most developers would leap at that and that pours income directly into the coffers of local governments.
I think there are lots of ways of handling the financial shortfalls without shutting down new construction. In many areas, the new construction, even I would certainly much rather see new construction that is lower end as more affordable, but much of the new construction that occurs is a huge financial windfall for local governments. I mean, there's a lot of anger at these billionaires' apartments that go up in New York or Boston and these tall towers that stretch to the sky, and I agree, they're certainly not my poster child of what I want new housing construction to look like. But let's face it, they're a huge boom when it comes to local government finances. They pay taxes and the people aren't ever there. It's like an ideal situation from a revenue raising point of view. There are lots of solutions that involve some creativity around local taxation that can enable us to have more building and still have fully funded local governments.
Bostic: Let me ask my last question before we go to your audience questions and it's really around one of the things you talked about earlier, which is an economy that works for everyone. Here in Atlanta, at the Atlanta Fed, we have one of our strategic priorities is to increase economic mobility and resilience. I will tell you that housing almost always comes up in this conversation, particularly in the context of wealth creation and giving families a foundation upon which they can gain capital, access capital, and make investments. How do you think about this? What should housing's role be in trying to enhance economic mobility and wealth creation?
Glaeser: It's great question, Raphael. I think the most important element in housing is that it is the physical infrastructure that ties person to place. I think thinking of it as a purely financial asset is always a mistake. In many cases, the most important thing that a house can do for upward mobility is to enable a family with a small child to move into a neighborhood where there's opportunity relative to a neighborhood that has deprivation.
Having a very human capital-focused nature of our housing policy makes a lot of sense. For example, making sure that Section 8 housing vouchers go disproportionately to families with young children and then doing our best to make sure they use those housing vouchers in communities that have a track record of empowering upward mobility. That's true within metropolitan areas. It's also true across metropolitan areas as well.
One of the downsides of having frozen the housing construction in our most productive areas is that people have become locked into areas of economic dysfunction. Before COVID-19, I was convinced that America's largest unsolved social problem was the rise in prime age, mostly male, joblessness. The fact that when I was born, I think both of us were born about 1967, roughly 1 in 20 prime-aged men were jobless. For most of the past decades, 3 in 20 prime-aged men have been jobless. Joblessness is much more of a curse than being a low-income earner, by almost every measure, by life satisfaction, by suicide, by family breakups. Joblessness is really terrible.
One of the prime reasons why joblessness occurs is that local economies have fallen apart. We know now about the long-term impacts of the China shock from the work of [David H. Autor, David Dorn and Gordon H. Hanson], and these communities have fallen apart but people are stuck in place. Somewhere around a third of long-term jobless men are living with their parents. These people are frozen in space in part because of housing. Their parents aren't going to buy them a condo outside of San Francisco. They're in Eastern Kentucky. They're in the suburbs of Cleveland. They get frozen in an underperforming labor market. That to me is the most important element of housing: to enable people to find opportunity when they're adults and to enable people as children to live in neighborhoods that enhance mobility rather than the attractive.
Bostic: Taking this one step further, to have that actually work, you need to actually have housing at all price points in these opportunity neighborhoods as you describe them. We did a lot of work when I was at the Department of Housing and Urban Development around housing vouchers and their distribution across metropolitan areas. I worked on a case in Baltimore where the city was sued because the voucher holders were not being able to access neighborhoods of opportunity and all of the voucher placements were happening in places with poor schools and the like.
For that to succeed, it does require a more comprehensive and holistic approach, which in many instances we haven't seen consistently. There's a fair amount of work that's being done now, I think, in terms of demonstrations to try to get voucher holders located in other neighborhoods by changing how we think about what a fair market rent is and having it be local cost-specific so that the voucher can meet some affordability standards at the neighborhood level, which is important.
You also mentioned, which I think is important, this idea about where we have productive economies and that we don't have them everywhere. That it has become less likely over time for people to actually move to those productive economies. The availability of low-cost housing and ranges of housing I think contributes to that as well. It is something we'll definitely have to think about as we move forward. That's very, very interesting. Let me now turn this over to you who have been listening with us, and I see we have Scott. We do have Scott. Good to see you, Scott. Glad you made it with us this morning.
Scott Frame: Thank you. Good morning.
Bostic: What kind of questions do we have for Professor Glaeser?
Frame: Well, I was going to actually start off with one of my own. By the time I joined, we heard some about his book and I learned a little history of pandemics. Then we got to the theme of why housing is so expensive. Certainly a big part of this significant challenge, as you all discussed, comes on the supply side and the zoning restrictions, and dealing with local fiscal issues. But I wanted to come back and tie those things together and just ask for your thoughts about what explains the 20 percent increase in national home prices over the last two years and how do you tease out different factors driving those price increases on the demand side?
Glaeser: I think it's very hard to figure out pricing during a pandemic. The best story, I think overall, is just the sense in which people are demanding private space as opposed to public space, that a pandemic puts a high premium on having your own walls, your own garden, your own living space, and that's pushed demand for this up particularly in slightly lower density locales. If you ask me, that's the best story I have. There are other things, which is we've had an eviction moratorium in lots of places, which means we slowed various forms of supply. The economic dislocation that should have meant new homes coming on the market, or previously used homes but new supply ... that's been shut down as well. I can't be sure about the extent to which we're currently slightly overinflated because of the dislocations in markets.
Bostic: I would also just add, you mentioned more affluent people being able to live in other places. They wound up taking some of the supply that was existing in these more remote markets that had not actually had that presence without giving up their original home. Part of what has happened has been this doubling up from a group of people who are able to act and live remotely who are being compensated very well. It actually will be an interesting question as to whether they keep these multiple locations or whether they pick one and decide to stay there. I don't know how that's going to play out. I do know that in some of these markets we've started to see some of the heat reduced a bit in terms of pricing pressures. I think we'll just have to see how that plays out moving forward.
Frame: Thank you. Kind of related to this, you touched on the idea of an affordable housing crisis. The conversation you had about the term makes a lot of sense to me, but I think it gains resonance especially over the past couple of years as prices really jumped up. We had a question in the Q&A here from an individual who lives in the West End in Atlanta. This is an example of an area where existing homeowners and renters had been leaving due to decreased affordability. They asked about low interest rates and as the interest rate cycle may change here in the next year or so, will there be some counterbalance to the increased gentrification? Gentrification is an issue that's a bit controversial. We all like to see improvements in the space around us but that usually also comes with higher prices and people on the margin being displaced. How do you see gentrification issues?
Glaeser: I have a chapter in the book about Boyle Heights, which is one of the epicenters of battling over gentrification in Los Angeles. Neighborhood changes are always somewhat painful, but it has been a normal part of American cities for centuries. Neighborhoods depreciate and after they've paid for a certain amount, then they get rebuilt, and it's been going on for centuries.
What makes gentrification particularly painful now is its combination with a lack of affordable housing elsewhere. It'd be one thing if the main event was that this particular area had seen its prices bid up, some of the existing homeowners make windfalls, other people may be slightly dislocated from the change but they can find a relatively affordable place to rent not that far away, and so it doesn't feel particularly catastrophic. Because you're situated in a metropolitan area like Los Angeles where it all becomes expensive, it feels as if you're not just being frozen out of Boyle Heights, you're being frozen out of the entire metropolitan area.
That's what I think is the larger problem. The problem isn't so far that young urban professionals who are gentrifying, or the existing Latino residents at Boyle Heights were objecting to it, but it's the fact that throughout the city, the insiders have drawn up the drawbridge and are making it impossible to build for anything. Those to me are where you have the real problem. It's not with the gentrifiers themselves or with the people who are understandably frustrated about losing their cultural community.
Bostic: I would just push back on that just a little bit to the extent that in many instances when displacement happens because of gentrification, the places that people wind up also wind up having poor amenities or lower quality amenities in terms of school quality, in terms of accessibility to good jobs, and that kind of stuff. Then it does have the potential to feed back into the things we were talking about earlier about how do we tap into the full potential of every resident in an urban place or in an economy?
Maybe I'm Pollyannaish and too hopeful on this but I think the awareness of the potential for displacement that accompanies gentrification often can help us maybe take steps to prevent that from happening and allow some people to stay in places that actually are amenity rich or becoming amenity rich so they can capitalize on them as well. But that requires purposefulness and that requires intentionality, and those are things that we haven't often seen across the urban landscape. This is something that I think is very much on people's minds. As I go around Miami, Atlanta, Nashville, these places that are growing very quickly, it's usually one of the first three questions I get. It's something that is definitely on people's minds. I think it's important for us to try to find solutions for it.
Glaeser: I agree strongly with this and certainly agree with intentionality and comprehensiveness. I want to argue that there's room for both, but I want to push back on all of the forces of stasis. I want to push back that the problem because there'll be affordable housing in these suburban areas which have great public schools, I'm now going to force a fight against change in my own neighborhood.
It feels like we're locked in a very zero sum thing, as opposed to saying, look, there's going to be change here but we're going to make sure that wherever you do get displaced to, we're going to make sure there are great options for you there. We're going to upgrade the amenities in those areas as well. There's room for all of this in the discussion. In general, I think change is a good part of city life. We just need to accept that and then make sure that there are many fewer losers from change.
Bostic: Well, I agree with that. When I was a professor many years ago now, I used to advise cities and they were like, how do we stop things from happening? I was like, you can't stop things from happening. That's what dynamic economy is, is things happening, change is happening. We want to not end it or stop it but learn to ride with it and anticipate where it's going to take us and then position ourselves so that we can take the most advantage of it at the lowest personal and community costs. I think we're in the same place on that point.
Glaeser: Absolutely. We agree strongly.
Frame: Thank you. We have a couple questions in the chat about a development that began coming out of the last housing downturn about a decade ago, and that is the movement of capital and institutional investors investing in single-family homes and renting those out. More recently, we've seen homebuilders and these institutional investors working together to build entire communities. We recently saw an issue where Zillow had gotten involved in sort of home flipping and using their machine learning methods that apparently didn't work so well for their business. In general, do you guys have some thoughts about the movement of capital into these single-family rental businesses, the pros and the cons of that?
Glaeser: Raphael, do you want to go first on this? OK, I'll plunge in. The only thing that would make me pause is if we thought we were genuinely going to something which felt like we had some kind of a monopoly situation in which there was enough consolidated ownership of these properties that we had real market power in particular areas that were artificially jacking prices up. I don't think we're there yet. Certainly, the Zillow event makes it seem as if, in fact, Zillow was giving money to the ordinary people and not taking it from it.
By and large, I tend to be a fan of renting. I am a fan of owning too, but I think America has seen too little good in renting and having more single-family homes that are rented doesn't feel at all to me like it's a particularly bad thing. If units are going to be rented, then someone's going to need to own it and there's no reason why it can't be an institutional entity that is able to hedge the risk across multiple markets. I wouldn't say I'm afraid of this but let's keep a watch on it to see what happens. Let's have some articles that try and look for natural experiments. We can see whether or not this actually leads to price increases after it happens. Let's keep an eye on it but I don't think we need to sound the alarm bell just yet.
Bostic: I agree with that, and I still say this: the goal of a good housing policy and a good housing environment for our country is not that everyone become a homeowner; it's that they get housed well. In some instances, that'll be owning a home but in other instances it'll be renting. What I think is important is that we have a range of options in both modes of being housed. For a long time in this country it was hard for renters to have a single-family home with a backyard, with a gate. Those approaches to life were not accessible.
I actually don't have a problem with seeing that market and that segment of the market evolve, grow, and become more mature. Now, we need to have regulation to oversee to make sure that these do not become slum properties and that the owners are continuing to maintain them in ways that are advantageous to neighborhoods. The thing I actually am most concerned about in this context is something that Ed talks about all the time, which is if we're now going to take a bunch of these single-family homes and devote them to renters, then the supply of single-family homes for owners actually shrinks unless we build and change our building patterns and increase them to meet this new shift in terms of the number of homes that are going to be desired at any point in time.
What I haven't seen is really a shift in terms of the ability or the willingness of communities and builders to increase the number of homes to reflect the shift in the number of families that are going to be in these single-family homes. That has some troubling implications, I think, for the potential of cost in the markets where this has become more prevalent.
Frame: Thank you. You stated something there, Raphael, about the goal being that households should be housed well. I wanted to come back to this tension of viewing housing as service versus investment. There's a policy tension around this as we have a lot of policies that are aimed at trying to encourage homeownership. Certainly, if you were somebody who bought a home two, three, five years ago, you've probably seen a windfall in equity that should reinforce this notion or maybe tip the balance a little bit for people thinking about housing as an investment.
But as we saw in the last cycle, it's those people on the rent-to-own margin or low- and moderate-income household families that bought in the years leading up to the financial crisis and Great Recession that saw the largest declines in home equity and displacement through foreclosure. How do you both see the balance there in terms of what the government's posture should be towards the goal of, as Raphael put it, just that we have a perspective where we want everyone to be housed well versus trying to encourage what form that takes and particularly towards homeownership? Sorry to be long-winded there.
Glaeser: Some of this actually relates a little bit to the question that was put in the chat about renter's insurance. One of the nice things about homeownership, of course, is that you're in some sense hedged against the cost of housing risk. That's a mildly attractive element of it. Of course, that only works as a hedge if you were actually planning on living in a house like that for a long period of time. If you were planning on moving to some other area, then you don't particularly need that hedge against local housing prices.
For me, at least, that pushes with the view that it's all right to do a little bit of support for home ownership on the edge but you don't want to act as if that's a key element in the American dream or in any sense the only way that you can actually have asset accumulation in this country. It's something that should be part of the arsenal, but I think actually a relatively small one in terms of empowering upward mobility for ordinary Americans relative to, let's say, providing better education for kids who come from disadvantaged backgrounds, figuring out ways to provide better vocational training, unleashing entrepreneurs who are currently bound back by excessive local rules, which too often bind the entrepreneurs for the poor so much more than they bind the entrepreneurs for the rich.
I agree strongly with Raphael that we have a national goal to see that everyone is well housed, but I do not think that means that we need everyone to have accumulated a vast amount of housing wealth. That being said, if you just look and compare the survey of consumer finances in 1983 and 2013, you see a real change in the amount of housing wealth held by middle-income Americans in terms of real dollars.
In 1983, the median household between the 35- and 44-year-old bracket had, I don't know, about $60,000 worth of housing wealth in modern dollars. Thirty years later, they had $6,000 in housing wealth. That's precisely because of this affordability problem. It's because they cannot afford to buy in. Again, it comes back to the key goal here is not to use federal dollars, which end up subsidizing home ownership, which will then further push housing prices up right in these areas, but rather making sure that it's easier for young couples to actually buy a house that they can afford by getting rid of some of the barriers that make it so hard to build.
Bostic: Scott, when I talk about this, what I usually say is when I started out as a young economist flipping houses and those sorts of practices were viewed as predatory lending, because lenders basically induced homeowners to refinance the house and they had a bunch of fees in it to do things that didn't really require that much in terms of capital. Fast forward 15 years later, we've got a series of TV shows called Flip This House. There's been a dramatic mindset shift in terms of the role of housing for a family in terms of the services it provides relative to its role in the financial portfolio. I think it's been detrimental for many people. Because when you think about investments, there is risk, and when you introduce risk into your housing, it's not just the financial aspects that you're putting at risk. It is what Ed talked about at the very beginning, which is a house ties a person to a place and all the amenities that come with it. When you go too heavily into this as an investment, you're putting all those other things at risk as well.
The loss actually can potentially be much more than just financial. It can be in terms of networks, and human capital, and a host of other things that are the building blocks as Ed noted for actual economic mobility. I think we have to be very careful in terms of promoting housing as investment first and really do need to make sure that people see it in the broader context of his role in a person's life.
Frame: Thank you. That's very thoughtful. I think we are at time right now. It is 9:30. I'd like to thank both President Bostic and Professor Glaeser for joining us this morning. I think this was a fascinating conversation, and I'd like to thank everyone for attending. We had a very large number of people that came this morning and had a lot of really thoughtful questions in the chat. People were really engaged with the conversation. I'd like to, again, thank you both. And everyone have a wonderful rest of their day.
Glaeser: Thank you.