“The U.S. must build, baby.” The latter is the subhead to a recent opinion piece published at the right-of-center Manhattan Institute. Supposedly the easy answer to housing affordability is “build baby, build.” On the left, Ezra Klein and Derek Thompson are presently being lionized for promoting an “abundance” agenda of more homebuilding that will supposedly make homeownership more affordable. Isn’t bipartisanship great?
More realistically, it’s a reminder that the only thing scarier than ideological divide is agreement. It’s frequently a sign that both sides are totally missing the point. Let’s start with “build baby, build” and “abundance.”
Wouldn’t life and business be great if “build it and they will come” were as simple as the pundit and PhD class thought them to be? Seemingly lost on the experts is that there’s quite a lot of risk associated with building houses. It requires the accession of a lot of expensive capital, followed by excellent timing.
No doubt more than a few pursued housing abundance in 2007 in ways that bankrupted them in 2008. Sorry, but just as “drill baby, drill” is no easy, moneymaking feat, neither is it a sure thing to blithely put up houses in locations that politicians open for development.
It brings up the popular view that but for politicians, housing would be super affordable thanks to soaring supply. But would it be? If politicians would just get out of the way, could we all have houses in Beverly Hills, Malibu, Lake Forest, Pasadena, Scarsdale, Highland Park (TX), and Buckhead? The question hopefully answers itself.
It’s a reminder that arguably the much bigger challenge when it comes to housing affordability is that when it comes to real estate, it’s still “location, location, location.” Housing would surely be much more affordable if Californians viewed Hawthorne in the way that they do Hancock Park, except that they don’t. The latter is quite a bit more attractive, and it’s priced accordingly.
Houses in Austin, TX were cheap for the longest time, but now they’re not. It’s said that each day eight Californians move to Austin in search of more house in pro-development Texas. The result has been that Austin prices have increasingly taken on a California feel. Again, affordability is far more about specific, and rather coveted locations than it is about politicians and their alleged stubbornness with regard to development. Lest readers forget, previously mentioned Malibu used to be blue collar and affordable.
Which brings us to the high prices themselves. That lefties like Klein and Thompson would want to meddle with prices through “policy” isn’t a surprise, but why all the conservative excitement? Aren’t the high prices telling us something?
They are, though perhaps not what the experts think. As opposed to high prices signaling a need for more housing supply, the view here is that they're telling us “don’t buy a house." It’s a lousy investment (it’s not even investment, it’s consumption) rendered much worse when the myriad costs associated with owning the “investment” are factored in.
Which means soaring home prices are a beautiful thing. They’re telling us to leave ownership to others, including Wall Street, thus freeing us to amass wealth much more easily by actually investing instead of consuming.
Notable about this is that there’s no policy to speak of, other than President Trump and other politicians just getting out of the way so that investors can manage our housing needs for us. Bring on the high prices, or not. Prices organize the market economy, not policy.
