A true data geek, Mike founded Altos Research in 2006 to bring data and insight on the U.S. housing market to those who need it most. The company now serves the largest Wall Street investment firms, banks, and tens of thousands of real estate professionals around the country.
In this episode of the Top of Mind podcast, Mike Simonsen sits down with Adam Ozimek, Chief Economist at the Economic Innovation Group, to talk about remote work and the future of the US economy. Adam believes remote work is not just a pandemic phenomenon, but rather a transformative economic trend with far-reaching impact, similar to how the computer revolutionized every aspect of our lives.
About Adam Ozimek
Adam Ozimek is the Chief Economist at the Economic Innovation Group and is an expert in the functioning of labor markets. His research covers a broad array of economics fields, including demographics, monetary policy, and immigration. He was most recently the Chief Economist at Upwork, where he led research on labor market trends. Previously, he was a Senior Economist at Moody’s Analytics where he managed US demographics forecasts and research.
Here’s a glimpse of what you’ll learn:
- Why remote work is only just beginning and could reach 50 million workers in the coming years
- How remote work is a general-purpose technology, like the computer, that will impact all levels of the economy and society
- Which real estate markets are likely to grow or shrink as a result of remote work
- What needs to change to address our starter home shortage
- What the “Heartland Visa” is and why it’s important
- Why increasing high skilled immigration is so important for a dynamic economy
- Why Adam Ozimek is hopeful for the economy and our ability to avoid recession and get past inflation and back to full employment
Resources mentioned in this episode:
- Adam Ozimek on LinkedIn
- Adam Ozimek on Twitter
- Economic Innovation Group
- Mike Simonsen on LinkedIn
- Altos Research
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Welcome to Top of Mind, the show where we talk to real estate industry insiders and experts about the biggest trends impacting the market today. Enjoy the show.
Mike Simonsen 0:14
Mike Simonsen here. Thanks for joining me today. Welcome to the Top of Mind podcast. This is where I talk to you the smartest leaders, thinkers doers in the real estate industry. For a couple of years now, we've been sharing our latest market data every week, in our weekly videos series. With with the new Top of Mind podcast, we're looking to add some more context to the discussion about what's happening, what's happening in the market, from the from the leaders of people who have a different perspective, maybe than we do. Each week, altos tracks every home for sale in the country, all the pricing all the supply and demand all the changes in that data and we make it available to you. Before you see it in the traditional channels. People desperately need to know what's happening in the housing market right now. It's been so hot, so competitive. And now suddenly the landscape is maybe changing. So when people ask me, Mike is can I get the data for my local market? The answer is yes. Go to altosresearch.com You can book a free consultation how you use market data in your business. Okay, without further ado, I'm thrilled to introduce my guest today. Adam Ozimek. Adam is the chief economist for the Economic Innovation Group, and he is an expert in the functioning of labor markets. His research covers a broad array of economic fields, including demographics, we're going to talk about demographics today, monetary policy, immigration, another topic I'm very interested in. He was most recently the chief economist at Upwork, lead research on labor markets, and previously a senior economist at Moody's Analytics where he managed us demographics, forecasts and research. Adam, welcome to the Top of Mind podcast.
Adam Ozimek 2:04
Thanks for having me, Mike. Glad to be here.
Mike Simonsen 2:06
Awesome. Why don't we start Why don't you tell us a little bit about the Economic Innovation Group and and what you're working on that you just started there. So tell us about that organization and and what you're doing.
Adam Ozimek 2:20
So the Economic Innovation Group is think tank that focuses on economic dynamism when we look at issues like startup rates, you know, Labor dynamism, the amount of churn in the labor market, the sorts of turnover and competitive effects that really drive productivity growth and competition and things like that. So we researched, you know, how to make the economy more dynamic and policies that can do that. So for example, you know, we're major proponents of high skilled immigration. And we have a policy proposal called a Heartland visas that would allow high skilled immigrants to move to the parts of the US that are struggling demographically losing. Also proponents of non compete reform reform to help there be more churn in the labor market. And also, we do research on nimbyism to, you know, how do we make the housing market be more dynamic and competitive? So those are just three policy areas. But broadly, it's like how do we become and how do we get to be more dynamic economy and showing why that matters?
Mike Simonsen 3:20
Awesome. Well, a lot of internet liquid things. No, I'm interested in immigration is one I'm particularly interested in both from a housing supply standpoint for restricted immigration restricted homebuilders, but also in the economic growth sense. I'm curious about the DIS the difference between high skilled immigration just all immigration like a free open market there love to dive in more there. Lots of cool stuff to talk about. Let's let me start with a question though. We call the top podcast Top of Mind, what's top of mind for you right now.
Adam Ozimek 3:57
I mean, one of the most top of mind topics for me is remote work, and how that's affecting the economy. It's obviously having a huge impact not just on businesses, but on housing markets, too. And I think we're living through a huge experiment in remote working. And, you know, a significant chunk of the economy is thrown into remote work overnight with pandemic hit. And businesses and workers have found that it works better than they thought. And so a lot of this is gonna be permanent. I think that has huge, huge implications for how we work, where we live a variety of things. It's what economists called general purpose technology, which means it doesn't just have this one direct effect, but it has tonnes of spillovers, that ripple, you know, throughout the economy
Mike Simonsen 4:47
and the general purpose is to say it's like a shift in the way of adding the CPU into the economy was, like that kind of general purpose. Like it's impacting. Okay.
Adam Ozimek 4:56
Exactly. Exactly. You wouldn't say like, oh, computers did this one thing, right? Computers did so many things. And they affected, you know, not just home production and business production. But like, up and down the supply chain, every part of the economy touches electrification is another example. You know, automobile combustion engines, you can think of a lot of example, I think, you know, I would, I wouldn't go so far as to say that we know that we're living through an industry a new industrial revolution, you know, that would be premature. But I do think that there's a possibility that that could happen. But that's how big of a technological change. That's good.
Mike Simonsen 5:32
That’s that's amazing, right? I wouldn't say that. It's like the industrial revolution, but I say might be like the Industrial Revolution. That's, that's incredible. And I read your research recently, you said that, that you're expecting 40 million Americans to go to fully remote work?
Adam Ozimek 5:53
Yeah, so about one out of five workers, I think is going to be full time remote. And then another 15% will be what you call hybrid remote, which is sometimes in the office, sometimes not
Mike Simonsen 6:07
percent, only 15% there that my personal experience, everybody around me is like 100% is hybrid. So but I suppose what is surprised my little San Francisco bubble is not representative of the world. But tell me about why it's only 15%.
Adam Ozimek 6:22
Well, early on, in the pandemic, couple of labor economists did an estimate of how many jobs can potentially be done at home. And like, they were looking at the characteristics of the work that okay, based on the way that each all these different occupation categories work that thing has to do. 37% is like the theoretical maximum that could work at home. And so like to be saying, like, around 35% is, you know, compared to what you would have fought based on the characteristics of work, and what seemed like the necessary conditions for working, it's quite high. I mean, there's a lot of part of the it's just necessarily in person, you know, leisure, hospitality, retail construction, a lot of manufacturing, you know, you add these up, it becomes a significant chunk of econ. So I think, probably around 35% least in the short run
Mike Simonsen 7:11
35% that are either fully at home fully remote or for our hybrid. Yeah, that's yeah, that is significant. And what where were we pre pre pandemic, roughly.
Adam Ozimek 7:25
So there's, you know, a lot of discrepancies, different ways to measure it, it's actually not measured particularly well, it just even so even when they do care, so the BLS is trying to measure the remote work now. And their estimates, like 13%, is working remote, but like they're way, way off. And they're, you know, a paper that just put out recently showed that the real numbers closer to like, currently, like, probably around 50% are still working at least partially remote. So like, it's a tough thing to measure depends on how you ask them what you're talking about, but you know, pre pandemic, something maybe like five to 8% are working like, full time remote, and maybe like another 10% Part time remote.
Mike Simonsen 8:05
Yeah. And does that does that does number shift with job creation? Like, is there evidence that the jobs that are getting created are remote or they you know, in in like on premises somewhere?
Adam Ozimek 8:19
Yeah. So if you, if you look at like job posting data, it has continued to the job posts for like, whether it's a dean or zip recruiter, whoever, they all showed that Burning Glass data to they all show that the percent of jobs mentioning remote work keeps going up, and up and up and up and up and up. So that is suggesting that it's not just like existing jobs being transferred to remote. It's like new jobs being hired into it as well.
Mike Simonsen 8:47
That's amazing. So let's talk about some of the implications of that. What do you think one of the first things we should be thinking about as the implications of that?
Adam Ozimek 8:58
Well, let's talk about geography. Since it's the housing podcast, we'll go there. I think that the two types of roadwork have different implications for economic geography. So if you think about hybrid remote First, what does that mean? It means that, you know, you're in the office a few days a week. And so the maximum distance that you're willing to commute goes up, right? Like, if you go in the office five days a week, you probably don't want to keep it to like, an hour over an hour, one direction is pretty significant to me to do. I've done but if you're only going to be in two days a week, you know, that makes a longer commute much more doable, or even like one day a week or something like that. So what that does, basically is it like expands the commuting zone. Right. So if this is like the downtown, this is how far you used to be willing to drive. So this was your function. This was your effective labor market. Now your labor markets. You've gone from like one hour to two hours, right and it's significant increases The area that constitutes your labor market. And that then means that like the, the housing markets that used to be seen as isolated from good jobs now are seen as having access to good jobs. So the clearest place to see this is if you look at areas that are like two to three, four hours outside of New York City, and they were previously low cost areas, Southern New York State, and northeastern Pennsylvania, if you feel like the Pocono region at all, these are areas that were previously fairly low costs pretty populated, and not super high demand. Now, post pandemic, there's been tremendous amount of pricing pressure there, as people who used to live in Manhattan, which has seen like declining health, relative house prices, you know, Manhattan goes down, the middle area kind of stays the same. And then farther out Poconos and northeastern Pennsylvania, they go up. And so that's the first place to look, if you can identify places that are states two to three hours from a major employment centre, and had low cost of living. That's a pretty strong indicator that demand there is going to go up factors that would contribute to that additionally, would be nice amenities. Right. That's important thing. And then also, if that job center, people previously were commuting and do if they were a lot of work from home jobs, they're like, those are factors that are going to contribute to that. So that's, that's the first place I would look is that sort of like new, new X urban area?
Mike Simonsen 11:47
Yeah. And those extra revenues, we, you know, tracked in the Hudson Valley, we track it in, you know, I'm in San Francisco, and like Tahoe just absolutely exploded, Palm Springs from LA. So what I've been curious about is that the, the permanence of that trend, you know, we had a big surge, and in my little limited experience, though, I know people who they were in San Francisco, they bought in the mountains, they did their pandemic there, they never sold their San Francisco home. And now they're here or that, you know, they and so, and some of them Debu back, you know, they weren't like, Well, we thought the mountains are gonna be good, but really, you know, then put the kid in school. And so they move back to to the city, what do you think about the permanence of those trends?
Adam Ozimek 12:35
So I think the opposite is actually more likely true, that the trends are going to continue to grow. The reason why is because if you think you are temporarily remote, that is going to have a limited impact on your willingness to move somewhere, right? Like most people, some people, like if you got a ton of money, sure, and you'll go buy a second house somewhere there for a little bit, come back. That's a small fraction of the US economy. Most people, they have one house and then live in that house, and they don't move lightly. Right. And they don't move for like, a year or two. So I think what's gonna happen is, as people become more sure of their work from home options, that gives them the confidence. So if you have a job in Manhattan, and you are currently but you don't know whether you're going to be back to off permanently, maybe your company hasn't made a decision yet, they're just like, Well, we'll see what happens, it's pretty tough to make the decision then to move like four hours away or something like that, right? Because you're worried you're going to get fully recalled and have to come back. Now let's say your company gives you an extra bit of sharing, they stay, we're going to do this forever, right? So don't worry about it. That's a little bit more surety, but it's not total surety. Because you may, they may fire you someday. And then you're living in a place where there are a lot of local a market opportunity, or they may change their mind, right. They may say this isn't working, we need to bring it back. So like what you need to be certain is not just your employer, to make the commitment, but a variety of employers to make the commitment and to start to feel like the remote labor market is a substantial outside option in and of itself, so that you can take that leap to move places where you don't have the local labor market options. And so for that reason, I think as remote work becomes more settled and more understood that way and the opportunity solidified, people are going to say, okay, I can take the riskier move, I can go not just to like, you know, go to Hudson Valley, go to Poconos and then go to like Montana, you can go way way far out. We just don't worry about labor markets at all anymore.
Mike Simonsen 14:49
Yeah. And so so your research shows that like that, because that is a increasing trend. It's likely to be a sort of a reinforce forcing cycle.
Adam Ozimek 15:01
Yeah, exactly. I think it's easy to the data too. So early on, people were looking at California, for example, the California Policy Institute put out a paper in early 2021. That said, basically, all the moves within California have been relatively short distance. And still really, yes, San Francisco losing population, but they're moving to Fresno, the move to other parts of San Francisco, San Francisco is not our California is not losing population. And the moves are short distance. And that sort of was suggestive of like, perhaps it's a permanent thing, perhaps it's a modest thing, it's not really gonna have major impacts. They updated their analysis at the end of 2021. And what they found was that moves that increase, people were going farther, they were leaving the state. And they were doing it to the extent that actually, the state population was clearly declining. And so what you've seen is the short run effects are smaller than the medium run effects, which I think you're going to be smaller than the long run effects. So any place that sort of like, counting on like, everyone coming home and amounts of massive bounce back, I think, is being optimistic, that doesn't mean that some places will see population come back, but I think it's gonna come back in the form of lower demand, which necessitates lower prices. So you think of like, New York, for example, you know, New York has, has pretty elastic housing supply, which means that the demand to live there for the last, you know, two or three decades has been met more by rising prices than by rising quantity. So as demand falls, you're going to find people who want to move to New York with the margin at that lower price, and they find it more affordable, and they can. So I think that, you know, New York will see lower prices, potentially smaller population, but not dramatically. If you look at other places, they may see more for quantity effect as well. But you also have to think through the ripple effects, falling prices, they're hard to absorb, you know, that's bad for property tax revenues and stuff like that.
Mike Simonsen 17:04
Yeah, yeah, for sure. So that the the, the, like, the marginal demand is still there. But it's like that, so that, that we get a shift in population, but we're not going to lose Manhattan's not likely to move lose people, even if maybe San Francisco does, because everybody's flying to moving to New York.
Adam Ozimek 17:25
Yeah, that's right. And there, the adjustment to that lower price population can be painful in the sense that it often takes a while for, you know, markets to clear when prices are falling. And I mean, actually, the high inflationary background we're facing, it's kind of helpful in that regard, that should help prices clear a little bit faster. But you still have, you may need to see like, changes to real estate, for example. So like, people might want to switch to a bigger square footage. So like, that's one of the ways that lower prices can manifest and more demand is that like, people will buy more square footage. And that's like an adaptation that takes time. It also has negative property tax implications, or negative income tax implications, right? Because like, if, if prices fall such that people like alright, I'm willing to move to New York now. But I want a 400 square foot apartment, I want an 800 square foot apartment, I'm willing to pay for it now, because it's cheaper, takes a while for the housing stock to adjust. And then you have one less taxpayer than you used to.
Mike Simonsen 18:27
Yeah, interesting. And so you know, we call this the phenomenon, the Zoom towns, like the places that people move to to be on Zoom. And so just to sum that site up, it's like, Zoom towns are a long term trend, and and likely to keep self reinforcing there. And does that. So one of the things I try to do, and I'll probably bring it up a couple times in this conversation is, you know, we've had such a hot housing market. It's been across all price points across all geographies. And so one of the things I try to do is I am looking for signals of when that change it when, you know, I don't feel to me that doesn't feel like a bubble. But but but there's a powerful trend. And so at some point, the trend shifts, are there seeds in the Zoom town in the remote work trend that that either either finally derailed US housing market train, or maybe accelerat it?
Adam Ozimek 19:35
So the, you know, the house price growth is, it's like absurd, right. And I think the way that remote work affects house prices is going to be to exacerbate it in the short run, which it has done and then but it'll be helpful in the medium to long run. Because I think in general, what you're going to see is demand move from places that don't build to places that do Build. And so now the Zoom towns where you're talking about like a ski area like that's obviously not an example of a place that will will build. But if you're talking about like, you know, town in North Carolina, or Florida or south or even parts of Pennsylvania, these are places that are more likely to build than Manhattan, San Francisco, downtown areas. So that is a plus for cost of living in the medium to long run.
Mike Simonsen 20:28
Got it? Yeah, it's like the arbitrage plays out. And and those even out long, long term. So in general, it's kind of you see it as a as a bullish factor for the economy.
Adam Ozimek 20:39
Oh, my gosh, yeah, absolutely. Yeah. dynamism. Definitely. And, you know, for economic opportunity, too. And in places that have been sort of falling behind, I think we've had for a few decades now sort of opportunity gets like sucked up by superstar cities, and handful places in the country, are the places where you kind of feel like you have to move if you really want to have the best opportunities, and you really want to have access to high skilled jobs. So a lot of the country has losing their college educated workforce as they leave their moves to a handful of superstar cities. And then the rest of the country is locked for both the fall. And you know, an increasingly less educated population, because those skilled people that are leaving, because you know, skilled people get the biggest premium from living in those cities, I think, sort of leaning against that process, it's going to be something positive, in spreading up economic opportunity across the US is going to be positive, I think it's not good for places, when college educated people feel that they have to leave their to pursue opportunity that's bad for those places, not just because like, it's it's not good for the people who may have wanted to stay there, but didn't feel that there's opportunity, but it's worse, for those people who are left behind, you know, the people who would have been entrepreneurial who would have been, you know, more involved in civic engagement, you know, higher income higher taxpayers, for those people to be disproportionately leaving, you know, that's an economic problem.
Mike Simonsen 22:10
Yeah, for sure. And has been for decades. Right. And so do you think like Erie Pennsylvania is gonna, people are gonna go, Hey, why can I can go live there for super cheap and work remote? And, like, Yeah, seems to balance out back away from like, into the Rust Belt?
Adam Ozimek 22:29
Yeah, I do. I think that, you know, those are, if you look at a place that was previously losing skilled people, because they felt that the labor market opportunities there were good enough. Those are places that are going to, on the margin see a benefit. Now, it doesn't mean that you know, Erie, Pennsylvania is going to turn into desirable, the destination is Orlando, Florida overnight. But that's not what matters, when you're talking about what is going to happen on the margin, with respect to who leaves and comes. If it becomes better on the margin, it's better than it was, then it's more of a draw. had an easier time retaining people. And that's the other thing like there's, will people leave the cities and go back to these places. But in the long run, part of this is like, will people leave in the first place? And so if they don't feel like they have to leave, that's another way we increase population growth there.
Mike Simonsen 23:25
Yeah. Oh, fascinating. Okay. So that so that actually, let's shift the, the discussion to demographics. So one of the big reasons that people been late, like those are demographic shifts, we've got the boomers who are finally the late 70s, we have the millennials who are really driving a huge chunk of our homebuyer demand right now how to demographics fit into that whole thing. And then tell me about any, like things we should pay attention to demographically.
Adam Ozimek 23:59
So the millennial generation is a very large generation. And this was already going to probably be a period of high housing demand, because they are in their sort of peak, homeownership peak household formation years. And so we were already, you know, 2020 through 2025, or whatever, we're going to be seeing strong demand for housing as a result of that demographic. So that's like the big demographic factor. But then if you look across across groups, there's there's still a large hangover from the Great Recession in terms of both household formation rates, you know, the propensity to like live on your own, not live with roommates that live in your parents, and also homeownership rates. So people are away from roommates way from parents step one, and then they become homeowners. Step two. Both of those things, did not recover fully across demographics groups, not all groups, but most pronounced among the younger groups, but it's So extend across most groups, they did not recover from the Great Recession. So I think you're going to see some of that once we get to full employment. And we're getting some of it now with temporarily strong labor markets. I think those are that's a positive thing to see homeownership rates per turn. I think, you know, we were looking at some of us looked at Post screen recession trends is sort of inevitable and fate, but I think we're like permanent structural, I think that the return to full employment is going to be positive for for those trends.
Mike Simonsen 25:35
Got Yeah, for sure that the, the, the millennials have been driving a ton of it. Now. What do you think about the boomers, and they one of their trends is that they stayed in their homes a lot longer than previous generations, they own everything. So by still holding those, they're keeping home price their home inventory down? What do you see happening there? We're gonna get a flood of boomers finally selling when they hit 80.
Adam Ozimek 26:05
But that's a great question. You know, I think it necessitates sort of post single family options for boomers, right, or like, smaller single family options for Boomer boomers, I do think one of the interesting things is house prices, housing sizes have gone up so much over time, that like, boomers are sitting on a fairly large houses, I do think that might have been one thing that was sort of holding back household formation that like, you know, it wouldn't have been harder for a 30 year old son to live with his parents in 1960. In a 1960s house, we don't have you know, space than today, when you have like these, you know, not all McMansions but like, you know, bigger square footage, homes with lots of bedrooms, finished basements, it's easier for people to sort of stay with their parents, or their Uber siblings or whatever. And so I think that that that's sort of an interesting fact, that's probably held back formation a bit or maybe made easier formation to stay weak.
Mike Simonsen 27:07
That's fascinating. The I hadn't thought of it that way. But yeah, you know, you're in your, your cliche, classic story. And I had, you know, my nine siblings and my queens apartment, and you know, like, you get out as fast as you can. But then if you're, you know, I have one and a half siblings, and I've, you know, I've been in my, my white plain, how I like to live pretty easier. There is a basement that I can live in.
Adam Ozimek 27:36
Yeah, yeah. I've never seen I've never seen an empirical study on that. I just find a logic to be pretty compelling.
Mike Simonsen 27:43
Yeah, I had never occurred to me before. But that's really true. And and while there's some fluctuation in home size with the economy, it's not going back. Right? We're not We're not shrinking from here.
Adam Ozimek 27:58
So it's interesting to think about, because, you know, the fact that you have so many millennials entering their their, like, prime formation years, I do think that one of the missing markets is the starter home. And so, you know, to the extent that that's about zoning, I think that that is something we could, you know, lean against. And that might be something that would reduce the average house size, if we sort of got rid of the floor area ratio requirements, and the kind of zoning things that lend us toward bigger single family homes. Smaller settings,
Mike Simonsen 28:35
you think it's largely zoning that's preventing that the the single families from getting built? Or is it other building costs, like labor and things that that all of a sudden, you're like, if you're to get anything built is gonna cost you? You know, 250k? It's hard to well to ship. A real estate starter home.
Adam Ozimek 28:57
Yeah. So here's the what I hope, what I hope, because you have two periods, they're both missing starter homes, the post recession period, and also the pandemic period. My hope is that the post recession period was all about lack of demand. And the post pandemic period is simply about that temporary supply problems, and that when things get normalized the demand is back, and then the supply is there, and we can sort of return to a period of more starter homes. That's the optimistic case, the more pessimistic cases, the reason that you didn't have starter homes in these two very different periods. Is that a matter of regulation zoning, so to me, that's to be determined. I hope that the optimistic case permits true
Mike Simonsen 29:43
yeah, for anything. Well, so I look at things like the fact that we've had no immigration for a bunch of years so that we don't have homebuilders, so that the home builders we do have our end up focusing On the higher margin properties, and I am, it's probably a good segue to talk about immigration next. But it's like, I don't see how the price has come down dramatically. So that does become really good opportunities for new home builders. Maybe there are this some zoning changes, like in California is trying to add, you know, multifamily everywhere and some of the cities are becoming aware of it. But I and but but man, it's hard to, it's really hard for me to envision how prices, how it becomes more affordable for builders to build low ed, and therefore make those good moves. Not sure how the math works out?
Adam Ozimek 30:41
Well, I think we are still dealing with labor shortages. Right. And also, like you said, all sorts of other types of supply shortages. So you know, that's an area where it would become easier to build the low end houses, right, if there was some things up.
Mike Simonsen 30:54
Yeah. So let's talk about labor, labor and labor shortages. I know at the the Economic Innovation Group, you are talking about high skilled labor a big advocate for high skilled labor to come into the country? Are homebuilders high skilled labor?
Adam Ozimek 31:12
I would say, typically not although, you know, even though it's you'd argue they are, I suppose that some craftsmen would qualify for that. Yeah, that's a good, that's an interesting question.
Mike Simonsen 31:23
There are real I mean, there's some real reasons that, you know, the, the cabinet guy is, he's a real craftsman, and you can't just go, you know, hire a teenage kid to go make make cabinets.
Adam Ozimek 31:37
So, I think, to give them a slightly more technical answer, that there's no platonic idea of what high school? Right, so we can't point to definite definition that exists. It depends on what context you're talking about. And I think there are certainly many senses in which a cabinet maker craftsmen is high skilled, in a lot of ways, right. For the purposes of some immigration policies, though, the they may lean on education credentials as the definition of high skill. So to say someone has bachelor's degree or something like that, and sometimes they might even limit it to be a STEM degree, something like that. So I think in a, in a most realistic practical sense, what you're describing is correct, that there are a lot of high skilled people in the trades. I think that seems realistically true, whether immigration policy specifically recognizes that that would be dependent on policy.
Mike Simonsen 32:34
Yeah. Do you so? So we have a shortage? We have shortage across all skills right now. And is there any motion in the Biden world that we're going to allow some renewed immigration to help solve some of these things?
Adam Ozimek 32:53
If there is, I haven't heard it. So I've not heard much discuss.
Mike Simonsen 32:58
Yeah, you know, I like it's so distressing to me. I'm I'm super pro immigration, I feel like immigrants at all skill levels, add value to the economy. And so we should maximize immigration. One question I get, though, especially on Twitter when I espoused my position on maximal immigration, is people ask me about the housing impact? Don't don't we just make housing worse by letting a bunch more people in? Yeah, he said about that in that argument.
Adam Ozimek 33:31
Really great question. Really great question. In normal times, on average, the impact of immigration on housing is house prices is more significant than the impact on wages. And so as a like, big generalization, yes, that's true. I think it's important to be consistent about that. Because, you know, this is one reason why post recession, especially post house price bust, it didn't make sense to cut immigration to try to strengthen labor markets, because that was just going to further weaken housing markets, and post great recession, we were dealing with weak housing markets. So I argued at the time, and a lot of people did that we need more immigrants to help boost demand for housing, and that that impact was going to be bigger than than any impact on wage growth with plus or minus either direction. So I do think as a generalization that said, I think that there are some reasons why you could make that not be the case. And the reason why would not necessarily always be the case, I think we are now dealing with some acute shortages in some areas. And that if we could, that's labor short relative to demand in those areas. And if you could help increase output in those areas, because of the sort of part of the supply curve that you're on, if you can increase output and you could have pretty strong deflationary impacts. So I do think that there is a case be made that if you can get immigrants in who are in the acute shortage areas, that the impact on prices would be to reduce them rather than to increase them. The other factor is also that I think immigrants tend to, on their own go towards cities, more densities. And that's gonna be places where they tend to build less. And so the impact and house prices is going higher. Versus if you were, if if they were to embrace like, Visa Heartland visa proposal, which is what I've written about it, and EIG that allows it to move to places that are demographically struggling, and that's going to have a more positive some impact on house prices, because those are going to be places where house prices fall and we have high vacancy rates, issues like that.
Mike Simonsen 35:49
Me That's I do like the concept of Heartland view. I like I mean, I'm an immigration maximalist. So anywhere we can knock it down and get into
Adam Ozimek 36:00
Yeah, exactly. More more of every time, you know,
Mike Simonsen 36:04
The, okay, that's really fascinating. Let's shift gears to let's talk about the future, the next significant things that we should be paying attention to in the next, you know, 2 3 5 years, what do you see on the horizon, economically, or maybe even specifically to housing.
Adam Ozimek 36:21
So, my hope, if I, if I can think about the optimistic case, for the future, my hope is that we can get through the inflationary problems that we're dealing with now. more smoothly than we have been, and get to a place where we are at full employment where labor markets are genuinely tight and not tight in a way that's like, acute and temporary, like, it's not really actually a recipe for progress, for businesses to be unable to produce just their normal amount of output to be dealing with screaming labor shortages. Right. Like, that's not, it was one of the I think the biggest mistakes of the Biden ministration was when businesses were saying we have a labor shortage problem. They mistook that as being a sign of, Oh, good, like, the labor market is healthy. Not all labor shortages are healthy, and they sort of like had a knee jerk reaction, which is like, oh, businesses are complaining, they can't find workers, that's good. Like, let's ignore it just pay more. Like, that's not a solution to acute shortages, at normal demands, or like, you know, demand was elevated to so that was part of the problem. But like, I think that what we need is really tight labor markets due to everyone be back at work, right, like, so people aren't like, on the sidelines, but they actually have jobs. And even though everyone who wants a job has one, then we also have tight labor markets on top of that, and so that we're producing, you know, above and beyond the amount of output that we were, you know, genuinely tight, sustainably tight economy in a way that it's not going to, like, you're going to increase in labor supply and their wages are gonna have to fall like, it's just, I that's the genuinely healthy labor market. I hope we can get to I think, if we can do that, do it on a sustainable basis, because we've gotten better at monetary and fiscal policy, that I think that's going to generate a lot of positive spillovers for the economy that people aren't necessarily expecting. I think we're getting some samples that some tastes of that today, like housing markets and consumer durables, like this is what a more normal economy is going to look like when we're actually full employment. People were sort of tricked by the post Great Recession era, about what normal should look like. And I don't think that that was normal. I think that that was a hangover. And we can get beyond that hangover.
Mike Simonsen 38:54
That's a That's really amazing. So, so you said if we can get past the current inflation challenges, because we are smarter at monetary and fiscal policy, do you believe that we are smarter at monetary and fiscal policy? Sort of in general right now?
Adam Ozimek 39:11
Have we grown up? Yes and no. So we learned one important mistake from the law recovery from the Great Recession. And now we're learning another mistake,
Mike Simonsen 39:24
A lot, the mistake and the great recession is that we underspent for that.
Adam Ozimek 39:29
We understand that was the first mistake, not enough fiscal fiscal spending, but then we also started raising rates way too early. Like we were raising rates, you know, 2015, when the economy was clearly, you know, 2019 pre pandemic, we weren't at full employment yet. So we started raising rates for years, for at least four years before the economy had reached full huge mistake, all about under estimating the potential of the economy and mistaking temporary problems for permanent problems.
Mike Simonsen 39:58
And you were saying you say We were We were not at full employment because we unemployment was still falling. But inflation wasn't rising. So that's right. Like, like there's still room to go until we hit that inflection point.
Adam Ozimek 40:10
That's right. So, you know, maybe we had another two years left, which means that, you know, we would just be 2021 would have been enninful, employment, maybe 2020, something like that, like. So. That means we had started raising rates six, seven years before, full employment. Think how crazy that sounds now, right. In retrospect, I think people get that, certainly the Fed gets it. Now, of course, we've had to learn a little bit of mistakes on the other side, too, which is that yes, you can spend too much too fast. And now we just have to have a more holistic view that it's possible to spend too little, it's possible to spend too much. You know, don't underestimate the economy, but also don't try to push GDP to 7% of our potential one quarter, you know, yeah. Frankly, was not a lesson that I think we needed to have. I think both times I think it was they were avoidable mistakes, unfortunately. But my hope is that on the other side of two very different shocks, two very different policy mistakes that we'll do, you know, have learned.
Mike Simonsen 41:20
That's okay. So And right now, though, we're in we're a big inflation. And we're also in a tightening cycle, right? We're starting in tighten into it, are you? What do you think about recession? Like, are we We're almost inverted on our yield curve is, is recession coming? We're gonna just take our way out.
Adam Ozimek 41:38
I would say, pre Ukraine. I was pretty optimistic. So I think that pretty Kate crane, we really were about to be entering a doorbells turn where the doorbells boom turned into a mild doorbells, bucks. I think, I think some of the spending on doorbells was new household formation really build that many new houses, we build that a new apartment. So it's not that formation, we just don't have we didn't have the capacity to absorb that much information. So I think a lot of the durable spending was pulling from the future. And so when you pull from the future, that's eventually going to come back to buy you with lower demand at some point. I think that that's the period we were getting ready to enter and I hope we are getting ready to enter it. Because when you're at that part of the supply curve, where you're just like prices, you're not making that much more, you know, and you're just bidding prices up, up up above, it's sort of you ride that up, and you ride it back down, right, you ride up the vertical supply curve, you write it back down, and my hope would be that a mild durable bust would be provided the deflationary pressure we need. Meanwhile, services continue to rebound and are able to absorb any workers just placed from that, and that inflation will normalize. That was my Outlook. I'm more concerned now because of the impact of Ukraine crisis on energy prices. And I would say it's still my view that the durable turn is coming. And that's going to provide the fed enough comfort even if your headline inflation remains high. If they see some of these durable prices, quickly heading in the right direction, that's going to give them the confidence to not overdo it. But it's certainly the risk that energy prices are going to hit us hard and start spreading throughout the economy. And sort of cause the Fed to be concerned that we'd be looking at too long of a period of headline inflation, even if a lot of that is energy prices, which we're supposed to look through. They're going to worry it's going to become an anchor and they're gonna go too fast on the hikes they're gonna cause a mild recession. That's my concern, I'm still think the most likely outcome is the more optimistic one. But if we don't see that durables turn start showing up the next few months, the Fed is going to be their hand is going to be pretty forced to start raising faster.
Mike Simonsen 43:54
Right. So that's the that's the trick. So the durables term meeting, watching the inflation numbers, consumer durables, things like washing machines and stuff like that, which had been going nuts, right? Prices, so far been going nuts this year. And so we'll be watching for them to to start declining and if they start declining, then that means that the Fed is going to can assume that inflation will be cooling and therefore won't be feeling as compelled to hike rates.
Adam Ozimek 44:27
Correct. The other part of it is and be one of the things that's helping to drive normalization is normally when you look at a recovery for a session, you're seeing the kind of massive job growth that we're seeing. It's a sign that labor demand is getting stronger, which is inflationary, because that means wage growth is going to get stronger. But labor demand has been strong for you know, a year now what we're not what we're seeing these hundreds of 1000s of jobs every month is not a stronger labor demand stronger labor supply, which is totally different than the normal jobs are covered. People are coming back to work. And so that's not going to be inflationary, that's going to be disinflationary, because businesses are gonna have an easier time finding workers, they're gonna be able to increase output, they're going to be able to not have to pay as much. So calling pressure on wages, so you can't look at your normal business cycle correlations right now, you can't say jobs are growing fast, aka, that's inflationary. It doesn't work when you switch labor demand for labor supply.
Mike Simonsen 45:27
That's fascinating. So jobs are growing, but it's they're growing because, like the the some of the boomers who retired early are now unretiring. Exactly. Huh. That's super cool. Okay, so So then let's say we durables blow through and we have to keep hiking. And then we roll into these called a mild recession. And, you know, this is one of the things on my mind. So is, in a mild recession of recession coming, I assumed when we had first COVID lockdown, we threw lost a million jobs, I started doing our weekly videos with our data, because we assumed the market was gonna crash. Everybody's out of work, demands gonna crater market's gonna crash. There's three weeks of crash and then recovered. So, you know, one of my things I've been kind of publicly speculating about recently is what if in a, in a 2023 recession, the American homeowner says, gee, I have a 3% mortgage locked in forever, I got a ton of equity. And even though you know, I, my rents have been climbing for a long time. And so and in there still inflation. Like, even if I'm worried about jobs or things like that, like, what if in that refreshed recessionary environment, the thing I say, the most important thing for me to do is not sell my house, like does a this housing hold up it? Or even, you know, help pull us out of a nexus of a potential recession? Or is there another scenario where, like, you know, the knee jerk reaction is up, recession is going to happen, people are going to start panicking, and they're going to sell everything. What do you think is most more likely it for housing in the next recession?
Adam Ozimek 47:22
It's a great question. There's two sides of this larger. So on the one side, I think you have this sort of structural factors pushing for more housing demand, the millennial household formation, remote work making housing more affordable pushing people to buy housing in the areas where they build more. Those are structural factors that I don't think you're going to be significantly dinged by especially when it probably be a mild recession, right. Like the Fed raising rates too fast. I don't think inflation is become so unanchored that they really do like, go while this isn't 1982, or whatever, Powell is not going to have to pull a Volcker moment, I don't think so I don't think we're in a kind of major crash that's kind of like, upset those structural things. And in that case, I do think you're right, those those forces, because they've got structural momentum behind them could be something that helps push us through that correction. What I say on the other hand, is the extent to which house prices become so divorced from fundamentals is the kind of thing that doesn't use, right. And it's really easy to look in history. You know, we say, well, this time is different with house prices. But like, it just, this isn't very scientific, right to say this, but when house prices get that high, just your spidey sense, because often this doesn't, you know, this is risk, right? Like this is risk that we are in mispricing points. So that's not my forecast. But when house prices have moved that much, you can't not think of it as a rescue. absolutely have to think of it as a rescue.
Mike Simonsen 49:03
Great, great, great way to sort of wrap up the the thinking that we already blew through an hour, but so let's let's wrap up with to you and Upwork you did some great, but really readable publications and stuff, or is that what do you what are you doing at that economic innovation group? And like, is that are they are they going to be you know, Twitter bowls? Research?
Adam Ozimek 49:25
Yeah. Yeah, I only do easy to understand stuff. Okay, that's that's all but I do so yeah. So yeah, it'll still be public facing research and reports. And I'm still going to be doing remote work stuff for sure. There's still so many important questions to address there. And so much important research, including on the housing market, there's like really, there's a lot of, I think, undiscussed areas of remote work and housing so far, especially we talk about the impact of the future. How does remote work change change the type of community Build, how does it open up possibilities for new ways of living new types of communities in new places? There's so much so much there. And that's just part of it. So yeah, long answer short, I'm definitely going to be keep producing readable research.
Mike Simonsen 50:16
That's great. Where can people find you?
Adam Ozimek 50:19
Oh, you can find me at Twitter on model behavior. Model behavior. Yep.
Mike Simonsen 50:23
Yep, that's that's the best place to find les put best with funny. Terrific. Adam, thank you so much for the time today was really informative. I'd love to, to get the context around the data. So validate some of my hypotheses, and really plant some seeds for me for good thinking. Thank you so much, and we look forward to much more with you.
Adam Ozimek 50:46
Thanks. Glad to be here.
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