In this episode of the Top of Mind podcast, Mike Simonsen sits down with Dr. Jenny Schuetz, Senior Fellow at Brookings Metro, to talk about the impact of policy on the housing market. Dr. Schuetz provides insights into how policy can help make housing more affordable, which cities and states are doing a good job with housing policy, and reasons to be optimistic about fixing our housing crisis. She also shares some of the key findings from her recent book: Fixer-Upper: How to Repair America’s Broken Housing Systems.
About Dr. Jenny Schuetz
Dr. Jenny Schuetz is a Senior Fellow at Brookings Metro and is an expert in urban economics and housing policy. She has written numerous peer-reviewed journal articles on land use regulation, housing prices, urban amenities, and neighborhood change. Dr. Schuetz has appeared in The New York Times, Wall Street Journal, Washington Post, the PBS NewsHour, The Indicator podcast, Vox, and Slate.
Dr. Schuetz is the Author of Fixer Upper: How to Repair America's Broken Housing Systems. Topics of recent research include: how statewide zoning reform could improve housing affordability, local strategies to help renters during the COVID-19 crisis, rethinking homeownership incentives to narrow the racial wealth gap, and how housing costs exacerbate economic and racial segregation.
Before joining Brookings, Dr. Schuetz served as a Principal Economist at the Board of Governors of the Federal Reserve System. She was also an Assistant Professor at the University of Southern California and a Postdoctoral Fellow at NYU Furman. Dr. Schuetz is a Nonresident Senior Fellow at GWU’s Center for Washington Area Studies and teaches in Georgetown’s urban planning program.
Dr. Schuetz earned a PhD in public policy from Harvard University, a master’s in city planning from MIT, and a bachelor’s with highest distinction in economics and political and social thought from the University of Virginia.
Here’s a glimpse of what you’ll learn:
- Which policies have contributed the most to the current housing inventory crisis?
- How policy can help make housing more affordable
- The challenges caused by using homes as a source of wealth
- How we should be thinking about climate risk and housing
- Which cities and states are doing a good job with housing policy?
- Reasons to be optimistic about fixing our housing crisis
Resources mentioned in this episode:
- Dr. Jenny Schuetz on LinkedIn
- Dr. Jenny Schuetz on Twitter
- Brookings Metro
- Fixer Upper: How to Repair America's Broken Housing Systems by Jenny Schuetz
- Homelessness Is a Housing Problem: How Structural Factors Explain U.S. Patterns by Gregg Colburn and Clayton Page Aldern
- Mike Simonsen on LinkedIn
- Altos Research
About Altos Research
The Top of Mind Podcast is produced by Altos Research.
Each week, Altos tracks every home for sale in the country - all the pricing, and all the changes in pricing - and synthesizes those analytics to make them available before becoming visible through traditional channels.
Schedule a demo to see Altos in action. You can also get a copy of our free eBook: How To Use Market Data to Build Your Real Estate Business.
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 0:13
Mike Simonsen here. Thanks for joining me today. Welcome to the Top of Mind podcast. This is where I talk to the smartest leaders, thinkers and doers in the real estate industry. For a few years now, we've been sharing our latest Altos Research market data. Every week in our weekly video series with the top of mind podcast, what I'm looking to do is add some context to the, to the numbers of discussion about what's happening in the market and where we go from here. From from thinkers, leaders who look at things differently from from how I do every day. Every week, Altos Research 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 so hot, and then it cooled off, looked like it was mellowing. But all of a sudden, things are changing really fast again. So when people asked me, Mike, can I get the data for local markets? The answer is yes. Go to altosresearch.com You can book a free consultation, we can talk about how you use the market data in your business. And we'll take it from there. So without further ado, though, I'm just ecstatic to introduce my guest today, Jenny Schuetz. From the Brookings Institution Jenny is a senior fellow at Brookings Metro, and is a expert in urban economics and housing policy. She's written a number of peer reviewed journal articles on land use regulation, home prices, urban amenities, neighbourhood change. And she's all over the media in New York Times and the Wall Street Journal, PBS Vox many more. Before joining Brookings, Jenny served as the principal economist at the Board of Governors of the Fed, and has spent significant time in academia. She's currently a non resident Fellow at George Washington University's GWS Center for Washington area studies and also to teach us at Georgetown's urban planning system, urban planning programme, and my daughter is a student at GW. So maybe we'll talk about GW today, because she isn't busy enough. Jenny is also the author of Fixer Upper: How to Repair America's Broken Housing Systems. And so I'm super interested in this today, because, you know, we talk about the data, we talk about why homes are unaffordable, and why they might stay on affordable. Why with certain tax laws are so destructive, or certain places are at such risk. And in all of those dynamics, and Jenny's done a tonne of deep study in the area. It's in the book. And so we're gonna dive into all kinds of really fascinating things. We're not going to talk necessarily about home price trend s this week, but we might talk longer term future. So with that, Jenny, thank you so much for making the time to talk to me today.
Dr. Jenny Schuetz 3:23
Thanks for having me.
Mike Simonsen 3:24
All right, let's so let's get started by helping my our listeners understand about you a little bit in and Brookings and what you do there.
Dr. Jenny Schuetz 3:36
Sure. I'm an urban economist by training. I've been at Brookings for about five years now. And I focus on primarily housing affordability, housing policy, what makes housing markets work or not work across the US. And in particular, I My work is very focused on helping policymakers find solutions. So pointing to problems is helpful up to a point, but what we really need is to have solutions on the table, and to identify who can be doing things differently to get us to better outcomes.
Mike Simonsen 4:06
Yeah, your book has, each chapter has solutions, like, these are not just problems, but these are proposed solutions. And I'm looking forward to talking to, you know, about a lot of those solutions, and and whether you're finding traction in some of those solutions, you know, you also spent time at the Fed? And do you have your thoughts about the Fed and housing and mortgage markets? Like is that something we should put on our conversation today? Because, wow, what a couple of years. It's been in that in that space?
Dr. Jenny Schuetz 4:38
Yeah, so I should say that I was at the Fed in the Community Development Division, so not the part that feeds directly into monetary policy and interest rates. I actually stayed pretty far away from monetary policy. And I will say that most of my research actually focuses more on the rental market, because that's where low and moderate income households have to be, but we can definitely talk a little bit about sort of what interest rate hikes due not just to the homeownership market, but also to the rental market, which I think is a really important and under discussed topic. Yes,
Mike Simonsen 5:08
let's definitely we're gonna definitely hit that today rents and interest rates. People People asked me, we talked about that a lot, in fact, on this podcast and in other places where it's where people assume that very often people assume that home prices and rents are, are substitutes for inverse from each other. If people aren't buying homes, they're going to rental demand is going to go up. And we found over time that that's not true that that they are going up at the same time, or they're falling at the same time. And it's sometimes counterintuitive to people. So awesome. So let's we'll definitely do that. Before we dive into the deep details like that. Let's start with the book, Fixer Upper: How to Repair America's Broken Housing Systems. I'm interested in like, let's talk about the big conclusions, the big messages. I also like in the subtitle you call it housing systems. And so it's not just one. And so let's maybe start there. Tell me about the systems that we're looking at.
Dr. Jenny Schuetz 6:11
Sure, one of the reasons that I wrote the book is to help people who are not deeply embedded in the housing world think more holistically about all of the things that feed into housing outcomes, housing choices, you know, and for those of us who work in housing, we know, of course, this is really central to a lot of facets of people's well being. It's not just that you have to have a house to live in shelter over your head. But the location of where you live is so important for a lot of other outcomes, where you are relative to jobs, and to public transportation, and all kinds of neighborhood amenities, you know, where families live determines where their kids go to school and the quality of their kids school. And so a lot of the things that we don't think of is directly related to housing, like school quality, and infrastructure decisions about where we're building, roads, and transportation systems. All of those are really important to housing as well. So the book goes through a couple of different pieces of kind of the big problems starting with we just don't have enough homes for people to live in, we haven't been building enough homes nationally for about a decade, then we have the second affordability crisis, which is that low income households don't earn enough money to afford decent quality housing. And we don't really provide that much financial support for most poor people. So those are the two affordability crises that most people are are aware of, to some extent. But then there are lots of things that feed into this. Things like our reliance on homeownership as a form of wealth building, which is subsidised through the tax code, the way we pay for things like neighborhood infrastructure based on property taxes, which again feeds back into the housing market. So there are a lot of these complicated layers of policies that all determine the housing outcomes that we see. And I was trying to help people think through a little bit how they fit together. And in many ways, our current policies are reinforcing bad outcomes. Not enough homes of the right type in the right place, too many homes in the wrong place. And poor people who can't afford decent quality housing anywhere.
Mike Simonsen 8:11
Yeah, and those are I mean, many of those are sort of indisputable, we have a real affordability crisis. It's been exacerbated in the last couple of years, and and at the same time home owner have gained such wealth and are in such a solid place that we've we've, we've like we talked about this, sometimes it's like we've in service of the boomers who own their homes, we've priced our kids out of the market. Is that a solvable thing?
Dr. Jenny Schuetz 8:49
Well, it's solvable if we can get the politics, right. And that's really the critical sticking point for all of our kind of bad outcomes. We know the policy fixes the technical fixes, in some sense, we need to make it easier to build moderately priced housing in places with high demand. And we know some of the policies it would take to do that. We need to provide more financial support across the board to low income households. We also need to rethink the way people are getting into homeownership and some of the protections in the rental market. All of those are doable policies. But the politics around this stuff are really hard, in part because of the generational divide that you pointed out. There's such a split at this point between households they over the age of 40. And under the age of 40, on whether or not they own a home, whether they are building wealth through the home that they have already purchased, or whether they are locked out of this, spending a bigger and bigger share of their monthly income on rent, which makes them unable to save and seeing prices go up which means the amount they need to save goes up and up. So there's really this sense for a lot of younger households that the system that worked for their parents and grandparents is just is not accessible for them. And there's a lot of generational anger about that.
Mike Simonsen 10:04
Yeah, yeah, there sure is. And the Yeah, I think there's a great line in the book where it says the, you're talking about how our homeownership policies are focused on generating wealth for homeowners. And that sort of by definition makes them really toxic voters. Tell me about that. Yeah,
Dr. Jenny Schuetz 10:28
absolutely. You know, I mean, for middle class households, especially their home equity is the largest single financial asset. So this is anywhere in between, you know, 50 to 80% of their net worth is tied up in their home equity, that makes people really sensitive about anything that they think might lower their property values, or even just slow the rate of increase at this point, I think part of the problem is that homeowners have gotten so used to the idea, my home's value should go up by 10% Every year, and if it's only going up by 6%, I'm somehow being ripped off. But that means that homeowners that are very protective of their neighborhoods, and they will show up and fight against proposals to build, not just affordable housing, but you know, market rate apartments or any kind of development, you know, commercial development that they don't want in their neighborhood. So a lot of the problem that we see is this idea that current homeowners have a lot of political power. They don't like change personally in their environment, and they don't want change that might be financially threatening to them. And so they just stopped development altogether, and essentially shut down the process of cities being able to grow.
Mike Simonsen 11:35
Yeah, it's what feels intractable to me. But I'm optimistic by your your proposal, some of your proposed solutions like we have, we have visibility on what the good policy is. Tell me about the you know, one of the chapters is about, like, we need to build where people want to live. Tell me talk to me about that.
Dr. Jenny Schuetz 11:54
Yeah, so you know, when markets are working well, developers want to build homes and places people want to live, because that's where they can charge high prices or rents for their finished product. So we would expect there to be a lot of development in high demand locations, right. And across the country. This means that metro areas like New York, and Boston and DC and San Francisco and Seattle, the places that have really well paid jobs and vibrant dynamic companies. That's where lots of people want to move and get jobs in those industries. Those cities have seen housing prices go up, but they haven't actually seen nearly as much new development as they should have, because they've made it really hard to build. And we see the same dynamics. If you look within metro areas across neighbourhoods, that communities that are closest to the job centers closest to public transit, have the best public schools and parks and amenities, those neighbourhoods ought to be building more homes so that more people can live there. But those are often the places that build virtually no new housing. And, you know, essentially, the problem is local governments control the supply of housing, you have to get permission from your local government to build a single family subdivision or an apartment building on a parking lot. Any kind of change to housing has to be approved by the local government. Local governments have adopted rules through their zoning code that often make it very hard to build, especially to build higher density homes. And local governments have created a process where existing homeowners have disproportionate power to veto things they don't like. So it's both the rules written down on paper and this political process of approving housing, that have kept us from building enough homes in the highest demand locations. And there's a national price to pay for that, you know, the, the GDP of the US hasn't grown by as much as it should, because we can't build enough homes in these high productivity places. companies can't hire and retain workers, people can't move there. So they're real economic costs to
Mike Simonsen 13:51
this. Yeah. Is that is that is that measurable? Like there's a measurable GDP out because we're not building where people need to live.
Dr. Jenny Schuetz 14:00
There is there's a famous paper by a couple of economists out of Berkeley, Enrico Moretti and his co author, she who find that the GDP grew by about a third less than it should have over about over a 40 year period of time, but right GDP is about a third less than it should be, because we haven't built enough homes in places like the Bay Area.
Mike Simonsen 14:20
Wow. So so we know that the Bay Area is messed up with its housing construction. But people also want to live in the Sunbelt. They're moving to Texas and Arizona Vegas and you know, in droves. Are we building enough there?
Dr. Jenny Schuetz 14:37
We have been until pretty recently. So since when I started working on the book, which is almost three years ago now, at that point, we were still building enough in places like Phoenix, Las Vegas in Texas, to keep up with demand. One thing we've seen in the pandemic is that it is supercharged demand for a lot of these kind of second cities. Where the the places that had elastic housing supply, good climate, had lots of jobs were good places to live. Lots of people wanted to live in places like Seattle and San Francisco and move to places like Austin and Houston. And they are now having trouble keeping up with the growth just because it's so rapid. So that I think is a question mark, whether over the next couple of years, those metro areas start to get back to a little bit more kind of housing prices that look a little more consistent with overall inflation instead of sort of rapidly outpacing it. And that's, you know, that's one of the things that I do worry about, if places like Denver and Austin Nashville, that used to be kind of a safety valve for the really expensive cities, if those places become more expensive, and especially if they start cracking down on development and becoming more cautious about building, then we're really going to be in trouble, because they've been absorbing a lot of the excess demand.
Mike Simonsen 15:55
Yeah, there's actually a tension that that comes up in the book, because one of the other challenges that you talked about, and I think about a lot because I live in Northern California, is are the climate implications. And, you know, like, I can't get fire insurance on my, my house mountains. And, you know, the, the, you know, or, I mean, it's hurricane Ian this week, you know, and, and so, but people want to move from New York to Fort Myers, Florida, dramatically. So how do we balanced that tension?
Dr. Jenny Schuetz 16:32
Yeah, I mean, that's such an important point. And there, there are a couple of different ways that we can think about it, you know, the, the New Yorkers who want to move to Fort Myers for kind of lifestyle and climate, you know, Florida has had a very building friendly industry for a long time, this state has really, you know, allowed a lot of growth encouraged a lot of growth, including in places where probably people shouldn't be living. So we've built a ton of houses in South Florida, which not only gets hit by hurricanes, but it's caught persistent sea level rise. So they're gonna be a lot of houses that are literally underwater all the time, that should never have been built there. But we haven't priced climate risk appropriately into things like homeowners insurance or into mortgages. So in many ways, consumers haven't had the right information to make a decision about whether they should or shouldn't buy a house, because that hasn't been available to them. And there's actually just recently there was a great study that came out by Redfin, where they started showing some people climate risk scores on the individual properties that they were browsing. And they saw that after a couple of weeks, people who saw these climate risk scores are looking for lower risk properties. So when we give people the information, they can make good decisions, but we haven't done that consistently so far. Yeah. And part of the problem does go back to the fact that these really high opportunity cities haven't been building enough homes. Right. So the city of San Francisco is one of the lowest climate risk places in the Bay Area in Northern California. If they built more homes, there would be fewer people living, you know, closer to the wildfires out on the urban edge. Right. So it is it is still the problem that if those cities made it easier to build, we would have less of a suburban sprawl in really high risk areas.
Mike Simonsen 18:16
Yeah. And I think that the, the, the reality is that the those climate risks are priced in, they're just paid by the taxpayer as opposed to the homeowner. And and it's such an indirect tax that we it's really hard for us to process.
Dr. Jenny Schuetz 18:38
Yeah, absolutely. I mean, US taxpayers are going to pay to rebuild a lot of the homes in Florida that have been hit this week by hurricane Ian. But that's going to get bundled into the overall federal budget, right. We don't have a line item for FEMA and disaster recovery. So we're not gonna know how much more our taxes are going up. Because we have these persistent disasters. Right? The better way to do this is if you want to buy a house in Florida that's close to the water and it's likely to get hit by a hurricane, your mortgage interest rate ought to be, I don't know, three percentage points higher than somebody who's buying further inland. Got is a really, really touchy subject for Fannie and Freddie and all of the kind of the federal regulators looking at mortgages,
Mike Simonsen 19:22
for sure. And not just the mortgages, but the insurance companies are so heavily regulated based on what they can even look at at the data. It's really fascinating. I do that Redfin and Daryl fairweather, the chief economist at Redfin has done really good work highlighting the climate change risk in our, in our housing future. And so, it's like it it's something I think about a lot people ask me, you know, should I be buying a house in Northern California? Like, you know, I got to point out that, you know, in the last five years, you know, the prevalence of smoking like those are, those are seem significant. Utley new hurdles in our world and they don't seem to they seem persistent from here. So like, it's a real, it is a real change that that I don't think we've run into yet. You know, and we,
Dr. Jenny Schuetz 20:11
I mean, it's such it's such an enormous problem and scary that a lot of times people look at this and they just panic and get paralyzed. And so we're not making the decisions, we need to, we're not introducing risk based pricing where we need to, you know, we're not taking the steps to retrofit our existing homes to make them more resilient. Because this just seems so overwhelming.
Mike Simonsen 20:32
Yeah. So so the, the the information like putting a climate risk score on every listing is an interesting thing that may not be on people's radars, are there other other things that you see solutions that like have outsized gains, or things that aren't on people's radar as they go? Oh, that'd be easy. We don't actually have to go change all the mortgage laws or get local voters to you know, change their entire, their entire universe? Like, what are some of the things that would be like big wins? Or, you know, here's the one that that like, I can now go to Twitter and be an advocate for?
Dr. Jenny Schuetz 21:11
Yeah, I mean, on the housing production side, I think it is a good sign that state governments are leaning more into what local governments can and can't do with their zoning and their housing production. Because, you know, fundamentally, we're not going to get every single city and county in the US to change their zoning laws in ways that make it easier to build. But state governments can put pressure on their localities that are not doing enough, right, this, this doesn't have to be pressure on every single city and county, it's the places that really need to do more. And so we're seeing you know, California has stepped up a lot, but a number of other states. You know, places like Utah and Maine have also passed some statewide zoning reforms. And so I think in general, that trend is really helpful. One of the things that I would like to see more on kind of the state reform, there's been a lot of focus initially on ADUs accessory dwelling units, and on duplexes, as sort of you know, low hanging fruit. It's not legalizing apartment buildings, but you can do a little bit more. I would actually like to see more focus on row houses as a structure type he was in duplexes still aren't that common. So you know, an adu can be added to a single family detached house in a couple of different ways. But it's a it's a pretty small dwelling unit. We're relying on individual homeowners to do that, you know, duplexes, we just we don't build that much. There's not an industry. But the nice thing about row houses is we build a lot of them already, right? The homebuilding industry knows how to do this. You can get a lot of homes on a small piece of land, they work for homeownership, they work for rental, they're pretty economical. You know, we know how to do this. And, you know, imagine legalising growth houses statewide in California, every single family neighbourhood, you got a bunch of places with houses on two acre lots, you could put a whole cluster of row houses very efficiently on one lot and give homes to a whole lot more people.
Mike Simonsen 23:01
Yeah, that's a great one. So it's like the, you know, the hobbyist urban planner and me is like, you know, love to walk through Paris. It's like the perfect city. It's, you know, the four story walk up row houses, it's like, it's like the perfect density for humans, you get, you get the Creative Density and the you know, the impact of the community. But it's not like, you know, the high rise where, you know, you go into your parking slot and go into your elevator and never see anybody either, it's like, it's like, that's like the real mix there. Yeah, and it's the
Dr. Jenny Schuetz 23:35
right density to support neighborhoods serving retail. So you get rowhouse neighborhoods, you can easily integrate some commercial or some commercials and restaurants and grocery stores and things nearby, which makes it then easier also to do the sort of, you know, 15 minutes city where people don't have to drive everywhere, and they've got things close by, it's a pretty economical sort of costs space relative to high rise construction, which can be very expensive. So, you know, I think we should think in terms of creating rowhouse neighborhoods in as many places as possible, and integrating this kind of neighborhood retail as well, especially in a work from home era that works really nicely for people's lifestyles.
Mike Simonsen 24:12
Yeah, I like it. I think that's really makes a lot of sense to me. The the, it actually, though, gets to one of the other tensions, which is, you know, people still like their excerpts. And they like be are they I don't know if they like being in their cars, but they certainly keep opting to be in their cars and driving out to the excerpts. And as far as from the data, I've seen that it doesn't seem like we have any real slowing in the suburban or ex urban migration. Is that accurate?
Dr. Jenny Schuetz 24:46
Yeah, that's right. And if anything, we saw extra sort of moves to the suburbs and excerpts during COVID Because people were looking for a bigger home that has a home office, little extra space. And if you're only going into the office, one search twice a week instead of five days a week, the longer commute is okay. So, you know, in a sense, the last couple of years have been pretty bad for encouraging people to move farther out, I think there's still some questions about how long people are going to be able to work from home. And so there may be some reversal of that coming, as employers call people back to the office. But the other thing is to realize that we've got a lot of subsidies baked into suburban lifestyles. So you know, the government takes 80% of the federal gas tax and spends it on roads and car infrastructure. Only 20% goes for things like public transit and walking infrastructure, right. So the government is paying for a lot of the costs of extending roads out into the excerpts. There's also a pretty heavy subsidy for water and sewer infrastructure that gets extended out. Often that's more expensive than reusing what we already have in the urban core. Plus, we have, you know, the subsidies for people to take out larger mortgages. So we're encouraging people to buy expensive homes out in the suburbs to drive their cars on the roads. And if you subsidize that lifestyle, we shouldn't be surprised that more people are choosing it, right. So it's not that we need to ban cars and ban the suburbs. It's more levelling the playing field and having more financial support for kind of a walking lifestyle in a dense urban core, including a lot of the suburbs, right. Many of our schools, our older inner ring suburbs actually have, you know, they have good bones, they have a commercial downtown, they have smaller streets and smaller grids. And we could just make more use of the inner ring suburbs, rather than continuing to build out and out and out.
Mike Simonsen 26:35
Right, some say, revitalization. And some of those downtown revitalization things are pretty cool. There's some really neat activity that happens there. Are there any of those that that stand out to you is particularly good examples of stuff we should emulate.
Dr. Jenny Schuetz 26:49
So I actually like to think about what we can do with kind of the suburban like the suburban office parks and malls, which have been losing occupancy for a long time, right. So we're gonna have a ton of dead malls. Right, retail has gone so much online, that the big shopping centres just have a hard time making it work. Those are great opportunities for doing creative redevelopment, doing some mixed use residential, commercial, walkable, potentially even some some office, there's a great example near me outside of DC called the mosaic district in Fairfax County. It was single storey commercial with a giant surface parking lot. They've done a beautiful mixed use development there with lots of public space. And if you go on the weekend, it's just packed with people who go there to hang out, walk around the public space and listen to concerts and things. So it's much better than than what was there. And we've got a tonne of sites like that, you know, the suburban office parks are in real trouble. And there's a lot of land there that you could reuse. So big Master Plan developments in places that already have the infrastructure.
Mike Simonsen 27:49
Yeah, you heard a good comment recently, it was something like, you know, Americans, you know, get in their cars that drive every place. But when when we want to go to a vacation, and we want to go to a place to relax and have fun, we go to a place that we can walk. And so it's a really fast like, but we keep buying places that we drive to, I wonder if we can get to a world where we recognize that we really like to be in walkable areas most of the time.
Dr. Jenny Schuetz 28:17
I mean, it's amazing that places like the villages in Florida, right? The retirement communities, what do they look like? They look like pretty dense homes organized around little public spaces for people to get together and socialize. You take a golf cart around. Why don't we build just normal housing for people of all ages? That looks more like that?
Mike Simonsen 28:35
Yeah, yeah. Turns out people like that. You mentioned work from home, and the work from home trend. So I talked with a lot of my my guests about this trend about its persistence and its impact the market and and and so there's a couple of things that I'm, I'm curious about your take on this. So you mentioned that maybe you think that it may be fading, like we may get more return to the office. But are there implications for, like infrastructure in a world where, let's say, so I live and work in San Francisco, and I have an office, I'm in my office now. But you know, there's 25% of this space is occupied. And I don't see it coming back. Like I like to go to my office to have my creative space, my light over here and things like that. But but you know, most people don't have the luxury of being only 15 minute drive, hop in. And so being home is really nice. And for a lot of people, and so does that. Are there are there infrastructure implications, tax implications, like what do we think where we going?
Dr. Jenny Schuetz 29:49
Yeah, no, they're there. I think there are a couple of big question marks still about this. So San Francisco, New York and DC are three of the cities that still have pretty I work from home rates, lots of other parts of the country are basically back to where they were before. So this is kind of localized. And those are the places that have the the longest commute. So it's understandable, those are places where people are reluctant to come back in. I think two of the big implications one is for the office and commercial real estate market in the urban core, what's going to happen to all of those offices that are 25%, occupied, 30% occupied, right, so they're not completely empty. And in many cases, you know, the office tenants are still paying on the lease, but they're just not using it right. And at some point, we have to decide if some of that should be turned over to other spaces, and how to make that happen, right, which is not that cheap and easy. The other piece that makes me really nervous is that our public transportation systems have just gotten hammered. So transit ridership in all of the major metros is way down from where it was, both because office workers aren't going in as much. And when people are going in, they're more likely to drive than they were before. That's particularly true for the trains. Because train riders tend to have higher incomes, bus ridership is getting pretty close to where it was before, because those are people who don't have cars, and they really rely on bus systems. But it might suggest that we need to the transit agencies need to shift their delivery, right, they have run trains primarily for sort of heavy commuting in from the suburbs to downtown in the morning and reverse in the evening. Fewer trains during the days, nights and weekends. But it looks like transit, it's more now being used for people who are doing entertainment and socializing. Not necessarily for commuting rights, the hours don't align, you know, buses give you more flexibility in where you run the routes. And those are serving people who really need the transit. But I think transit agencies have not yet figured out what to do and how to adapt, they are financially really hurting with this, they've been propped up by some temporary federal funds, but they're going to have to go through some major restructuring and figure out what consumers are going to use.
Mike Simonsen 32:00
Yeah, like, what I took the subway in San Francisco the other day, to the to the office, and, and rarely, rarely do it, I get my car, I drive, you know, even it's a couple minutes across town, but I took it in it's you know, it was, it was lovely. It was, you know, it was there were people there and it wasn't totally empty. And, you know, it was like, you know, it was a lovely, efficient, but it was, it was like, you know, even my little parking garage, where I parked the car, you know, even even driving is, you know, is you know, two and a half years ago, if you showed up at 10am, you're screwed, you can't get in. And now you know, now you can, you know, take a couple of calls from home and then show up, you know, at the office at 1030 in the morning, and it's just fine. Those kinds of things are it sure feels like there's a lot of pain to be had, especially as you point out that there's a lot of people paying for the space. And, you know, the lease may be three, still three years to go. But in three years, they're not coming back. They're not. And or they're going, you know, 15% of what they had. And so it feels to me, like we've got a lot of pain to happen there. And maybe it is localized. I, you know, I definitely have my my little local perspective, but it's not just the city, it's all the way down in Silicon Valley, you know, that the, you know, the, the all the big employers, you know, all the big tech companies are, those are the ones who are nobody in those organizations want to be in the office all the way to the top. They don't want, you know, they want they there's some creative power for being in the inside. But but they don't really want to be there. So it's gonna be fascinating, I think a lot of pain still to be had there.
Dr. Jenny Schuetz 33:42
Yeah, and we see an enormous amount of that in DC because the biggest Office tenant downtown is the federal government. Federal agencies are not back five days a week or anything close to it. And I don't think they're ever coming back. So there are a lot of 1980s Vintage office buildings, which aren't that easy to repurpose, and which are owned by the federal government, who doesn't like to sell off its properties that are sitting there vacant and kind of dead space. It has been just a death blow to all of the local retailers. I mean, restaurants and like the coffee shops and the dry cleaners around the downtown area. They have just been hammered. And many of them have gone out of business. They're never coming back. So I worry what's going to happen to our downtown's if we don't figure out a way to bring new life to them.
Mike Simonsen 34:27
Yeah. All right. So let's shift gears Do we have some things to be optimistic about?
Dr. Jenny Schuetz 34:34
We do. So one of the things is just that we're talking a lot more about the problems and housing market with higher visibility and at a higher level of government than we really ever have. So in, you know, in 2020, for instance, every single one of the Democratic presidential candidates had a housing policy on their website, and every single one of them pointed to the lack of housing and the role of zoning In restricting housing as a problem, we've never seen that kind of attention before. Both the Trump administration and the Biden administration are talking about what we need to do to encourage more housing and more moderately priced housing. There's also been an enormous growth in at the state and local level of especially local nonprofit organisations that are organized around housing, that show up at their council meetings and say, Hey, we actually need to build more apartments, we need more entry level homeownership, we need more rental housing. So there's a push back to kind of the older homeowner NIMBYs from these local groups that are organising. And they're starting to get some real wins both at the city level in places like Portland, in Minneapolis, at the state level in places like California and Massachusetts. So you know, there's more attention and more interest in this. And I think, you know, having these conversations, get outside the housing policy world and into a broader discussion about how this impacts things like homeownership, like wealth building like climate, I think it's helpful to have these conversations at a broader level and start to bring more people in.
Mike Simonsen 36:06
Awesome. Yeah. So there are some things like you'll see that California is the state of California is aware of the density problem. And so as a solution, and is starting to make some changes, so that Okay, that's great. Those are nice to be optimistic about me ask you for a second about the fundamental assumption that we don't have enough housing. And, you know, we can see that we've we've built a whole lot fewer homes in the last decade post post financial crisis, and, and tell me how you are but I've also seen some pretty smart people who take the look at the housing stock, and say, you know, what, we actually don't have too few homes. And so tell me about how you think about the meaning of too few homes? shortage? And and then also, I'm interested in the future, like, you know, we have these demographic waves, we have millennials, we have the boomers like what are the implications? What do you look at for the implications in the next five to 10 years on how many homes we have?
Dr. Jenny Schuetz 37:09
Yeah, so there have been a couple of really careful attempts to kind of quantify how many homes short we are, Freddie Mac did a report a couple of years ago, and then a group called up for growth did an update of their numbers using a similar method this summer, and they both come up with something like three and a half to 4 million homes short nationally. Now that that looks really different. When you start to drill down, obviously, places like California, the whole state is behind on building and in fact, has been losing population, largely because people can't afford to stay there. So we have, you know, lower income people who are moving out of California and high income people moving in the population overall, is shrinking, largely because housing is just too expensive. That looks really different than a place like St. Louis or or Akron, Ohio, where the jobs have been gone for a long time. They've lost a lot of population, their historic peak, and they've got more homes than they have people, right. So at the local level, you have some cities will say rural areas to rural counties in the US have been losing population since 1950. Most rural counties have vacant housing, they don't have a shortage. But a lot of their housing is old and not in very good shape. So you know, we do see different patterns. But the the numbers that I have seen that I trust say that nationally, we don't have enough. And of course, the focus is we need to be building more houses in the places that people want to move to. Right having a shortage, having a shortage of homes in the Bay Area, and a surplus of homes in St. Louis doesn't actually solve your problem, because people aren't moving to St. Louis, because they don't have to get the same kinds of jobs there.
Mike Simonsen 38:47
Yeah. And so So then, we have one of the things that's been driving our housing market in the last few years is the millennials are now in their late 30s. They're reaching peak earning and home buying years, and there's a lot of them. I'm Gen X, I'm straight in the middle of Gen X. And and there's not that many of us. And when we hit our late 30s, there was the financial crisis, like there was fewer of us buying homes, the the boomers haven't really sold their houses yet. What do you think about that demographic curve? What do you look? What do you think about you know, in the next decade?
Dr. Jenny Schuetz 39:21
Yeah, I mean, that's, that's sort of a period when we need the most homes because, you know, it's great for the boomers that they are healthier and living longer and can stay in their independent homes longer than previous generations. Right? We should all be happy about that. But that coinciding with the millennials needing to buy homes and not having built enough really means that we've got this pent up demand to places in the in the demographic spectrum. You know, it'll be interesting to see what happens with the boomers when they start moving, how many of them choose to downsize or relocate but you know, sort of forecasting from from past demographic trends? We're going to have more Are older renters than we have had before, we're going to have more older homeowners who still have pretty large amounts of mortgage debt. Right. So people who, you know, took out a new mortgage when they turned 50, or 55. And they took out a 30 year mortgage. So we've got a lot of seniors who are more exposed to things like changes in their their property tax rates, who may be, you know, see their income disrupted, not able to pay a mortgage. That's something that's pretty concerning. And you know, places like California have seen an uptick in the number of older adults who are experiencing homelessness. That's a really disturbing trend, right? People who were renters, who, you know, their rent has gone up, they can't afford it. And you know, it was in San Diego last week, they've got a bunch of seniors who are living in their cars, because they can't afford to rent an apartment anymore. So you know, some of the some of the boomer homeowners are sitting very pretty, they built up a giant nest egg of equity from having bought a home earlier. But it's not true that all of the older households are doing well. And of course, a lot of the millennials are delaying homeownership, because they just they don't have the savings, they've got student loan debt, they're having a very hard time getting in, the later they buy their first home, the longer they're gonna be making mortgage payments to. So I think this suggests potentially more financial instability for a lot of households than we've had before.
Mike Simonsen 41:21
So, so some risk there in the in the coming years, which, which I suppose would be congruent with the argument of, you know, like, in general, the American financial position is, is pretty shaky. And so it may show up in a place where we have more older renters and more older people with with mortgages where right now that they're everybody's perfectly happy to pay their mortgages. But but that may that may change in what I'm thinking about, like, you know, deep recession, if we're in a deep recession does, it probably hits the outside edges of those first.
Dr. Jenny Schuetz 42:04
Yeah, and, you know, this is another area where I hope that Fannie and Freddie are thinking about when they give mortgages to people starting to look at age as a factor and just, you know, shorten the length of the mortgage. So if you want to refinance your house, when you're 55, you shouldn't be taking on a 30 year mortgage, you shouldn't be taking on a 15 year mortgage, right? So we can start to build some of those guardrails into the into the mortgage products. But I think people haven't fully appreciated yet, sort of how many people there are for whom this
Mike Simonsen 42:33
is a risk? Yeah, yeah, that's interesting. So one of the things I like to do in this podcast is, is find risks that other that we don't normally talk about. And that's, that's one that I hadn't really thought about, which is, you know, we have like having more older people with longer term debt that you could imagine gets exacerbated when they have to, they suddenly have to sell or those those kinds of things. Interesting. Okay. So you mentioned homelessness, and in some cities, I live in San Francisco, you know, it's real crisis. Are there are there clear policy things we can do now that don't rely on you know, the actual neighborhoods in San Francisco where you hear the neighborhood communities are like, yes, we got to build more housing, not in our neighborhood, and you literally hear him say, we can't do it in our neighbor, but we should definitely do it. It's as really remarkable. Meanwhile, the city is in, you know, crisis in this topic, are there policies that we can do that, that we don't have to rely on, on getting through those literally saying, not in my backyard?
Dr. Jenny Schuetz 43:47
Unfortunately, not because, you know, homelessness is worse in cities that have very high housing prices and that don't have enough rental housing. Right. So there's a terrific book that came out in the spring called homelessness is the housing problem that looks across cities and metro areas. You know, it's not that San Francisco has more people with mental illness or drug addiction than say, West Virginia does. But West Virginia has got a lot of cheap housing. And so even people who have some problems in their personal life who don't earn a lot of money, can mostly find someplace cheap that they can afford to live, whereas in the Bay Area, you really don't have that as an option. So you know, the only way that California and Seattle are going to deal with their homelessness problems is by building enough rental housing that there's some slack and some vacancy for chronically homeless people, we are going to need to have more funding for things like permanent supportive housing. So just the building housing is not enough. We also have to have cash, but you can't finance building enough permanent supportive housing in San Francisco, while the rents and the construction costs are what they are right so money alone won't solve it. Building. market rate housing alone won't solve it. We really do need to have both of those pieces.
Mike Simonsen 44:58
Yeah, And it's it's really fascinating looking at that homeless data, it's like homelessness is a direct correlation to the costs of homes. And it's, it's, it's wild, it's like, not all the other things that we want to ascribe to homelessness. And, and, and it's, it feels in many ways super intractable and and you know, over time, hopefully we can we can get ahead of it. And hopefully as you say it's, maybe we have the opportunity because we have more people aware of the the conditions and more people aware of what the solutions are, they're actually pretty straightforward, even if they are big effort to get done.
Dr. Jenny Schuetz 45:40
Yeah, and this is something that elected officials are so sensitive to, because they hear from their constituents, when you've got homeless encampments that are very visible, especially in downtown areas or in tourist areas, local elected officials here, this, you know, many of them want to do kind of the quick thing, which is to move the encampment someplace else, but not actually provide long term solutions. So we need to keep reminding them that's not in fact, going to solve anything moving homeless people from one part of the city to the next is just going to get a different set of constituents mad at you, at some point, we actually have to tackle the problem and build some homes
Mike Simonsen 46:13
and build some homes. All right. Well, Jenny, this been a real interesting conversation. I really appreciate it. I like the book a lot. recommending it to people. And it's really if if you are, I mean, I'm a housing geek for housing geeks, right? Yeah, I dive into the data and and into thinking about some of the challenges that are in front of us that things like, you know, we're under built and where we are building that the climate risks, there's so much that we're faced with in this kind of You talk a lot in the book about the racial and minority wealth gap that has been created, and and, you know, driven initially by redlining, 50 years ago, or 60 years ago, and now we have generational wealth challenges, because Americans make money with their houses, and we kept a bunch of people from buying houses 50 60 years ago.
Dr. Jenny Schuetz 47:13
Absolutely, yeah. And that's it's such an important point, because you can't make up that generations of difference and people being able to build up wealth, you can't make that up quickly, right. So even if we got black and Latino families into homeownership at the same rate that white families are today, they're still at generations of not having had wealth in the family to catch up with. So you know, there, there's a whole chapter on things we can do to encourage more wealth building, but I think it's important just to remember that homeownership isn't the only way people can build wealth, and we shouldn't be open to other options as well.
Mike Simonsen 47:46
Yeah, yeah, for sure. Well, Jenny, thank you so much. I'm gonna Meanwhile, let's see if I can get my daughter to get over to some, some lecture in the in the Washington area studies at GW Well, we'll see if I get but I appreciate the work and and the thoughts. Where should people follow you? They should get the book what where should they follow you connect? See, right,
Dr. Jenny Schuetz 48:11
I'm, I'm on Twitter for too much. I'm at Jenny_Schuetz on Twitter. And you can find the book that your local neighborhood bookstore online through bookshop or through Amazon, go knock on your neighborhood bookseller and ask them if they carry it.
Mike Simonsen 48:24
Awesome. Jenny, thank you so much. All right, everybody. That's the Top of Mind podcast. I'm Mike Simonsen. I'm the CEO of Altos Research. And, you know, we talked about housing, we talked about the housing data, if you need the housing data for your business, go to Altos Research.com and just connect book time with our team because things are changing so rapidly right now. It's a really wild time to be in, in the real estate market. And, you know, buyers and sellers need to know what's going on right now. So if you have buyers and sellers who need to know they need to get the data from you. So altosresearch.com is where you do that. And Jenny, thanks again. Thank you.
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