Fresh Air: The Housing Shortage, Explained
Host: Tanya Mosley
Guest: Ben Keyes, Professor of Real Estate and Finance at the University of Pennsylvania's Wharton School
Release Date: December 11, 2024

Introduction

In the December 11, 2024 episode of Fresh Air, host Tanya Mosley engages in an in-depth conversation with Ben Keyes, a renowned expert on real estate and finance from the University of Pennsylvania's Wharton School. The discussion delves into the persistent and worsening housing shortage in the United States, exploring its roots, current challenges, proposed solutions, and the broader socio-economic impacts.

The Current Housing Crisis: An Overview

As the nation heads into 2025, the housing market remains a pressing concern for millions of Americans. Prices for starter homes have surged to around $1 million, new construction is stagnating, and home sales in 2023 hit a three-decade low. Renters face escalating costs, with the average expenditure on housing reaching 30% of their income, even in traditionally affordable regions like the Midwest and the South. Additionally, climate change is reshaping real estate landscapes, further complicating affordability and availability.

Notable Quote:
Ben Keyes emphasizes the severity, stating, “I think we can characterize the current state of the housing market as being deeply unaffordable” (02:05).

Roots of the Crisis: The 2008 Financial Downturn

The conversation traces the housing shortage back to the 2008 financial crisis, which led to a significant collapse in construction. This downturn halted the building of both houses and apartments, creating a structural deficit in housing supply that persists today.

Key Points:

• Collapse in Construction: The 2008 crisis caused a prolonged halt in housing development, exacerbating supply shortages.
• Structural Changes: A reduced willingness and ability to build have maintained this scarcity over the past 17 years.

Barriers to Increased Housing Construction

Despite high demand and robust workforce participation, housing construction hasn't kept pace. Key barriers identified by Keyes include:

1. High Costs of Materials and Labor: Inflation has driven up the prices of construction materials, and a tight labor market limits the available workforce.

   Quote: "High home prices and high interest rates making, you know, entering the housing market or moving up the property ladder very challenging" (02:05).

2. Financing Challenges: Securing funding for large-scale building projects, especially multifamily developments, remains difficult.

3. Zoning and Land Use Restrictions: Stringent zoning laws and land use policies create significant hurdles for developers, restricting the scale and speed of new constructions.

Notable Quote:
Ben Keyes summarizes the constraints: “Financing, construction, and zoning, are all putting downward pressure on the ability to create more houses” (03:14).

Proposed Solutions by President-Elect Donald Trump

President-Elect Donald Trump has outlined several strategies to address the housing shortage. Key proposals include:

1. Imposing Tariffs on Imports, Including Construction Materials:

   • Impact on Costs: Tariffs are expected to increase the cost of building materials, further escalating housing prices rather than alleviating the shortage.

   Quote: “If we are going to impose additional tariffs on building materials, it’s going to be more expensive to build rather than less expensive to build” (04:49).

2. Mass Deportation of Undocumented Immigrants:

   • Labor Market Effects: Deportating undocumented immigrants could reduce the construction workforce, increasing labor costs and exacerbating housing affordability issues.

   Quote: "Immigrants and undocumented immigrants make up a large fraction of the construction workforce... that's going to make labor costs more expensive to build, and that's going to drive up the cost of housing” (05:50).

3. Opening Up Federal Land for Housing ('Freedom Cities'):

   • Urban vs. Western Federal Land: Utilizing federal land in urban areas, such as repurposing USPS buildings for mixed-use developments, shows potential. However, creating new cities on federal land in the western regions is deemed impractical.

   Quote: “I just don’t see it [federal land development] as a solution to our affordability crisis” (08:25).

Case Studies: Minneapolis and Alabama

Minneapolis: A Model for Zoning Reform Minneapolis has enacted significant zoning changes to promote density and affordability. By relaxing single-family zoning and lot size requirements, allowing duplexes and small multifamily developments, and focusing on transit-oriented development, the city has managed to slow housing price increases compared to other major cities.

Key Achievements:

• Vacancy Rates: Currently at around 4%, the lowest among major U.S. cities.
• Development Focus: Sensible densification around public transit hubs.

Alabama: Climate-Responsive Housing Solutions Alabama has implemented programs to fortify roofs in hurricane-prone areas, reducing future insurance costs and mitigating climate-related housing expenses. These initiatives, supported by the insurance industry, provide grants for upgrades that offer long-term savings.

Quote:
Ben Keyes highlights the strategic approach: “Providing grants to help homeowners afford upgrading the quality of their roofs... is a model for a lot of places” (17:40).

Climate Change and Housing Affordability

Climate change significantly impacts housing costs, primarily through rising property insurance premiums. Areas prone to hurricanes, wildfires, and other climate-related disasters face steep increases in insurance costs, undermining the predictability and affordability of homeownership.

Research Insights:

• Property insurance costs have surged by over 33% nationwide and more than 50% in high-risk areas between 2020 and 2023.
• States like Florida, California, and even parts of Oklahoma experience dramatic insurance hikes due to increased climate risks.

Quote:
Ben Keyes articulates the direct impact: “Property insurance... has gone up BY over over 33% on average in the US and over 50% in the areas of the country most exposed to climate risk” (15:20).

Addressing Homelessness Through Housing Initiatives

Several states have passed measures to increase affordable housing and reduce homelessness by raising sales taxes to fund these initiatives. Keyes believes that while housing is a crucial first step, comprehensive support systems addressing mental health, substance abuse, and job training are essential for sustainable solutions.

Key Points:

• Local and Federal Coordination: Effective homelessness reduction requires coordinated efforts across various government levels.
• Housing First Approach: Prioritizing stable housing can pave the way for addressing other underlying issues.

Quote:
Ben Keyes emphasizes the interconnectedness of efforts: “Housing comes first. And solving that problem first seems to be the way in which better solutions follow” (22:25).

The Silver Tsunami: Aging Homeowners and Housing Supply

The concept of the "Silver Tsunami" suggests that retiring Baby Boomers will pass down their homes to younger generations, potentially increasing housing supply. However, Keyes argues that this impact will be gradual and limited, particularly in high-cost markets where job locations and housing needs may not align.

Challenges Identified:

• Location Mismatch: Older homes are often in areas without corresponding job growth.
• Maintenance Costs: Aging homeowners may not invest in necessary upgrades, limiting the suitability of inherited homes for younger buyers.

Quote:
Ben Keyes moderates expectations: “I don't expect anything like a tsunami. I think it's going to be a much more gradual process” (31:08).

Advice for Potential Homebuyers

Given the current market conditions, Ben Keyes advises prospective homebuyers to carefully assess their financial situations and consider long-term implications. Renting may be more sensible in expensive and high-interest-rate markets, allowing individuals to allocate savings to safer investments rather than the volatile housing market.

Key Recommendations:

• Do Thorough Research: Compare rental and ownership costs, including future insurance and tax expenses.
• Budget Carefully: Account for all fixed costs associated with homeownership beyond mortgage payments.
• Long-Term Perspective: Evaluate the sustainability and affordability of the investment over time.

Quote:
Ben Keyes advises prudence: “It takes a more careful budgeting approach than we've seen in the past” (38:22).

Conclusion

Ben Keyes provides a comprehensive analysis of the multifaceted housing shortage crisis, emphasizing that while certain policy measures and local initiatives offer hope, the challenges are deeply rooted in economic, structural, and socio-political factors. Addressing the housing shortage requires a balanced approach that considers immediate affordability needs and long-term sustainability, alongside mitigating the impacts of climate change and fostering inclusive community development.

Final Thought:
"I think that’s something that we should keep a close eye on and potentially think of those steps as a model for other local governments who say, we want to do something about this" (24:07).

This summary captures the essential discussions and insights from the episode without including advertisements, intros, or outros.