Episode Summary: "How Big is the US Housing Shortage?"

Podcast: The Indicator from Planet Money
Host: Adrienne Ma and Weylon Wong
Release Date: November 25, 2024
Topic: Assessing the magnitude of the housing shortage in the United States

Introduction

In this episode of The Indicator from Planet Money, hosts Adrienne Ma and Weylon Wong delve into the pressing issue of housing affordability in the United States—a central theme in the recent US Presidential campaign. As candidates propose strategies to increase housing supply and reduce prices, the podcast examines the complexities involved in quantifying the housing shortage, the real-life impacts on individuals like Olivia Garcia, and the potential solutions emerging at the grassroots level.

Personal Stories: The Human Impact of Housing Affordability

The episode opens with the personal narrative of Olivia Garcia from Los Angeles, highlighting the severe affordability crisis. Facing exorbitant rent prices, Olivia and her fiancé chose to sell their belongings and travel overseas to manage expenses.

Olivia Garcia [00:26]: "We did our traveling because we were like, oh my God, it's so expensive. Just like living here, being in LA, you know, might as well go spend our savings doing this because it'll be cheaper anyways. We're making girl math would state that I am making money traveling."

Despite their temporary escape, Olivia and her fiancé eventually returned to the US for her fiancé to start a new job, only to encounter a disheartening apartment search in Los Angeles.

Olivia Garcia [01:14]: "It's just all around really nightmarish. Like, the options are pretty slim."

Their experience underscores the widespread struggle to find affordable housing in major urban centers, setting the stage for a deeper exploration of the housing shortage.

Measuring the Housing Shortage: Complex Metrics and Methodologies

The hosts introduce the central question: How big is the US housing shortage? To unravel this, economist David Wessel from the Brookings Institution provides expert insights.

David Wessel [02:53]: "I kept hearing people on the campaign trail throwing out all these numbers about how many houses we were short—1.5 million, 3.8 million, 5.5 million."

Wessel explains that various estimates stem from different methodologies, primarily focusing on vacancy rates to assess the shortage.

Vacancy Rate Approach:

• Definition: The percentage of housing units that are unoccupied at a given time.
• Challenges: Differentiating between genuinely vacant homes and those occupied intermittently or under restrictive circumstances.

David Wessel [04:15]: "What counts as a vacant home? Like think about a vacation home... Some of the estimates count, you know, the cottage on the lake that you only use six months a year."

Other complexities include distinguishing between vacant but unavailable homes, such as those tied up in legal matters or inherited properties.

David Wessel [04:48]: "Some of the estimates count... [vacant homes] or unavailable for sale or rent."

Historical Comparison:

• Process: Comparing current vacancy rates to historical "normal" rates to infer shortages.
• Issues: The "normal" rate is not fixed and can shift due to technological advancements in real estate listings and market dynamics.

David Wessel [05:33]: "What is a normal or healthy vacancy rate isn't fixed in time... houses stay vacant less often because it's easier thanks to the technology for a buyer and seller to find themselves."

These methodological differences lead to varying estimates of the housing shortage, ranging from 1.5 million to over 20 million missing units, as highlighted by different studies.

Alternative Approaches:

• Zoning and Regulatory Impact: Researchers estimate that restrictive zoning has significantly limited housing development.

David Wessel [06:33]: "Basically, they say that if we hadn't had so many restrictive zoning rules, we would have had 20 million more houses in 2021 than we actually had."

This approach suggests that regulatory barriers contribute substantially to the housing deficit, accounting for approximately 14% of the national housing stock.

Expert Insights: The Localized Nature of Housing Solutions

David Wessel questions the efficacy of national metrics, emphasizing that housing is inherently a local issue influenced by state and municipal policies.

David Wessel [07:17]: "If anything in the world is not national, it's housing. The policies we need are probably very much at the state and local zoning level."

This perspective suggests that national figures may obscure significant regional variations, necessitating tailored local solutions rather than broad federal policies.

Innovative Solutions: Accessory Dwelling Units (ADUs)

In response to housing shortages, particularly in high-demand areas like California, accessory dwelling units (ADUs) have gained traction as a viable solution. The podcast explores this through Olivia Garcia's experience and her father's rental practices.

Olivia's Living Situation: Olivia secured a 400-square-foot ADU—a converted garage with its own entrance—for $2,000 a month, which, although small, was more affordable than their previous residence.

Olivia Garcia [08:02]: "It's the smallest of all the ones we looked at. We were like, okay, well, this is going to be like tight living. But, you know, we're making it work for sure."

ADUs in California: California's 2016 legislation mandates that most residential lots can accommodate ADUs, encouraging their proliferation as a means to ease housing shortages.

Weylon Wong [08:12]: "This converted garage is a kind of housing called an accessory dwelling unit..."

Olivia's father also utilizes an ADU to house a family of five, demonstrating the practicality of ADUs in increasing housing availability despite space constraints.

Olivia Garcia [08:47]: "We have like our own little patio area. There's like a barbecue and ton of seating... I think that's been the best part."

Economist David Wessel emphasizes that while ADUs are promising, the true measure of their effectiveness should be reflected in home prices and rental rates rather than vacancy rates alone.

David Wessel [09:20]: "Home prices and rents, not the vacancy rate, should signal whether these kinds of housing policies are effective."

Policy Implications and Future Directions

The episode concludes by highlighting the upcoming discussion on the housing policies proposed by the President Elect, Donald Trump, aimed at enhancing housing affordability. This sets the stage for continued exploration of governmental roles and the effectiveness of various housing initiatives.

Adrienne Ma [09:20]: "And speaking of housing policies, tomorrow's episode we'll talk about what the President Elect Donald Trump says he wants to do about making homes more affordable."

Conclusion

This episode of The Indicator from Planet Money provides a comprehensive examination of the US housing shortage, navigating through personal narratives, complex economic metrics, and innovative solutions like ADUs. By incorporating expert analysis and real-life examples, Adrienne Ma and Weylon Wong illuminate the multifaceted nature of housing affordability, emphasizing the need for localized policy responses and thoughtful consideration of diverse measurement approaches.

Notable Quotes:

• Olivia Garcia [00:26]: "We're making girl math would state that I am making money traveling."
• David Wessel [04:15]: "What counts as a vacant home?"
• David Wessel [07:17]: "If anything in the world is not national, it's housing."
• Olivia Garcia [08:02]: "But, you know, we're making it work for sure."
• David Wessel [09:20]: "Home prices and rents, not the vacancy rate, should signal whether these kinds of housing policies are effective."

Production Credits:

• Produced by: Corey Bridges
• Engineering: Jimmy Keighley
• Fact-Checked by: Sierra Juarez
• Editor: Kate Kincannon
• Production: The Indicator is a production of NPR.