Podcast Summary: The Prof G Pod with Scott Galloway – "How to Repair America’s Broken Housing System" with Dr. Jenny Schutz

In this insightful episode of The Prof G Pod with Scott Galloway, host Scott Galloway engages in a comprehensive discussion with Dr. Jenny Schutz, a nationally renowned economist, author, and policy expert on housing and land use. Dr. Schutz, recently appointed as Vice President of Infrastructure for Housing at Arnold Ventures, shares her expertise on the multifaceted challenges facing America's housing system and explores viable policy solutions to address the growing housing crisis.

1. Introduction

[16:33] Host: Scott Galloway introduces Dr. Jenny Schutz, highlighting her role at Arnold Ventures and her focus on addressing housing supply shortages, rising rents, and escalating home prices in the United States.

2. The Broken Housing System: Supply vs. Demand

[16:41] Dr. Jenny Schutz: Dr. Schutz emphasizes that the core issue in America's housing market is a severe supply shortage. She asserts, "We need to make it easier to build housing and build more types of housing, especially in high demand locations." The scarcity of supply relative to demand is driving up prices and rents, making housing unaffordable for many Americans.

3. NIMBYism and Political Challenges

[17:19] Galloway: He explores the concept of NIMBYism (Not In My Back Yard), suggesting that incumbent homeowners often oppose new housing developments to protect their property values and neighborhood character.

[17:33] Dr. Jenny Schutz: While acknowledging that some incumbent residents resist new housing, Dr. Schutz challenges the perception that NIMBYism is as widespread as commonly believed. She notes, "The NIMBYs are loud and they're often very politically well-connected, but there are often a lot of people, including longtime homeowners, who understand that their communities need to grow."

4. Policy Solutions: Zoning and Approval Processes

[18:46] Dr. Jenny Schutz: Dr. Schutz outlines three main policy changes to enhance housing supply:

1. Diversifying Housing Types: Legalizing townhouses, accessory dwelling units, and apartment buildings in areas predominantly zoned for single-family homes.
2. Adjusting Dimensional Requirements: Allowing taller buildings, reducing setback requirements, and eliminating excessive parking mandates to increase housing density.
3. Streamlining Approval Processes: Simplifying and standardizing the permitting process to prevent prolonged delays caused by neighborhood-level objections. She explains, "A lot of the complex discretionary approvals drag on forever, which delays the construction of new housing."

5. State vs. Local Government Roles

[23:28] Dr. Jenny Schutz: Highlighting the shifting dynamics, Dr. Schutz observes that state governments are beginning to reclaim authority over housing policies previously delegated to localities. She states, "States are starting to put guardrails around what localities can do, setting quantitative targets for how many homes they have to allow."

6. Examples of Progressive Cities Addressing Housing

[23:45] Dr. Jenny Schutz: Dr. Schutz cites Minneapolis and Austin as exemplary cities implementing progressive housing policies:

• Minneapolis: First city to legalize duplexes and triplexes in all residential neighborhoods and upzone areas around new light rail systems to encourage apartment building near transit hubs.

• Austin: Demonstrates a "growth-friendly" approach by actively expanding its housing stock to accommodate rapid population growth.

7. Subsidies and Incentives for Developers

[25:07] Galloway: Proposes the idea of providing tax credits to developers who navigate local zoning laws to build larger housing units.

[25:29] Dr. Jenny Schutz: Dr. Schutz counters by explaining, "The problem isn't that developers don't want to build, it's that they can't," emphasizing that without relaxing zoning constraints, subsidies alone may not effectively reduce housing costs.

8. Regional and Property Type Trends

[26:05] Dr. Jenny Schutz: Dr. Schutz provides a breakdown of housing trends across different regions:

• High-Cost Coastal Markets: California, Seattle, Boston, New York have long struggled with underbuilding, leading to persistent high costs.

• Sunbelt Metros: Cities like Austin, Denver, Nashville traditionally affordable, faced affordability crises during the pandemic as demand surged.

• Rust Belt Metros: Cities such as St. Louis, Cleveland, Pittsburgh continue to offer more affordable housing but are now experiencing tightening markets.

She notes, "We've seen this sort of geographic convergence in a sense, and spillover, looking at different kinds of home types."

9. Impact on Younger Generations and Homeownership

[28:22] Galloway: Raises concerns about young people being unable to pursue the American dream of homeownership, potentially leading to increased societal polarization.

[28:34] Dr. Jenny Schutz: Agrees, stating, "People under the age of 40 are really pessimistic about their ability to buy a house." She discusses the psychological impact of homeownership ideals on young adults, who often feel embittered when they cannot achieve these milestones.

10. Climate Change and Housing Insurance

[32:11] Dr. Jenny Schutz: Addresses the emerging issue of climate change affecting housing affordability and stability:

• Rising Insurance Costs: In places like Florida, property insurance premiums are increasing, making homeownership less attractive.

• Self-Insurance Trends: Wealthier individuals may opt to self-insure, accepting the risk of out-of-pocket expenses for repairs.

• Impact on Housing Stability: Escalating costs could deter homeownership, especially in climate-vulnerable areas.

11. Institutional Buyers and Housing Supply

[38:35] Galloway: Inquires about the role of institutional buyers in the housing market, questioning whether their presence exacerbates affordability issues.

[38:48] Dr. Jenny Schutz: Dr. Schutz nuances the conversation by stating, "We shouldn't worry about the legal entities buying housing as much as we worry about the ways that housing is being provided." She highlights that poor housing quality is a broader issue beyond ownership models and that regulating landlord responsibilities is crucial regardless of whether properties are owned by private equity firms or individual landlords.

12. Remote Work and Housing Values

[43:14] Galloway: Observes a structural shift towards remote work in the U.S. and its implications on housing values.

[43:25] Dr. Jenny Schutz: Confirms that remote work has significantly impacted housing demand, particularly among high-income workers seeking larger homes with dedicated office spaces. She quantifies this trend, noting, "About 20% of the increase in prices nationally is due to remote work by high-income workers."

13. Commercial Real Estate State

[44:24] Galloway: Raises concerns about the stability of regional banks tied to commercial real estate, especially in high-vacancy markets like San Francisco.

[44:57] Dr. Jenny Schutz: Dr. Schutz provides a balanced perspective, suggesting that while some commercial real estate markets may struggle, particularly in expensive urban centers, the overall impact on regional banks may not be as severe as feared. She states, "It's not clear that we're going to see a giant wave of bank failures primarily because of commercial real estate."

14. Future Housing Demand and Market Dynamics

[46:47] Galloway: Ponders whether pent-up demand will lead to a housing sales boom in the next few years or if structural shifts will result in prolonged housing stagnation.

[46:47] Dr. Jenny Schutz: Predicts that housing markets will eventually respond to changing interest rates and life circumstances, facilitating increased mobility and flexibility. She anticipates, "Interest rates will come down in the next couple of years," which would likely spur more housing transactions.

15. Income Inequality and High-End Housing

[48:06] Galloway: Suggests that rising income inequality is leading to an expansion of high-end, aspirational housing markets catering to billionaires and the ultra-wealthy.

[48:06] Dr. Jenny Schutz: Agrees, highlighting that affluent buyers are investing in luxury and vacation properties, which often exacerbates housing inequality. She emphasizes the need for "workforce housing" to support regional economies, asserting, "The regional economy just doesn't function well if you don't have enough housing for middle and lower-wage workers."

16. Conclusion

[49:08] Galloway: Wraps up the conversation by commending Dr. Schutz for her sober and thoughtful analysis of the housing crisis, emphasizing the importance of addressing these systemic issues to foster a more equitable and sustainable housing landscape.

[49:29] Dr. Jenny Schutz: Expresses gratitude for the opportunity to discuss these critical topics.

Key Takeaways:

• Housing Supply Shortage: A fundamental lack of diverse and affordable housing options is driving up costs and limiting accessibility for many Americans.

• NIMBYism Misconception: While opposition to new housing developments exists, it may not be as pervasive as assumed. Effective communication can reveal broader community support for growth.

• Policy Reforms Needed: Simplifying zoning laws, diversifying housing types, and streamlining approval processes are essential steps to increase housing supply.

• State Intervention: States are beginning to override local restrictions to promote housing development, recognizing the broader economic implications of housing shortages.

• Impact of Remote Work: Remote work trends are reshaping housing demands, particularly favoring larger, more spacious homes preferred by higher-income workers.

• Climate Change Factors: Increasing insurance costs and climate-related risks are influencing housing affordability and stability, necessitating adaptive housing policies.

• Role of Institutional Buyers: While institutional investors contribute to housing availability, ensuring quality and equitable access remains paramount.

• Income Inequality: The growth of high-end housing markets underscores the widening gap in housing affordability, highlighting the need for workforce housing solutions.

• Future Outlook: Anticipated interest rate adjustments and evolving life circumstances are likely to influence future housing market dynamics, potentially alleviating some demand pressures.

Notable Quotes:

• Dr. Jenny Schutz on Housing Supply:

  "We need to make it easier to build housing and build more types of housing, especially in high demand locations."
  [16:55]

• On NIMBYism:

  "The NIMBYs are loud and they're often very politically well-connected, but there are often a lot of people, including longtime homeowners, who understand that their communities need to grow."
  [17:54]

• On Policy Solutions:

  "Legalizing an apartment building but capping it at two stories doesn't actually make it feasible."
  [18:46]

• State vs. Local Roles:

  "State governments are starting to put guardrails around what localities can do, setting quantitative targets for how many homes they have to allow."
  [23:28]

• Impact of Remote Work:

  "About 20% of the increase in prices nationally is due to remote work by high-income workers."
  [43:25]

• On Income Inequality:

  "Workforce housing is essential for regional economies to function well, ensuring there are enough middle and lower-wage workers."
  [48:06]

Conclusion

This episode sheds light on the intricate challenges plaguing America's housing system, from regulatory hurdles and political resistance to broader economic and social implications. Dr. Jenny Schutz provides a nuanced analysis of the factors contributing to the housing crisis and offers pragmatic policy recommendations aimed at increasing housing supply and affordability. Scott Galloway's probing questions facilitate a deeper understanding of the systemic issues and potential pathways to a more resilient and equitable housing market. For listeners seeking a thorough exploration of America's housing woes and the strategies needed to mend them, this episode serves as an invaluable resource.