There are too many housing crises going on at once

Bloomberg News

EUGENE, ORE. — As someone who grew up accustomed to the sweltering, fetid greenhouse that is Washington, D.C., in the summertime, the Pacific Northwest is nothing short of a revelation. Even when it's hot — which it is today — it's a manageable inconvenience rather than a stifling nightmare. And get this: It actually cools off at night! And if you really want to blow your mind, go visit the Oregon coast, where it never gets above 65 degrees.

There are a lot of things to love about the PNW besides the weather, which is why it remains among the fastest-growing regions of the country. But this quaint college town also illustrates — in often visceral ways — a burgeoning housing crisis that policymakers are going to have a harder and harder time ignoring. 

That crisis can be put succinctly like this: There aren't enough places for people to live. But there's more to it than that — there are too few entry-level homes for young people to buy and in which to start a family; the owners of those starter homes that do exist feel "locked in" to their sweet, low-interest-rate mortgages, so they aren't moving on up the way they're supposed to; and at the very bottom of the ladder, there isn't anywhere for the poorest Americans to live, rendering more and more people homeless, which creates its own host of problems.

Problems like these don't just happen — it's not an earthquake or a meteor. It is, in this case, the result of policymakers' abdication to market forces of their responsibility for keeping housing economics in check and something of an overcorrection in housing finance policy after 2008. 

Back in the early part of the 21st century, investors started zeroing in on mortgages as the safest investment out there, which incentivized homebuilders to build more homes and banks and other mortgage originators to make more mortgages, and eventually to get more and more creative in how they underwrote them. That led to the global financial crisis, which brought us the Dodd-Frank Act, which — among other things — cracked down on what kinds of mortgages banks could offer and to whom, and under what circumstances. 

The result was a relative dearth of new housing construction, and what housing was being constructed was on the middle- to high-end of the spectrum because that's where the margins are highest. It also means that low- and not-so-low-income borrowers are having a harder and harder time buying — or even renting — a home, if they can even find one. That ever-increasing cost of rent is, at the very least, a significant driver of the increase in homelessness that is so evident here in Eugene and in other cities across the country. 

The genius of capitalism would instruct us that if there is sufficient demand for something, the invisible hand of the market will find a way to generate supply for said thing. But that doesn't seem to be the case for housing.

Servicing

Foreclosure filings up 13% in first half of 2023

July 13, 2023 12:03 AM

By Brad Finkelstein

Part of that is because housing isn't like any other widget — making a new house or duplex or apartment requires a great deal of upfront costs for zoning and permitting, and the costs of materials make a new home of almost any type inherently expensive. And when you're done, the finished product is in such high demand that even an affordable home isn't so affordable anymore. That drives people to look for substitutes — namely hotel rooms, cars and tents.

Sooner or later, people who aren't already sick of this situation are going to be, and that is going to create the conditions for an enterprising politician and/or party to cynically harness that anger to their short-term advantage. Former President Trump has put forward an idea of sorts to make homelessness illegal and set up tent cities for the unhoused. That doesn't sound like a realistic plan to change these fundamental economic dynamics for the better, but it's up to the Biden administration to come up with a better one.