Housing Recession, Homeownership Retreats

Episode Summary

Executive Summary: The episode centers on a wide-ranging housing-market discussion with Harvard’s Chris Herbert, covering the Joint Center’s history, the single-family versus multifamily split, persistent labor shortages, housing supply constraints, investor demand, homeownership trends, and policy fixes such as zoning reform and targeted down-payment assistance. The tone was cautiously optimistic on single-family housing but more cautious on multifamily and affordability.

Main Topics: Joint Center for Housing Studies history and mission (Priority: 4/5): Chris Herbert explains the center’s origins at Harvard and MIT, its transition away from broad urban studies into housing, the role of Ford Foundation funding, and its current multidisciplinary structure and policy advisory board. Housing market cycle: single-family optimism vs. multifamily weakness (Priority: 5/5): Participants contrast improving builder sentiment and a potential single-family bottom with a tougher multifamily outlook shaped by financing constraints, falling starts, and a heavy pipeline of completions. Structural housing supply shortage (Priority: 5/5): The discussion emphasizes the severe shortage of homes, especially affordable units, as measured by vacancy rates and the estimated national shortfall. Supply remains a central macro and policy issue despite the housing slowdown. Labor shortages and construction productivity (Priority: 4/5): The group highlights persistent worker shortages across construction, manufacturing, and transportation, alongside debate about stagnant construction productivity and the role of regulation, measurement, and technology. Investor demand and tax-code distortions (Priority: 4/5): The conversation examines how institutional and smaller investors affect homebuying, tenant treatment, and market pricing, while arguing that the tax code may tilt the playing field against owner-occupiers. Homeownership outlook and affordability barriers (Priority: 5/5): Mark Zandi argues homeownership may have reached a high watermark due to affordability, investor competition, and demographic change. Herbert agrees longer term policy support will be needed, especially for first-generation buyers. Policy responses: zoning reform, tenant protections, and down-payment aid (Priority: 5/5): The speakers favor state-level zoning mandates, targeted down-payment assistance, and more thoughtful tenant protections, while cautioning that demand-side help must be paired with more supply.

Key Arguments: Single-family housing may be near a bottom because builder traffic and sentiment are improving as mortgage rates ease from their peak. Multifamily faces a lagged downturn because financing has tightened even though completions remain high from an already-full pipeline. Construction labor shortages remain severe even in a slowdown because firms fear they cannot rehire workers later. Housing supply remains deeply insufficient; low vacancy rates imply a major shortage that restrains affordability and supports prices. Construction productivity growth has been weak or stagnant for decades, limiting the ability to solve housing shortages through efficiency alone. Institutional investor activity is not inherently bad, but tax and financing rules may favor investors over owner-occupiers and warrant policy review. Homeownership matters for wealth building and stability, but rising prices, higher rates, and demographic change make future gains difficult without policy intervention. State-level zoning mandates can break local logjams and force more housing supply, especially near transit and in high-opportunity areas. Down-payment assistance should be targeted and potentially paired with shared appreciation to recycle public funds. Tenant protections are becoming a bigger policy issue, but they should be designed to avoid reducing new supply.

Data Points: Joint Center founding year: 1959 - Chris Herbert says the Joint Center began with Ford Foundation support to Harvard and MIT. Policy advisory board size: 64 members - Herbert describes the Joint Center’s curated housing-sector advisory board. Webinar attendees: about 1,800 clients - Mark mentions a large webinar audience earlier in the week. Feedback responses: 300 responses - Mark notes that only one person disliked the webinar. 30-year fixed mortgage rate peak: about 7% - Rates peaked in late 2022 after being below 3% in late 2021. 30-year fixed mortgage rate low: sub-3% - Reference point for the surge in mortgage rates. Single-family starts: from about 1.2 million to 900,000 - Chris describes the decline in single-family starts as rates rose. Housing shortfall: 1.5 million units - Estimated shortage based on vacancy-rate calculations. Homeowner vacancy rate: 0.8% - Mark cites the housing vacancy survey; described as a record low. Rental vacancy rate: 5.8% - Mark cites the housing vacancy survey; still below a typical 7%. Typical owner vacancy rate: 1.5% - Mark contrasts the current 0.8% with a normal market level. Typical rental vacancy rate: 7% - Mark says a well-functioning rental market would be around this level. Median housing unit age: 42 years - Chris D’s statistic showing the housing stock is the oldest on record. Median housing unit age in 1995: 28 years - Used to illustrate how the stock has aged over time. NAR median house price change, nationally: +4% year over year - Fourth-quarter 2022 realtor data. NAR metro-area decline example: -1.6% - Orange County, CA was one example in the discussion of declining metros. NAR metro-area gain example: +9.5% - Vero Beach was cited as a strong-gain metro. Housing cost-to-income ratio then vs. now: 3x income then; about 5x income now - Mark and Chris discuss worsening affordability over decades. Population/household formation outlook: about 1 million households soon - Mark references projections suggesting slower household formation ahead. Boomer turnover estimate: about 4 million housing units a year - Referenced from Gary Engelhardt as a future supply source.

Pivotal Quotes: "I think we need to think about how do we make sure that homeowners don't have a higher cost of capital, a higher cost than these investors." — Chris Herbert: On investor demand and tax-code advantages for institutional buyers versus households. "It is amazing given where we are. Business cycle, you know, the issue that keeps coming up is just a shortage of workers." — Chris Herbert: On persistent labor shortages across construction and related industries. "I think state need to take steps to say: no, we have a collective need to produce housing of different types in a broad range of communities." — Chris Herbert: On zoning reform and the case for state-level intervention.

Implications: The conversation suggests housing affordability will stay constrained unless supply expands, zoning loosens, and policies better balance owners, renters, and investors. Single-family may stabilize, but multifamily, labor availability, and homeownership access remain major risks.