- This summer, Philip and I finally managed to buy a new house and I am in love with it.

- But let me tell you, it wasn't easy.

We had to search for almost a year, put in multiple offers and routinely, had to go 15% above asking price.

- The housing market here in central Texas, like most places, feels out of control.

The median home price in Austin has almost doubled in the last few years, which reflects a trend in many places across the nation.

Some of this can be blamed on the Coronavirus pandemic.

The cost of construction materials went way up, construction of new homes slowed way down, and a lot of people canceled their plans to put their houses on the market.

I mean, who would want a bunch of strangers touring your home with a deadly virus on the loose?

- But, like lots of economic and social trends, COVID only accelerated things that were already in motion.

There are deeper reasons why it's getting so expensive to buy a house in America these days, and the solutions feel pretty far off.

(melodious music) - To really understand what's going on in the housing market today, we have to go back to 2008, when the last housing bubble burst.

Years of reckless lending by Wall Street had artificially inflated the market, sending home prices soaring.

When it finally became clear that too many people had taken out predatory loans to buy overpriced houses, the whole thing collapsed taking the U.S. economy with it.

Real estate values plummeted, thousands of people lost their homes, and there were too many houses on the market with not enough people who could buy them.

- When a market reacts to a shock, it tends to overreact.

Construction of new homes fell from 2 million a year to less than 500,000.

The decade following the Great Recession had the fewest number of homes built than any decade since the 1960s.

- There's also fewer existing homes being put up for sale.

Advances in medicine and nutrition have kept the baby boomers healthier and more productive, longer than their parents, so they're not ready to retire, sell the house and move to a condo in Florida just yet.

- Meanwhile, millennials, who've had to delay home buying for financial reasons like stagnant wages and student debt, are finally ready to enter the market in big numbers.

Mortgage rates are at historic lows, which means more people can afford to get a loan.

The rise of remote working means that more workers want houses away from city centers, but there's just not enough units available, that means bidding wars and rising prices across the country.

- A report by the National Association of Realtors estimates that to make up the shortage, the U.S. would have to build over 2 million homes per year for 10 years, more than we were building during the last housing boom.

So far, the rates on permits for new homes are nowhere near where they need to be to hit that goal.

- One reason is that, well, America is a little rusty at building houses.

When construction slowed way down during the 2010s, demand for skilled tradespeople dried up.

A lot of boomers retired from careers like carpentry, plumbing, and electrical, and far fewer young people entered the fields to replace them.

Since it can take years for someone to become proficient, we are currently experiencing a massive shortage of skilled tradespeople, just when we need them the most.

Developers often have to delay construction to find professional labor, sometimes even shipping them in from other regions.

This means fewer houses built per year, at higher cost.

- Many cities are implementing programs to attract and train new skilled trades people.

But in the meantime, there's a much bigger obstacle to building our way out of this housing shortage.

Zoning laws.

Believe it or not, in most of the United States, it's illegal to build anything but single, family, detached homes.

No duplexes, no condos, no apartments, not even a granny flat.

- Many of these laws date back to the early 20th century and allowed white homeowners to stop any development they feared would lower the value of their property.

Today, these laws are strictest in big, wealthy cities like San Francisco, New York and Seattle.

- Here in Austin, there has been a long campaign to try to rezone much of the city to allow for denser residential areas called Code Next, but it's been stuck in legal limbo for years due to the tireless opposition of mostly white affluent homeowners who want to preserve the look and demographics of their neighborhoods, regardless of skyrocketing home prices and surging houseless population.

This social group also tends to have the highest turnout in local elections across the country, so if you wanna serve another term on the City Council, you better vote against that affordable apartment building.

- Law Professor, David Schleicher, argues that these zoning restrictions impact the overall economy as well, by suppressing wages.

For example, when an area experiences a period of economic growth, the higher wages should attract job seekers from across the socioeconomic spectrum.

But, if zoning laws prohibit the construction of new homes, the only people who can afford to relocate there are already wealthy.

In other words, if you're a janitor living in Reno, Nevada, you could conceivably make more as a janitor in Silicon Valley, except there's no housing there in your price range.

- California is a prime example of the dangers of NIMBY-ism, short for, Not In My Backyard.

Some even call it a BANANA state, Build Absolutely Nothing Anywhere Near Anyone.

Despite a decade of high output and employment, skyrocketing home prices have forced many middle and low wage workers to relocate to other states.

What should have been a boom economy for everyone was only available to the affluent, educated professionals who could afford to enter bidding wars over the small inventory of existing homes.

- NIMBY-ism also affects our ability to build infrastructure in America.

One mile of commuter rail in the U.S. can be several times more expensive than in Europe.

One reason is that European governments typically have more power to plan and execute infrastructure projects from start to finish.

In America, even a small group of local home owners can derail any building proposal they don't like, often using historical or environmental concerns as justifications.

These delays and legal battles drastically drive up the cost of construction.

- Organizations from the Urban Institute to the National Association of Realtors are calling on governments to make it easier to build new construction.

President Biden has proposed including, in his Infrastructure Bill, financial incentives to areas that are willing to relax their zoning laws, though that may not be enough to persuade wealthier school districts that don't need the money.

- One possible solution to the housing shortage is for the Fed to raise interest rates.

If mortgages are more expensive, fewer people will want to buy a house.

But the lack of housing affects the rental market as well, and simply making it harder for people to become homeowners doesn't address the underlying problem.

- Owning a home is still the primary method of building wealth for the vast majority of Americans.

It's something to pass on to your children and offers the security and freedom of knowing that you're not at the mercy of a landlord.

- In some ways, the problem is simple, there aren't enough homes to go around, but fixing it may require a fundamental power shift in who gets to decide what gets built and what doesn't.

- And that's our 2 cents.