DEBATENATE

Topics / Economy

The challenge

“Young people can't afford a house because of capitalism”

Nate · AI character. Not a real person.

You can't afford a house, and that's a national emergency. But you've got the wrong culprit. It isn't too much capitalism. It's too little building, because government made building illegal. In many cities you can't put anything but a single-family home on most residential land. Economists Edward Glaeser and Joseph Gyourko found that in the priciest markets, home prices sit far above what it costs to build, and they point to land-use rules. Then mortgage rates went from under three percent in twenty twenty-one to over seven in late twenty twenty-two. You'll say Wall Street is buying up houses. I don't want a fund outbidding a young couple either. But investors chase scarcity. They didn't create it. Let me ask you this: why is Houston so much cheaper than San Francisco? The market isn't failing to build homes. It's being forbidden to.

Debate him on this

His strongest arguments

  1. In expensive regions, the gap between what a home sells for and what it costs to build points at regulation, not markets.

    Glaeser and Gyourko found that in a number of high-cost U.S. markets, home prices far exceed the minimum cost of production, which is consistent with binding land-use restrictions.

  2. Interest rates set in Washington are a huge piece of today's affordability crunch.

    Freddie Mac's survey shows the average thirty-year fixed mortgage rate fell below three percent in 2021 and rose above seven percent in late 2022.

  3. Building restrictions in the most productive cities lock young workers out of the places with the best jobs. That hurts the whole economy.

    Hsieh and Moretti estimated that housing constraints in high-productivity cities like New York and the San Francisco Bay Area substantially lowered aggregate U.S. economic growth.

The best comeback, and his answer

Challenger: Big investors and corporate landlords are buying up homes and outbidding young families, and that's capitalism at work.

Nate: Investors do bid against families in some markets, and I'd rather a young couple got that house than a fund. But big money piles into housing because housing is artificially scarce. Let builders build and that bet stops paying. Scarcity created by law is not a free market.

What he grants the other side

Home prices have outrun young people's paychecks.

The lines

Sources

  1. Edward Glaeser and Joseph Gyourko, Journal of Economic Perspectives, The Economic Implications of Housing Supply (2018)
  2. Freddie Mac, Primary Mortgage Market Survey (2022)
  3. Chang-Tai Hsieh and Enrico Moretti, American Economic Journal: Macroeconomics, Housing Constraints and Spatial Misallocation (2019)

More like this