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I almost didn't write this, because from my perspective, "In a world where most people don't have coherent thoughts on Topic X, here's a politician who also doesn't have coherent thoughts on Topic X," may be a bit boring. I decided to write it anyway, because it gives a quick hook to the root of the issue, and I might as well lay it out in detail somewhere.
So, Trump speaks on the price of housing. For some societal context, there has been a bit of a movement toward trying to lower the cost of housing. YIMBY is oriented somewhat in this direction; I've even heard the phrase "Housing Theory of Everything" describing the perspective the high housing costs have a variety of other knock-on effects, and so it would be desirable to lower the cost of housing.
Trump highlights the core of the problem. He doesn't want to lower the value of "existing" housing. "People who own their home" should be kept wealthy with high house prices. But the kicker is that there's no way to economically separate the value of "existing" housing and the "people who own their homes" from, uh, "non-existing" housing? As sure as the day is long, if you have a stock of houses, each worth $1M, and then conjure out of thin air a plentiful amount of previously "non-existing homes" that only cost $500k to buy but are otherwise just as desirable, what's going to happen when an existing homeowner decides to sell their house? They'll list it for $1M, but all the potential buyers will look at that, look over at the same deal for only $500k, look back and think, "WTF? Why would I spend that much?" They're going to buy the cheap one. And so, if the existing homeowner wants to successfully sell his home, he will have to lower the price.
...but since everyone already knows that he would have to lower the price (since the price of whatever magical disconnected-from-existing-housing has been lowered), then everyone already knows that the "value" of that existing home is, uh, lower. These things are obviously connected; you can't just hold one constant and tweak the other.
I continue to maintain that the vast majority of folks out there simply do not have a coherent view on the simple question, "Should the cost of housing be higher or lower (or, I guess, the same)?" They want to magically keep the value just exactly as high or higher for existing homeowners, but somehow magically make housing otherwise generally cheap.
You can try (and oh boy does the government try) to come up with ways to just throw cash at the problem, but these efforts generally run into two major types of problems. First, that cash has to come from somewhere. Almost always, that's taxes. Who do you think is paying those taxes? This one we might file under the "obfuscation theory of government". If you hide it well enough that people don't realize that the cash being thrown at the problem to make it look like their right pocket is just as wealthy as it ever was is in fact coming out of their left pocket, they just might not realize?
Second, most schemes end up having to play endless whack-a-mole for the follow-on effects if they want to maintain general cheap housing while keeping house prices high. For example, all the business about throwing cash at first-time home buyers. Some of that reduces the cost to folks who don't own a house, and some of that increases the price of the houses (going to the sellers), and that seems like it could just solve the problem, right?
Well, consider a renter. They're not getting the bag of cash thrown their way. But the price of the houses that they'd like to rent are going up. So their rent is going up. So the cost of "housing" isn't going down for them. Are you going to play whack-a-mole and start subsidizing rent, too? This way Venezuela lies. What if you just jack up the FTHB cash-throw? Just accept that renting is going to be basically infeasible, because getting into the home-borrowership (to use a phrase from Arnold Kling) carousel is now too economically attractive in comparison. Sure, you'll end up with fake and gay high house prices, but everyone "gets in", right? But even then, your 'wealth' is fake and gay. Suppose you want to sell your house and reap the sweet sweet value that you have. Well, where are you going to live? Renting is infeasible (by design). Are you going to buy a different house that also has a fake and gay high price? Suddenly, your gainz disappear. All the while you're paying more interest, more property tax, and more transactions costs (that realtor still costs 3% of a fake and gay high price).
Someone will surely try to come up with this scheme and that scheme to whack this mole or that mole, but I press X to doubt that you can technocrat your way to a solution, especially one that doesn't cost gigantic bags of cash coming out of the general treasury (and ultimately, taxpayers' pockets).
The fundamental question, "Should the cost of housing be higher or lower (or, I guess, the same)?" confuses a lot of people and is probably one of the core problems of our time that produces a multitude of political dysfunction.
The usual way to solve a problem of "let's make something cheaper while not pissing off existing owners by reducing the value of their product" is market segmentation. Want to make a new $500 phone that doesn't annoy the people who just bought your $1000 flagship? Make sure it's worse in some obvious way. This sort of thing has resulting in lots of amusing things like IBMs computer with the jumper that could be cut to make it faster, but with homes it's pretty easy -- you make new housing that's smaller, of poorer construction, and further away from where people want to be.
Except, well, enter government. Building codes keep you from (legally) making houses of much poorer construction. Occupancy codes keep your houses from being too much smaller. And anti-sprawl rules mean you can't build them much further away.
Simple solution -- elect a leader who has been a globalist neo-con since before it was cool, and coincidentally owns a podbuilding company; et voila:
https://www.pm.gc.ca/en/news/news-releases/2025/09/14/prime-minister-carney-launches-build-canada-homes
Non-pod based houses can remain as a Veblen item, and the useless eaters can be happy in their pods; what could go wrong?
Doesn't work in the US. I don't know if Trump ever built houses, but if he did I'm sure they would be McMansions, not pods.
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The value of a house is that you have a place to live. A house is not an “investment”. It has no cash flow. It does not generate wealth. A house becomes less useful with time due to entropy (albeit more slowly than most other physical assets). One would expect the real value of the average house to go down with time.
I feel bad for the people who got duped, but this really should have been obvious. Artificial scarcity is not wealth. Abundance is wealth.
As a specific example, my understanding is that the Japanese housing market does work this way, largely because there is a strong cultural demand for new houses, to the extent of replacing usable existing structures being common.
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A house is not only an investment, houses have cash flows so large it burns the Treasury's butt that they can't tax them. Second largest "tax expenditure" after medical premiums and just before 401Ks is "Exclusion of net imputed rental income". Of course, you might object that these aren't real cash flows (which they aren't, hence "imputed")... but they are spending avoided. They also provide a one-time inflow when sold, of course.
But in fact houses generally gain real value with time. I expect this to change in 10-15 years, but for now, they gain, not because any intrinsic properties but because of good old supply and demand. Well, that, and the fact that people do tend to fight entropy by doing maintenance and sometimes upgrades, which you need to account for.
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For the first couple of years after I bought my house, I let out a room to a friend who was in grad school. It wasn't a ton of money, but it was positive cash flow. Doing that with a rental would be a lot more problematic.
In practice it probably wouldn’t, I’ll wager thé majority of people doing this are renters.
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I don't see how the US will ever be a manufacturing country when a house for an engineer in a city is a million dollars, medical insurance for a family is 2000+ dollars a month and an engineering degree starts at 100k dollars. Being a country built on assets being inflated to the moon is incompatible with manufacturing.
China wanted its bubble to pop because BYD's engineers can rent condos for far less per square meter than what GM engineers can.
Further more the US birthrate is 1.6 children per woman. That is an almost 25% drop in population over the course of one generation. This is while the construction industry continues to pump out housing. This is pretty much a commitment to continued mass immigration.
I think the only viable option here, which maybe is the needle Trump is trying to thread, is to stagnate housing prices while everything else inflates around them. A sudden drop in asset price is bad (underwater mortgages), but a slow loss in relative value --- in your example, house still $1M, but so is starting salary --- could at least be palatable to existing homeowners and approve relative affordability.
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China didn’t want its bubble to pop and the state took extreme action to (1) prevent the housing bubble from popping and (2) once it partially did, prevent on-paper values from collapsing to prevent extreme public anger. To illustrate, while data is scarce, since the bubble burst in 2022/3 Chinese house prices have fallen by about 2.5% per year. The worst affected cities maybe 5%.
By contrast, after the US housing bubble burst in 2007, property prices in the worst affected cities (like Phoenix) fell by over 50%.
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People who own houses often have it as their primary asset. Reducing the value of real estate is, in a very real sense, making them poorer. And people who own homes vote.
The American Dream is basically 'what if everyone was part of the land-owning class?' and then people are surprised that as a newly endowed member of that class, they are opposed to the renting class and new buyers. Well, no shit! You've spent a great amount of government subsidy to align their interests in that way.
Trump is just being honest in that he is siding with the landowners. Anyone who is an advocate for reducing the price of housing but isn't for building new construction is a liar who is a part of the problem. Their best ideas for reducing the price are to subsidize the demand and this is why structural reform is impossible.
No it is literally not making them poorer unless their income is housing speculation.
If you make $10k per month and have a $3k/month mortgage you consumption basket does not change if the value of the house is $1 or $10 million. Either way you have $7k/m for other consumption.
That is not how wealth works.
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The thing is though, if you are for building new construction, possibly in connection to wanting to reduce the price of housing, the predictable surety is the value of houses currently owned by people will go down.
I should have spent more time trying to find the rest of the context of that clip. I debated it, but was lazy. There is a clue in that he briefly says, "We're going to make it easier to buy." A longer clip is here. He talks about this repeatedly. Making it "easier" for people who don't own houses to buy houses. The repeated message of the Secretary of HUD is about how they're making it so that millions more people "can afford" to buy houses. How is it "easier"? How is that they "can afford"? The major talking point is interest rates. ...as if lowering interest rates has no effect on the sale prices of houses. Lowering monthly mortgage amounts, offering lower down payment options like FHA loans or whatever, sure, these things get people into home borrowership, but they have other effects, too. Do people already forget the impacts of the drive to push more and more people into home borrowership twenty years ago, even resulting in significant impacts to government coffers as they were left picking up the pieces.1 These things are the sorts of ridiculous tinkers one comes up with to try to look like one is solving the problem when one hasn't grasped the reality of the core tension.
Trump is honest in that he's saying that he's siding with landowners, and he wants you to believe it. He's honest in that he's saying he's siding with people who want to buy houses, and he wants you to believe it. So we'll keep pushing the same flawed fake solutions, try to play whack-a-mole in the process, and never accept the limit of technocratic solutions.
1 - I've been lucky in that I decided a few years ago to start listening to the entire back catalog of EconTalk. It started in 2006, and I'm around 2011 now. There are plenty of episodes that aren't housing-related, but there is an incredible breadth and regular stream of folks grappling with and trying to understand the housing crisis, the crash, and the process of recovery. I guess I've been stewing in it enough that it's clear what people thought they were trying to do, how it sounded nice, how it all went wrong, and now we're basically repeating the same tune, just a different key.
You don't even have to go back that far. The most recent appreciation in housing prices from the COVID era and renewed discussions on affordability directly stem from the wave of home purchases from the era of rock-bottom interest rates. It's basic supply in demand. Sale prices of homes are more reflective of mortgage payments than they are of the sticker price; it makes more sense to talk about a $1500/month house than a $250,000 house. This difference is especially clear in the Pittsburgh area, where houses just outside of Allegheny County command a price premium due to lower property taxes. If there's a class of people who couldn't afford a particular house at 7% but now can at 3.5%, the house is going to cost more.
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I think you mean "renters". A "rentier" is a landlord, one who lives off income from properties.
Ah, whoops! My bad.
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There’s a lot of people who are basically lifestyle debtors, their lives are based around moving debt around to cover their high consumption habits. Taking away those people’s toys is probably unpopular, even if probably necessary, and very high home values are the main toy of the more sympathetic bunch of them.
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As somebody who has a mortgage and is considering moving, I think about housing prices a lot. The conventional wisdom seems to be that high home prices are a good thing for homeowners, but I can't entirely figure out why that's true in the general case.
If your home is "worth" 10x your purchase price, you can only use that by selling it or using it as collateral for debt.
If you're selling it, you're either moving into a new purchased property or a rental. If you're moving into a new property, it's likely just as inflated as your current home unless you're engaging in geographic abitrage by moving from Martha's Vineyard to Monkey's Eyebrow, Kentucky. If you're moving into a rental - well, any rational landlord is going to set rates at the absolute highest point the market can handle, and that's informed by home prices. If every housing market in the country took a 50% pounding, I'd likely be better off in terms of relocating than I am now.
I can understand the collateral for debt argument, but I don't know how common that is, as I am a peasant who avoids debt whenever I can. Maybe somebody else here can fill in the gaps on this one.
Given all that, what exactly am I missing here? Why are high home valuations for homeowners considered to be such an unalloyed good?
Leverage. Suppose you bought your house for $100,000 and still owe $70,000 on your mortgage. If it's still worth $100,000, you have $30,000 in equity. If it's worth $1,000,000 you don't have $300,000 but rather $970,000 in equity. Even if all the other houses have gone up as much, you've won.
Right, but that equity is only useful if you're going to sell it, or you need to borrow money and can afford to make the payments. If I were to buy a $100,000 house tomorrow, and I make the kind of money for which the loan is comfortably affordable but not so much that I could comforably afford a house worth much more than that, being able to borrow $900,000 isn't much of an advantage. Maybe if circumstances change such that I need to borrow money and I can get a better interest rate on a HELOC than I would on a personal loan, but even then the origination fees combined with the fact that the bank now has a lien on your house makes it a questionable decision unless the circumstances call for it.
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I think the geographic arbitrage you mention is pretty common. My mother and step-father were, at one point, considering moving to a pretty rural area of Kentucky since they could get a lot of land quite cheap. Additionally there's a size/quality arbitrage that occurs. When you're younger, have kids and a growing family, you probably want a larger house than when you're older and retired. So even if you stay in the same geographic area there's an arbitrage to a relatively less desirable house that may be better suited to your needs.
My impression is many homeowners also perceive their house and its equity as a retirement investment. In many (most?) places around the country your home is likely to be the most valuable asset you own. Even if one doesn't intend to cash out that asset themselves, it is something very valuable to leave to one's progeny. Either in the form of cash from a sale or as a place to live.
Agreed, I live in a suburb in the Northeastern US and it's pretty common for people to sell; move to places like Georgia or the Carolinas; and end up with a much nicer house (fully paid off); and a bunch of extra money to boot.
Even among people who don't end up doing it, just knowing that it's a potential option provides peace of mind and a safety net for taking financial risks such as quitting one's job and starting a business; taking an early retirement plan that's 90% likely to succeed, etc.
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If I was in DINK couple, or an irresponsible parent, a reverse mortgage would be very tempting; after all, if I don't have anyone I want to leave my wealth to, what do I care if the bank takes it after I die?
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