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Dan Loney: We have seen housing
prices rise quite a bit in the
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last few years. One of the
reasons is the low levels of
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available supply. Building in
some markets in the South has
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slowed dramatically, where it was
once strong just a few years ago.
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And really, the strength of the
industry. And that is also
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leading to changes in a variety
of different locations as to how
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we're thinking about building
around the country. Pleasure to
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be joined on this topic by
Joseph Gyourko, who is a Professor
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of Real Estate, Professor of
Finance and Professor of
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Business, Economics and Public
policy here at the Wharton
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School. Joe, great to catch up
with you again. How are you, sir?
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I am well, thanks for
having me.
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So I mean, part of
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this is the discussion around
some of these different markets,
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but as a whole, I think we're
talking about the issues that
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the housing industry is having
in general, kind of across the
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country at this moment.
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That is— that is true, and it's
actually a longer-run problem
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than I would have thought
before, you know, we did the
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research that generated
this discussion today. Do you
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want me to start with just a
little bit of history on—
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- Please do.
- the American housing market?
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So I'm going to quickly
go through
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prices and quantities. And I'm
going to go— I'm going to start
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50 years ago, in 1975. We have
really great housing price
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indexes going back that far. And
there's a specific
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index. I know you don't want
jargon in these things, but
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there's a specific index that
tracks 20 markets as best as we
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can. It controls for the quality
changes in houses and the like.
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And if I divide that period,
that 50 year period, from '75 to
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2025, let's say— if you divide it
into two periods, 1975 to 2000,
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you see what used to be the old
American housing market. Which
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is, over that 25 year period, the
big coastal markets— think
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Boston, New York, DC on the East
Coast, Seattle, San Francisco,
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LA, San Diego on the West Coast,
they became quite expensive. Over
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that '75 to 2000, San Francisco's
real constant quality price— so
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the same home being priced over
time— way more than doubled. It
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rose by 160%. The laggard in the
coastal markets over that 25-
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year period was San Diego, at 69%.
All the other markets I noted
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were in between, basically 70
and 160. The same time period, Sun—
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the Sunbelt. There seven Sunbelt
markets in this 20-market
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index. Charlotte was the leader
in price growth, real constant
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quality price growth, at 11%.
Vegas, Las Vegas, was the laggard
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at minus four. So basically,
from 1975 to 2000, the Sun Belt
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did not have significant real
price growth. Okay? Now let's
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look at the last 25 years. Not
just the last five or Covid
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effects and the like. If you
just do 2000 to 2025, if I told
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you to guess which was the
highest-appreciating market
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among the 20 track, I bet you
would not pick Miami. Miami was
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the highest appreciating.
- Yeah. Yeah.
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- It was about 155%.
Phoenix was close at
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nearly the same amount. Atlanta
was plus 32. And by the way, New
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York was 70%. Yet still— that's
the New York City metro area— it
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grew at 70% real price growth
over that 25-year period. But
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the Sunbelt markets were the big
growers in price. And it's not
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just a recent phenomenon.
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And so now, to a degree, we're
not seeing the same type of
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growth in the Sunbelt in recent
years then maybe we saw, you
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know, in the prior half of that
20, 25-year period.
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That's exactly right.
And I'll try to be brief here.
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I'll now go to quantities. That
was— I'm an economist. We did
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price, but let's do quantities next.
If you go back to, say, the
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1960s, where we have census data,
there was a huge spread in the
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building, the rate of building of
new housing across markets. In
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the 1960s, believe it or not,
Phoenix grew its housing stock
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by 8.9% per year. Now there are
10 years in a decade, which
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means they expanded the metro-
wide housing stock by 89% over
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10 years. For LA and Detroit, Los
Angeles and Detroit, they were
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the lowest, among the lowest
growing markets, in terms of
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building. They were at 2.5% in
Detroit per year in the '60s, and
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LA was 4.1. That— the difference
between Phoenix and Detroit, 8.9
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and 2.5, is
basically almost a six and a
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half percent difference per year
in the stock. Phoenix
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grew its stock by massively
greater amounts than
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Detroit did. Fast forward 30
years, just to the 1990s. Los
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Angeles and Detroit are not
growing their stocks much at
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all. They're growing by way less
than 1% a year, which means
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their decadal increase in stock
is less than 10%. But Phoenix is
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down to 3.3% a year, from 8.9 to
3.3. That's in the 1990s. Now
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let's fast forward to the 2010s,
where you started this
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conversation. Detroit is 0.8% a
year, but Dallas is the biggest
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producer at 1.8%. In other words,
the spread used to be six and a
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half percent in the 1960s. It
fell to basically two, two to
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two and a half percent in the
1990s. And it's now 0.7%. That's
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the big change, is that the Sun
Belt still produces the most
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housing across markets in the
US, but it's at a way less
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intense rate.
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Why do you— why do
you think that is?
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Well, we— my co-author in this and—
we've been doing research on
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this for a quarter century now—
is a guy named Ed Glaeser at
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Harvard. And we think it's local
regulation. And that what's
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happened is, in the Sun Belt,
particularly suburban areas, are
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figuring out how to slow and
stop new developments. It's a
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feature of the American system
that, you know, zoning and
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permitting is a very, very local
decision. So what's happened is
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very— it's still very high demand.
We still have large internal
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migration out of the coastal
markets on the East and West
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Coast to the Phoenixes, Miamis,
Dallases and Atlantas of the
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country, and they're just not
building as much.
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And then you— don't you often
have to factor in the type of
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housing that seemingly is being
built right now, in terms of the
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rise of multifamily that we've
seen kind of go through the roof
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over the last couple of decades?
And it feels like we're seeing
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more of that built than we are
seeing single family homes.
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And that's not new. We
overbuild multifamily markets
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from time to time. Most, but not
all of that occurs in or near
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urban core, central cities,
although there are certainly
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multi units in in the suburbs.
But yes, recently, we have seen
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a big rise in multi. We have seen
it in the past, but one of the
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reasons for that is simply
because it's become harder to
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build single family.
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And do you expect that we could see
a shift, then, on the policy side
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in the years ahead, that may be
able to open the doors to more
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build in, you know, in the next
couple of decades?
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One— I would hope so.
Because this, what I just
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described, this situation of
strong demand in the Sunbelt,
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but not nearly as high levels of
new housing growth, particularly
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single family growth, as in the
past, is a recipe for higher
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prices. Now, let me be clear,
Miami, Atlanta, Dallas and
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Phoenix, the— I'm just using them
as examples. They are not as
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expensive as Los Angeles or New
York. But if they continue on
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this path for another 20 years,
they will be. Because it took
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roughly three decades of really
low growth and high demand to
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make our coastal markets very,
very expensive. So this is an
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important change. And why that's
important is, where's the job
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growth in America? The answer
is in those Sunbelt markets I
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talked about. So we would make a
wide, much wider swath of
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America unaffordable in terms of
housing. So it's a big deal.
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Which is a long preamble to
answering your question, which
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is, I don't know if policy will
be successful. It's local
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control. So there's an
interesting bill that just came
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out of the Senate Banking
Committee that had bipartisan
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support, and it's— so it hasn't
passed the House. It hasn't been
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signed by President Trump. But
the bill, basically, is trying to
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incent cities, localities who use
community development block
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grants, and it's going to give
them more if they build more.
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That's what the bill would do.
That's one way to do it, is for
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the federal government to use
its resources to incent
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localities to permit more. But
understand, that's a key— that
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distinction. The federal
government does not issue
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building permits. Right? I
live in Swarthmore,
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Pennsylvania, a suburb on the
southwest side of this
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metropolitan area. We control
our zoning and our permitting.
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We do. It's not Governor Shapiro
in Harrisburg. It's us. So
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will policy change? I think the
most important thing is that it
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change at the local level. And
there has to be a recognition
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that these high prices are, I
think, largely— not totally— but
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largely due to restrictive
permitting at higher— high
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regulation at the local level.
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Joe, great to have your insight
today. Thanks very much for your
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time. All the best, sir.
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All right, thanks.
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You got it. Joseph Gyourko, Professor
of Real Estate, as well as Professor of
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Finance and Professor of
Business, Economics and Public
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Policy here at the Wharton
School.
