Today’s housing crisis is the perfect storm of demographics and inefficiency driven by politics.
The demographic thing is easy. I’m 66 and I’m not moving. There are lots of us boomers. Staying alive. Enjoying our homes. This means fewer homes for younger people. Eventually we die and the baby bust enters the housing market. We become Japan. Just not now.
Housing has resisted Moore’s Law in 3 ways. Most of the costs are political.
- State building codes keep out new building new technology. That’s politics.
- Local zoning keeps out all but politically-connected builders. That’s politics.
- Transactions resist automation. This can be fixed.
Right now, it can cost 15% of your equity to move. That’s about 6% on each side of the transaction, buying and selling, then 3% for the actual move. The idea of a starter home, a home for kids, then downsizing means 45% of your equity goes out the door during your life. The only people getting rich are the agents and brokers taking your money.
Fintechs that specialize in real estate do reduce margins. They crush agent commissions, they cut brokers out of closing, they cut the cost of new money.
But it’s those who buy in bulk who benefit first. That’s why corporations are buying up all available stock, whether for long-term or short-term (AirBnB) rentals. In time transaction cost savings will filter down, as the technology companies that create them look to expand their markets.
But meanwhile we have a perfect storm. You can’t build new housing because of local regulation. You can’t use money saving techniques because of state building codes. You can’t get into the market because of high transaction costs and corporate competition.
Something’s gotta give.
