Dana Blankenhorn

There Is No Housing Shortage

Today’s “housing shortage” or “affordability crisis” is artificial.

There are three primary causes.

First is private equity. Seeing big gains in prices over the last few decades, huge private investors have been piling into the market. They’re buying up the cheapest houses en masses and becoming slumlords. An example is Atlanta, where a huge part of the south side has been taken up. What makes it worse are tax breaks, meant to encourage affordable housing, which let private equity hide its profits.

There are two possible solutions, what should be done and what will happen. What should be done is that the tax breaks need to be reduced, slowly. As a matter of policy, we should be encouraging owner-occupied housing, and discouraging corporate-owned housing. What will happen is that interest rates will rise, increasing carrying costs, reducing profits, and causing some private equity owners to sell.

The second problem is technology. Technology has made houses more liquid than before. You still pay a fortune to move, up to 15% of equity. But costs for finding homes, choosing them, and transacting them continue to decline. Sadly, most of these gains are again going to big buyers. The move by OpenDoor to become a house-flipper rather than remain a tech outfit shows what is happening. Margins will decline once prices hit a ceiling, and again that depends on interest rates.

When Will This War End?

An Army travels on its stomach. It’s not generals who win wars. It’s economies.

This is the lesson of the Civil War and World War II. It’s the lesson of Ukraine.

War “experts” like to ignore this. They assume dictators can always get more of what they need from somewhere. Thus, they over-estimate America’s foes and under-estimate America itself.

Putin is all-in on the Ukraine invasion. He can’t put in more people without risking civil strife in Belarus, Kazakhstan, Georgia or even Russia itself. He can’t get more of anything, and his people are getting hungry. Money no longer works. Russia hasn’t had much manufacturing capacity since the Soviet era. The population was already falling due to vodka and COVID.

What’s needed to end the war is a way out of it. That’s why the President’s moves to re-supply Ukraine are all covert. The Congressional anger at Biden helps our cause. It lets him play the good cop.

Dawn is Coming

We’re approaching one of the biggest snap back rallies Wall Street has ever seen.

Once Putin’s War is over, everything’s going up. How much depends on the result.

Right now, signs are good. Israel has joined the sanctions regime. China is only going to sell stuff to Putin for cash. But China is in worse trouble than we are. They’re still fighting COVID with lockdowns. Their stock market is a mess. Their property magnates are collapsing. Hong Kong has created a brain drain. Shared prosperity is becoming shared misery. I expect a slow policy readjustment.

Once the war is over inflation will decline. Not magically. Prices are always sticky downward. You don’t cut your price based on costs. You do it when your rival cuts theirs.

Technology remains our best weapon against inflation. My long-term concern remains deflation, and how the gains of technology are apportioned. Fortunately, all those forces who sided with Russia, including our worst oligarchs, are being discredited by events. No one in Washington can see this because they only see today.