Comparing the Strong Towns and YIMBY Approaches to the Housing Crisis

The Building Culture Podcast explores holistic solutions to crafting a more beautiful, resilient and thriving world through the built environment. Its host, Austin Tunnell, recently invited Strong Towns President Charles Marohn and California YIMBY’s Nolan Gray onto the show to debate the housing crisis. It was a great conversation that explores how these movements align and differ in their approaches to housing.

  • Chuck Marohn 0:09

    Hey, everybody. This Chuck Marohn, strong towns. Welcome back to the strong towns podcast. Today's episode is actually a recording from the building culture podcast. Austin tunnel runs a podcast. He invited myself and Nolan gray with California yimby to come on and talk about a Twitter spat. Let's say that the two of us had. If you've read my column in November, you see that I'm I'm cutting back dramatically on my Twitter. We've been cutting back for a while now, but the incident in Labor Day weekend, I got a little bit of a crabby match with some of the California yimby folk that kind of just, you know, solidified the deal for me that Twitter was maybe not the right place to be having a nuanced discussion around housing and other topics. Those of you who have already concluded that know what I mean and are like, yeah, duh. I learn hard sometimes. Anyway, Austin asked Nolan and I to come on and talk about this in real life, which we did, is a very pleasant conversation. I think you will see that there's you know, we do get to nuance. There's probably, you know, way more instances of agreement here than disagreement as there is in real life. Twitter is, is not real life. But I thought it was a really good way to kick off the year this year with this reflective discussion on what it means to be an advocate from a California yummy perspective, and what it means from a strong towns perspective, how do we get to housing affordability? What are the trade offs? What's the nuance? What does that actually mean? I'm happy with how this turned out, and I thank Austin for not only running it, but giving us opportunity to run it as well. Thanks everybody. Enjoy the show. Like the prices are the prices today, and they're high because that's what it costs to build a house, I think kind of misunderstands the entire supply chain of what it takes to actually build a house. We

    Nolan Gray 2:08

    have to remain focused on how this is interacting with the supply and demand that ultimately is sort of underwriting the housing affordability issues. We have a shortage, and housing is a good investment. It will become further and further financialized and out of reach of normal working people.

    Austin Tunnell 2:25

    Welcome to the building culture podcast, where we explore holistic solutions to crafting a more beautiful, resilient and thriving world through the built environment. I'm your host. Austin tennel. I interview leading change makers, architects, developers, builders, engineers, entrepreneurs, inventors and more. I also share my own journey as the founder of building culture. As we grow a holistic real estate development company from the ground up, together, we can explore a new vision for city building in the 21st century, one that puts people at the center. I've got a really cool episode to share with you guys today. About About a month ago, on Twitter, I saw Chuck Marone and Nolan gray having a debate. And for anyone who doesn't know, Chuck Marone, founder of strong towns, and author of well, strong towns, Confessions of a recovering engineer, and the most recent one escaping the housing trap. Recommend all of them, and Nolan Gray, president of the California yimby movement, and author of arbitrary lines, which is another great book. So these two authors, and really prominent figures and the new urbanist community, and then just making our towns and cities and neighborhoods better community, were having a pretty intense argument, and I was surprised, because I would assume, I assumed they would agree on most stuff. And so I actually asked them, I said, Hey, would you like to come on the podcast and have a debate about these things? And amazingly, they both said, yes. So here's that episode. Very excited to share it with you. Here we go, gentlemen, I am very excited to have you both on the podcast today. Thanks for joining

    Speaker 1 4:05

    me. Thanks for having me. Hey, very nice to be here. Yep. So

    Austin Tunnell 4:09

    Chuck Nolan, let's start with you, Chuck. Chuck, could you give us before we jump in and have a little mini debate here, Chuck, could you give you know, like a 62nd background of you and strong towns and the work that you guys have been up to

    Chuck Marohn 4:23

    Sure. My My name is Chuck Marone. I'm the founder and president of a nonprofit organization called strong towns. I started writing a blog in 2008 after working as an engineer and a planner for 15 plus years, and I started writing about why cities were going broke, why we were struggling financially, why a lot of the projects that I had worked on weren't resulting in cities getting more prosperous, becoming stronger. That blog has grown into an international movement of people. The organization strong towns is set up to support that. At we we still do a lot of content. We also do a lot of work with groups around North America, increasingly, around even beyond that, we've got over 5000 members, people who contribute to our organization, both financially and in content and in doing work on the ground. And we're trying to make cities financially strong and resilient from the bottom up, focusing on, what can we do together in a place, in a community with the tools we've got and the stuff we have on hand to make a big difference today, that's our core focus. Thanks.

    Austin Tunnell 5:39

    Jack Nolan, you mind giving the 66/62 background on you and what you guys are up to at yimby? Yeah,

    Nolan Gray 5:46

    totally. So I'm Nolan Gray. I'm the Senior Director of legislation and research at an organization called California yimby. That's yes in my backyard, as you probably might have guessed, our mission is to do battle with the NIMBYs and build the housing that our country so desperately needs. We believe that most of America is in a housing affordability crisis, in part because we simply haven't been building enough housing, and especially haven't been building enough housing in existing urban areas near transit, near job centers, where folks can live car light or car free. So do a lot of work there. Before this, I'm continuing to work on a PhD in city planning at UCLA. I was a city planner in New York City, AICP, for whatever it's worth. And yeah, just happy to be here, looking forward to the conversation. Well,

    Austin Tunnell 6:33

    great. I admire both of your guys work and both prominent players and whatever you want to call it, the new urbanist movement, and even outside of that, I suppose, but just an active housing policy. And what I love is actually doing things about it out there, doing real work, not just talking about it. So I'm excited to have you guys on and I'm going to start with what caught my attention and why I asked you guys on here together, which was a couple months ago on Twitter, hearing a little bit of battle between strong towns and yimby, and it took me by surprise when I thought about, I'm kind of like, I think I understand it more, but going, Oh, I actually figured I was surprised you guys were on opposite sides. Because I think there probably is a lot you agree on between the strong towns and you can be movement. But then there also are things that perhaps you guys disagree on and the movements disagree on, and so I'd like to kind of dive into some of that. So I'm going to start by reading a little bit of the tweet, and it's slightly incendiary, and we all know what Twitter is like. And these are not intended to be ad hominem attacks. I think these are attacking ideas. I think everyone here, all three of us, are very passionate about what we do and passionate about the movement. So keep in mind, this is Twitter, and this is

    Chuck Marohn 7:47

    you're triggering me about my ruined Labor Day weekend. So go ahead,

    Austin Tunnell 7:55

    it's funny. It is funny because I'm like, Chuck, I know like, you're just such a very like, kind and nice person too. It's fun to see you get you know, thank you. Okay, but I'm gonna start off with Chuck's some of his points here and a couple of responses, and I'll let you guys respond. So Chuck started off with it is painfully clear the blind spot in the yumby conversation is finance. Financialization is a black hole to most gym bees, instead of observing the war be the warping effects of its gravity, they aggressively insist it doesn't exist or has no impact. This that strains credibility. There can be a housing shortage and widespread Occupancy fraud. There can be a housing shortage and multi family real estate fraud. There can be a housing shortage and hedge funds that are buying properties at scale. There can be a housing shortage and investors can have an incentive to leave property vacant. There can be a housing shortage and a bubble in Airbnb purchases. There can be a housing shortage and a run on second homes as luxury good and investment properties. Why are these truths threatening to you? Yambis, why is your narrative so fragile that it can't withstand what most of America observes reality? I can answer the question when yimbys have only one solution build, they can only tolerate one problem. It must be demand period all stop, because the only strategy they entertain a supply period all stop. It's simple messaging, sure, but because it's undermined by reality, it will ultimately not get us to abundant and affordable housing. It won't. Nolan's response, yimbys have helped to pass 65 bills in 20 states in the past 12 months alone, putting in the work to actually end bad policies like parking mandates and apartment bans. It isn't just a Top Shop like so many preceding urbanist movements. Chuck Bravo, keep going. I'm sure I agree with you, or I'm sympathetic to most of those bills elsewhere. Chuck mentioned, I'm pretty sure, I probably agree with 90% of what that is. Nolan responds just a couple more, and yet you call yimbys unserious and thoughtless and push supply denialism, housing bubble theories, Chuck I hear this from you and others that looking at other causes can't be right because it gives aid and comfort to those you see as opponents. I don't think that is serious analysis. I think it is motivated reasoning. Nolan, they quoting Chuck. The US is an is in a massive housing bubble fueled by widespread fraud. This is not how I would characterize, characterize what I believe to be a minor variable contributing to a shortage. And lastly, Chuck, I'm also not saying it's minor variable. I've said over and over and over that there is an underlying shortage, that financialization is spiking. I said that a decade ago. I said it year after year. I'm seeing it again. Okay, so that's that's a lot, and I'd be curious first of all to hear Chuck hearing that back. What's your initial response to that?

    Chuck Marohn 10:40

    I well, I will say this. And I think I said something to Nolan, you know, in a private message too. I think that for me, as you're reading that I'm having flashbacks to, like, because labor day weekend is my wife's birthday, and I'm like, you know, tweeting while I'm trying to also be present for my family. And I'm like, Oh, this is, this is really bad. And as you're reading that back, I'm getting these flashbacks. I feel like in that initial tweet, I went a step too far. I was really good with everything that you read, that I said up until the very end. And I do think that I have been guilty to a degree. And I feel like since this weekend, I've had a lot of people who I consider really thoughtful, really kind, step forward and say, Hey, I think you're confusing the California yimby conversation, the California conversation, with the general like broader Yumi movement. And I actually think that is a really fair critique of my critique when I was listening to you, I'm like, Ah, that went a step too far, because there's a lot of really good work going on. I maybe want to emphasize one thing, and then I'll stop and let Nolan chat. I do think that there is a Venn diagram of overlap between strong towns and the yummy conversation, and I think that that that overlap is about 95% so what we are really debating is that five 10% and I don't think that that is in like an actionable way. When we get out on the street and like people are talking and they're meeting, that is not something that should prevent us from either understanding each other, or working together, or finding common cause. I think it does in a setting like this, where I think we can delve into the nuance. I do think that it does set up some places of disagreement and some places of really strategy disagreement. But ultimately, the end of the day, I will emphasize what I emphasize in that one tweet is that we all want to see lots of housing built. We all think that the world would be better off with a lot more housing. And you know, I think how we get there is a is a question open to debate, but none of the real work that I've seen yimby organizations do around the country of loosening up zoning codes, changing building codes make it easier to get housing permitted very little of that, I would call into question to any degree. It's all really, really helpful work.

    Austin Tunnell 13:09

    Yeah, first off, you know, we're all on Twitter, and I've had things that I look back. I'm like, Oh yeah, I got too intense in something, so I didn't read that to try to, you know, stir up drama more, just to, uh, to frame the conversation, and, and, and also, I agree that I think probably it's like tons of overlap, whether that's 90% we're really talking about that five or 10% with a which I think is pretty interesting to start getting into. So Nolan, you know, seeing that and seeing some of the points that Chuck's bringing up, namely financialization here, and that being an aspect, because I think we agree, like zoning has to be fixed, parking mandates has to be fixed. I don't think, I don't think anyone disagrees with that. Here. You can let me know if you do. But when, when Chuck starts bringing up financialization and saying, you know, the yimby movement is really missing this piece. Would you agree with that? Would you disagree with that? How would you respond to that?

    Nolan Gray 14:02

    Yeah. So, I mean, I'll just start by saying I think having a Twitter argument read to me was the least fun I've had on a zoom call since I was deposed. So thank you for that, Austin. Look. And I'll also start off too, with an olive branch here. I totally agree with Chuck. I think there's about 95% overlap, which is why, I think the when there is a big argument, it gets even more sort of caustic. It's almost like an argument among siblings, right? Whereas, you know, if we were radically different movements, I don't think there would actually be anything interesting to argue about. I was a strong towns member for probably close to a decade, and in fact, Chuck's writing was one of the reasons that I got back into this policy area, I read Jane Jacobs in high school, and then I learned about the broader planning world. And I was like, Oh, this is totally not interesting. And then I heard Chuck on econ talk, and I was like, wow, this is really interesting, thoughtful work about cities. So I don't know if Chuck regrets doing that podcast, given some of the arguments we've had. No,

    Chuck Marohn 14:58

    I'm so I'm. So grateful.

    Nolan Gray 15:01

    I'll just say I think there's a lot of overlap. I think where folks on my side get upset, and I will be the first to say that young bees get a little over excited and aggressive on Twitter, is that we often, occasionally see financialization arguments offered as an alternative theory for why we're in a housing crisis. And you see this most acutely with some of the rhetoric. It's actually kind of bipartisan, but some of the rhetoric on the far right and the far left of you know, the far right's blaming immigrants bidding up housing, but also blaming investors for coming in. You know, I don't doubt that investors coming in is complicating that Airbnb is a major factor in certain places, especially in a place like Charleston, South Carolina or New Orleans, but I think that one of the concerns is that this focus on financialization takes away from the supply focus. And now that's not to say that there doesn't need to be any conversation around that, but I think the fundamental reason why rents and home prices are going up is that there's simply a mismatch between supply and demand. I think we agree on that. I think it's a matter of what's being emphasized in the conversation that can get us tied up in the knots. Chuck, would

    Austin Tunnell 16:08

    you agree with that, that you know, really the primary issue is a supply side, or would you kind of push back or add some nuance there about financialization playing a role, and whether that's investors buying up stuff or government policy subsidizing finance. This

    Chuck Marohn 16:29

    is where we get in. Daniel Harris and I get into in the book The whole concept of the housing trap. The idea of the housing trap is not that, you know, we woke up one day and all of a sudden financialization. What we did is we tried to solve a series of problems related to housing as we were going along, doing some some things that at the time, at each step of the way, felt very logical and very sensible, but ultimately have put us into a position where the way we financed housing, the way we actually go about building financing, funding, allowing families to buy homes, allowing individuals to buy homes, the way we actually do this has contributed, or is part of the thing that is choking off the overall supply. Now, if we fix zoning, would that help Absolutely, if we fix building codes, would that help it? Without a doubt, those two things would be huge benefits overall, to helping us get further down this, this, this towards a a more supply and demand based system of a system where we are actually experiencing abundant housing at affordable prices. The challenge is that trying to do it with the existing financial tools that we have, trying to do it with the existing financial structure that we have has created a feedback loop where prices can only go up. The way we try to solve the problems today is we try to make it easier for people to spend more money on the same house. We try to make it easier for people to borrow more money to pay more for the same house, and without kind of a corresponding conversation around finance and around the way we finance products, particularly entry level products, products needed to get people into shelter. We are just going deeper and deeper into a system that is driving up that like the feature of it, not the flaw. The feature of it is that it drives up prices the right now, the innovation that's being proposed in the financial system to address housing is a 40 year mortgage, the idea that, you know, we used to have three to five year mortgages, and we had 12 year mortgages and 15 and then 20 year and the 30 year mortgage. Now we need to have a 40 year mortgage to take that payment that people can afford and spread it out over a longer people period of time to allow them to pay more for a house that may help a few people, that may help some people on the margins, it's not going to do anything to lower home prices. If anything, it will solidify higher prices. And so ultimately, we need to have a conversation about housing regulation. We also need to have a conversation about housing finance, and those things need to be centered around how we get those entry level units built, you

    Austin Tunnell 19:24

    know, on the finance you know, one of the other proposals, in addition to 40 year mortgages, you hear, I think, even recently, in the most this election, 20, $25,000 Down Payment Assistance, which I would consider really a demand size subsidy, which, for me, and from my perspective, really is not helpful, because the problem is not demand, and it kind of goes back to chuck, your point of helping people pay more for the same housing. I'm wondering, for anyone listening, Chuck, if you could, I don't know how quickly you can do this, but Could you, could you give a brief history of the five. Financialization of housing. You know, I think you really start with the GI Bill in in the housing crisis. And I don't know, I don't want you know. If that takes 10 minutes, you can try to kind of give that condensed version, but just so everyone knows what we're talking about, because I think it's really easy to kind of gloss over that, and people don't really know what would mean, because that, reading that book and this, even some of the specifics, was very eye opening to me, even, for example, hey, guess what? The 2008 financial crisis, crisis was not just greedy banks. Now I'm not saying or, and I don't think you were saying there's, there wasn't greed, but there was a lot of things leading up to that, through public policy that really laid the foundation for that. Yeah,

    Chuck Marohn 20:39

    I feel like you're asking me to summarize, you know, 150 pages of books in 30 seconds. Let me, let me try to do this, because that when we when we entered the Great Depression, what you had was housing that was local, was abundant, was cheap and was of low quality. So the housing crisis at the time of the Great Depression, or entering the Great Depression, was that we had lots and lots of housing. People could afford it, but it was really, really poor quality. As we went into the Great Depression, what we saw was that housing prices started to fall, and people who had these short term local local products were losing their house. They would have to roll them over every periodically, and when they did, they would have to come up with large amounts of cash. They couldn't do that. They were losing their homes. FDR, the New Deal, the Roosevelt administration came in stabilized the housing market by basically saying to local banks, hey, we need to spread these payments out over a longer period of time. We need to have lower down payments. We need to make it easier. We need to make it easier for people to get into housing and stay in their house. And in doing so, the federal government, in a sense, said to local banks, we got your back. Make these loans that you wouldn't normally make. If you make them in this way, we will buy them for you. If you ever need the liquidity, we will take care of you, but go ahead and put these systems into place so we can stop this deflationary spiral of housing prices at the end of World War Two, the economists in the country were really freaked out. We were demobilizing all these troops. We were shutting down all these industries. There was a fear that we were going to go right back into the depths of the Great Depression. We know from hindsight that that's not what happened. What happened is we started this decades long, building a new version of America experiment. We built highways, we built infrastructure, we subsidized commercial businesses, and we subsidized to a large degree, housing, suburban housing, build, build, build, more and more and more. We looked nostalgically on this period of time as a period of time where we created a middle class. The country grew. We lowered our jet to GDP ratio. Private sector boomed. It was this amazing period of time. And often when we tell the story of, you know, American success, we start somewhere in this time frame, right when we look at it at the end of the 60s, and then from that point on, through a series of bubbles, we experience this kind of inflationary bank tightening when interest rates go up, mortgages, especially long term mortgages, become really bad financial products. Banks start to fail. Things start to go bad. The Federal Government at regular intervals, whether it was creating Freddie Mac and Ginnie Mae, whether it was the mortgage backed security, whether it was taking mortgage backed securities and allowing them to be used as bank reserves in the 1980s whether it was kind of the deregulation that led to the SNL crisis, or the decentralization that led to the 2008 bubble. In every instance of this, what you see is housing prices start to take a dramatic rise due to largely with inflation, housing inflation a correction down and then a reinflation of an even bigger bubble. You see four series of this up to 2008 that what happened 2000 after 2008 is another in a sense, little bit higher crest each of these things, housing becomes as a financial product, deeper and deeper embedded in our economy, less and less localized and more and more centralized. It becomes a deeper part of our financial system, and not only that, a deeper part of the whole kind of betting and leveraging part of our system. So the part that becomes more and more volatile, housing shifts from being a very local, very stable kind of product that is locally traded in a supply and demand market to something that is fully financialized and now performs like a volatile stock in the market, with the actual transaction that you and I would make in buying a home being a secondary or a downstream effect of that overall financialization, we have taken a. Market that used to be very local and very stable and made it national and very volatile, and it's not healthy for housing prices in any way.

    Austin Tunnell 25:09

    Noel, I'm curious just thank you, Chuck very much. I thought that was a pretty good summary of summarizing 150 pages in three minutes. Nolan, with the yimby movement. How do you guys think about the financialization of housing? Particularly, you know what? Chuck's pointing out that really used to be a local thing, now it is not, and there's some benefits of that, like Joe Blow can, including myself, can walk into a bank with the w2 income and being like, I'm approved. Like that, if you're self employed, it's still really hard. But, uh, you know, with a WT, you can go get approved, 30 year mortgage, get in the house, and that's like, in some ways it's really, really helpful, and in other ways it probably is driving up prices. How does the this conversation play out in the yimby movement? Do you guys talk about it, and how do you think about it?

    Nolan Gray 26:03

    Yeah, it's good question. I mean, sure, anytime that you're subsidizing demand, right, you're probably, unless you have total elasticity, you're probably cranking up prices. You know, I tend to think that a lot of the typical housing affordability intervention proposal is, oh, just get more down payment assistance. You know, throw more dollars at at the issue, even though throwing more dollars at a supply shortage is not going to help. I think we probably agree on that. You know, when I look at when I think about housing affordability, I think a lot of young bees think about it this way. The question is, why is there so much variation across the US? Right? Why are some places so much more expensive relative to incomes than others. So you would expect all things being equal, California and New York are going to be more expensive than West Virginia and Mississippi, right? People just earn more in those places. But why are places like Texas and New York so much more unaffordable when accounting for income than places like Texas and Florida? And it's not entirely obvious to me that it's variations in the financial system. And in fact, it seems like, actually, over the last few years, there was a lot of investor purchases in places like Florida and Texas, because there was so much new supply coming online. And the reason why these investors were buying up all these homes, you can read their financial reports, which they have to file with the SEC they will. They they're not hiding the ball. They say we're buying a bunch of homes in these places because we think that there's not going to be enough supply in the long term, and prices are going to be going up, and this is going to be a valuable financial asset. Well, if they, if they were buying homes in a place like California or New York City in the 70s and 80s, that would have been a great investment, because they were right. There was not going to be a lot of new supply coming online, and prices have spiraled out of control. But a kind of funny thing is that in Florida and Texas, they, in a way, called the bluff of a lot of these investors, and built tons and tons of housing. And now in places like Florida, right, like places you know, large institutional developers are scrambling to get these houses off the books. So, you know, I think this is kind of how we think about it is, I understand a lot of folks are upset about more institutional buyers in their neighborhoods. Occasionally, this is offered up as a reason for why. Oh, it's not just, we can't just build more because BlackRock and so and so are going to buy up all the homes. If you don't want that happening, you have to make housing bad as a pure investment and mostly useful as a, you know, a reasonable store of wealth that's going to hold its value over time, but it's mostly going it's mostly going to be this thing that you consume, right? And that's how normal housing markets work, right? I remember, I remember when I was talking to my parents back in 2022 they were really, really excited about how their home had, you know, increased by so many $100,000 they live in Lexington, Kentucky. It's got its housing affordability problems, but it's basically a functional housing market to the extent America has that we could talk about that in a separate question. It's a basically functional housing market where most lower middle class people and above can become homeowners and have a basically stable store of wealth. So they saw, they're like, oh, cool, like our home has increased by this many hundreds of 1000s of dollars since we purchased it, and I just it, and I just plugged it into an inflation calculator, and what would, you know, it basically held its value. And then, when you account for all the improvements that they're going to have to make to actually sell the home, it will not have, you know, been, they're not. There would not have been any return on investment. It would have been, you know, it would have been a store of value. In some sense. It's something that they can get, you know, a loan from a bank against. But it's not this runaway investment, and the way that it has become in places like California and New York and so, you know, I think, I think there's a lot, you know, these things go back and forth. And I think Chuck and I will probably agree on this, is that part of what's gone so, so wrong in a place like California is that people have become habituated to this idea of housing as the spectacular investment, that if you can just buy a home in California, it's going to 10x in value over your lifetime, and that's good and normal, and it's perfectly fine that your children will have to move to Arizona or Nevada, because maybe that'll happen again for them there. I mean, you want to talk about a Ponzi scheme economy that's that's completely where we're at today and and the big challenge for us in California is, how do we unwind this? So I think we agree on elements of this. I think, to my mind, though, you know, I think we have to remain focused on how this is interacting with the supply and demand that ultimately is sort of underwriting the housing affordability issues. You know, if we have a shortage and housing is a good investment, it will become further and further financialized and out of reach of normal working people. I'm

    Austin Tunnell 30:17

    going to come back to the question on supply because I want to make a comment about it, but first, because there is, I think, you know, at least, at least some disagreement, or more emphasis from truck and strong towns on people buying up investors. But what is it? 3% because it's also a popular news headline of, you know, BlackRock and stuff buying up the most houses like you see it pretty regularly. Does anyone know the statistic? Is it like, 3% they made 3% of purchases, or own 3% total of housing stock? Do you know? I

    Chuck Marohn 30:49

    don't know. And I feel like there's a certain fog of war here too, because, like, the statistics are not readily available. And where they are readily available, they're not reliable. So, I mean, I don't think we know, and I'm actually not arguing that that is the principal issue. I mean, I listen to what Nolan just said, and I largely agree with it. I mean, I think that that all of this works out in the way that he has described. I think the only, the only pushback I would have, and I don't know, is it's even a pushback. I would like to hear Nolan's reaction to this. I feel like there's a limiting factor in the market when we finance housing in this way, where housing prices cannot substantially fall, or cannot substantially equilibrate at a place where it would be affordable to people, because if it did, it would start to negatively impact the people who are involved in the financialization of it. And let me give you an example of this. DR Horton, which is one of the largest home builders in Texas and in Florida. DR Horton, this week came out with their earnings, and they said, Hey, our earnings are lower than what we expected. Okay, the market has some volatility, as Nolan said, they're trying to unload some of these things from the books because prices are starting to fall. And so what is DR Horton looking at for 2025 they're looking at pulling back. They're looking at retrenching. They're looking at building fewer homes than they otherwise would, because the profit margins aren't there, and the appreciating value that they're used to is not there, and so they're actually building less. I don't think that either of us would say we should be building fewer houses in Florida. We should be building a lot more houses in Florida, a lot more than in Texas. We are massively undersupplied in both places. But when the system relies on, in a sense, these large flows of capital and these large players to meet demand, there's a feedback loop that always pulls back the closer you get to affordability, to ensure that prices stay elevated, that prices go up, and that we're going to always have, in a sense, a rising, aggressive pricing structure, because that's what is needed from housing as a financial product point of view.

    Austin Tunnell 32:59

    Yeah. And I mean, that sounds, I mean, what? No, oh, no. It sounds like you gotta, you have a thought there. Go ahead. Yeah. I mean,

    Nolan Gray 33:06

    I think this is where, like, the exuberance of markets and upturns actually does a lot of heavy lifting, right? So you, you get this, everybody wants to build a lot when there's a market upswing, right? And then on the downturn, which is, you're seeing this happen in a place like Austin, right? Tons and tons and tons of housing is built in 2020 2120 22 maybe, you know, too much housing was built according to people who thought they were going to build a rental and earn 3000 now they're only earning 2500 off of it, right? But for the renter, this is all a very good problem to have, and there will be a few years of maybe lower production. You know, I don't necessarily know how long that's going to last and to what extent that's being influenced by interest rates, but I guess I just, I'm, I'm not really seeing in the long term. You do have places that remain relatively affordable, and they're subject to the same sorts of market pressures, and then you have places that become radically unaffordable, and they have, you know, they're subject again, to these same sorts of systems. And to my mind, that's the puzzle. That's the puzzle is what explains the variation.

    Chuck Marohn 34:05

    And I feel like we are in a we're in a place Austin, you can go back, and I think one of the things that was fascinating to me as we were pulling research for the book, is how the language of unaffordability that we use today was the same language they were using in the 70s. It's the same language that we're using in the 80s and the 90s and the early 2000s in terms of like housing not being affordable, being attainable for people. This is a feature, not a flaw, of the current system. I think what we have seen right now is that the pandemic and what happened during the pandemic, and the fact that we now have higher interest rates when we had low interest rates, has really reduced the float in the market, and it has made what has been a decades long chronic problem into a short term like acute problem. It's taken what is like a painful tooth and made it into an abscess tooth, right? The last four years have been really, really painful. From a housing standpoint, largely because of the fact that there's no float in the system. People with 3% mortgage rates are not interested in moving right now, even if they can get a high price for their house, because they're not interested in taking on a 7% mortgage. And so you've got a whole part of the market that's stuck, and that normal amount that is changing hands has been reduced to, you know, people who are going through divorces and people who are, you know, having, like, weird financial circumstances where they have to move. This problem, though, is not one of can we get back to something that's modestly affordable? We actually are multiples away from what would be considered broadly affordable. So we take the idea of affordability really, really seriously. We're like, how do we actually get down to levels where people can afford not only to get into a unit, but to save? And for us, that is a three step approach. I mean, we have to build a lot of entry level units, the the the renting out of the spare bedroom, the backyard cottage, the small 400 500 600 square foot starter home that we can fill in on the empty spot on a lot. We need to get really, really aggressive about that. We need to build 1000s of those units in every in every region. We need lots and lots of them. We need to create an ecosystem of incremental developers. We actually need not the DR Hortons of the world, the Cenex of the world. They can still build the things that they're building, fine, but we actually need these people who are out there building this entry level stuff. And then we need local governments to step in and philanthropy to step in and help finance this stuff. There is no market for the $10,000 home renovation. There's no real market outside of California for doing backyard cottages at scale. There's no real market to finance small entry level homes. They just don't they're not great financial products. And so there's no secondary market for these things. There's no fluid way to do this without asking local banks to do things that they don't want to do. Local governments have lots of financing power, and can actually do, in a sense, the reverse of what the federal government did in the 1930s the federal government took a localized market and made it a nationalized market. We can actually take a nationalized market and add a local component to it and allow people to build in very profitable ways, in ways that benefit lots and lots of people, tons of housing at the local level. And if we do that, won't get everyone into the house of their dreams, but it will get people into a stable place that they can then decide to join that that nationalized market from a position of strength and not from a position of desperation. And I think that will change that feedback loop that continues to drive prices upward.

    Austin Tunnell 37:47

    Yeah, I want to come back that local government financing power and a little bit, but I want to make a couple comments, because both you guys were talking about it, but Nolan, you were saying talking about supply, and you even brought up Austin, and both of all of us are talking about housing as an investment. And so Chuck, you know, I think you are right that if housing prices go down. DR Horton, scales back. And Nolan, you're kind of acknowledging this with Austin. And I've been as I'm getting more into real estate and syndication and actually raising money, talking doing more investors working, you know, in those circles, I can attest. And I was recently at a real estate conference for investors, you know, and these are people doing multi family in some industrial and stuff, but a lot of housing multi family, their number one concern is people adding supply. And it's not that they're bad people, right? Like, it's just they're thinking about it. How do I protect my investors? How do I protect the investment I'm raising money? I need to give them return. I need to ensure I can give them return over a long period of time. The number one thing they look for is people adding supply. And if they think a market is going to be added supply, they won't do it because they know prices will come down, which is, they're acting rationally, and they're not acting as bad actors, because they literally could not raise the money if they can't promise, you know, market rate returns. So that's a really kind of just interesting thing about supply completely true. And Austin was brought up multiple times specifically as, hey, that's been one of the worst performing markets over the last four years, because there was actually so much multi family built in the past four years that prices started going down. Good for everyone else. But you also see in the news going, Oh, investors losing money all that. And then I think you're right. You're not going to see any multi family housing starts over the next four years, prices go back up. So it's just interesting, because housing definitely has turned into a financial asset, and so you've got supply issues, I think, and this is my perspective, because of zoning, because of zoning and regulation and financing, it has become a big boys game where everything is kind of centralizing, where you've got bigger. Bigger developers, bigger builders. And I saw a statistic about this recently. I reposted it on Twitter. I can't remember what it is, but the amount of small builders has really, really, really dwindled over the years. So now they're bigger builders, bigger investors, attracting bigger dollars from institutional money, all enabled by difficult bureaucracies and zoning and regulations and building codes that make it hard for any little guy to do anything. If you're going to build a four Plex, you might as well build 200 units. 200 units is way more affordable. And then once housing truly becomes an investment, it's not a product of a person, of a community, and you're trying to attack attract pension funds, you know, to raise the money to do it, really is kind of this spiraling issue that makes it very, very, very difficult. And I'm not really presenting a solution here, but just kind of acknowledging what both of you guys are saying. That is my experience. That's what I see. And even once again, it's not that there's bad actors. They're responding rationally to the incentives that have been created. Yeah.

    Nolan Gray 40:58

    I mean, I think we completely agree on this, that in the typical American city, the growth is virtually all going to be new detached, single family homes, Greenfield developments. You need some of that, but probably not at the scale. We do it in the US. And then occasionally a national builder comes in and requests the rezoning, or does a planned unit development or a PUD I'm going to avoid the planning acronyms, out of respect to the audience, and they build a big, giant, five over one, and that's all the apartments that are built for a decade now. Again, I think the hate to five over ones has gotten a little bit crazy, but I'm with you. To my mind, a healthy housing market is a lot of local or regional builders building a lot of different types of products that serve a lot of different types of households that are able to build things even when market conditions aren't necessarily in the extreme upswing. So, you know, I do want to return to one point, though, right? I mean, part of what I think is explaining long term varies. There's cycles in Los Angeles, as there is in Austin, right? But in Austin, when there's an upswing, a relatively liberal zoning framework and speedy permitting allows you to get a huge amount of new supply, probably more supply than the market would have known if it had known what everybody else was building. Whereas in Los Angeles, because the zoning so much more restrictive, the land is so much more expensive, the permitting is so much more difficult, you don't get this huge surge in housing. And you know, I mean, we're coming off of a cycle right now. That was a 36 year permitting high in Los Angeles, and we were maybe barely cracking five units per 1000 residents, right? Whereas Austin, in the same sort of period, is going up to, like, 20 units, right? So there's the idea here is to like, sort of leverage the irrationality of some of these upswings to get a big surge in supply, of course, while in the long term, hoping that we can create this more stable long term market. That's an ecosystem of small builders. I would say, too. I mean, Chuck's always pushing on this, and it's exactly right. We need to bring back these small builders. I think we also have to have a lot more conversations with folks in finance, you know? I mean, one of the challenges that we face is we'll change laws to eliminate parking requirements. For example, the developer who's closest to their customer will say, Well, yeah, I can definitely lease out these units with maybe, you know, point five parking spaces per unit, or maybe a zero parking building. But then I go to the bank and they say, Well, this is a weird, we've never seen this before. This is a weird product type. Every other, every other type of building like this is parked one to one or 1.5 to one, so we're not going to finance it, you know, I'm with Chuck on this, that we have to have a broader conversation that includes some of this. You know, I think that step one, though, is allowing for the flexibility for folks to actually do it, to create outstanding products, where everybody says, oh, okay, this guy built a five over one next to the train station, and it's, you know, a quarter point two, five parking spaces per unit, and it was fully leased up on day one, because everybody likes the lower rents, right?

    Austin Tunnell 43:44

    Yeah, the financing conversation doesn't matter. If you can't first address the zoning and parking minimums and stuff like that, I would completely agree there. I feel

    Chuck Marohn 43:53

    like there's a there's a there's a statement that I have heard said, not necessarily by Nolan, but by by a lot of you bees, and granted, there's a lot of people who say things under the guise of strong towns that I'm like, What? What the heck are you talking about? So but I want to, I want to, I want to put this out there, and I want to either talk about it or put it to bed. There's this idea underlying what I'm just going to call a very ideological belief in supply and demand, that we could actually create enough supply in the current system, like if we just eliminate building, you know, zoning requirements, reduce building codes, let the market go out and build, build, build that we will, and I'm going to use Nolan's word here, have an irrational building environment, where we will build so much that we will actually crash prices. And I guess I have heard that said many, many times, that that's in a sense of the market we're trying to create. And I get how that works in theory, but absent of finance, you. If we actually continue to finance housing the way that we finance it, there is no way for us to build enough to actually crash the market. And in fact, I would even argue there's no there's a limiting factor that would keep us from actually having a meaningful downward impact on prices. The best thing we could hope for today would be a decade of wage inflation where wages catch up to housing prices, but not a decade where housing prices slowly fall or fall dramatically down to a price that would be affordable. And I do think that that is one of those nuances where I'd be interested in hearing what Nolan thinks about. Well, I

    Nolan Gray 45:38

    think it, I mean, it totally depends on, on the zoning tax, right? It depends on how much, how much more expensive are home prices relative to the actual cost of building a new home, when you factor for land, right? In many parts of the country, those are, those are pretty close, right? A new home is going to cost roughly what it costs to actually build it. That's, that's what you would actually like, you know, an efficient housing market to be doing in a place like, of course, California or New York, certain extreme cases, a new home that gets built is so much more expensive than it actually costs to build the home. And that suggests to me something of, there's some regulatory hurdle. It's hard to get the zoning. It's just hard to build a lot of these units. It's hard to get the permits. That's an alternative barrier. And so, you know, certainly in a place like California or New York where the yumba movements, I think most developed, yeah, I do actually think a lot of building would actually bring down the price fairly substantially. Now, in much of America where there's no zoning tax or very small zoning tax, I think you're probably right that there probably wouldn't be a huge surge of supply that would bring prices down dramatically. That said, I don't want to overstate the case with housing affordability in your typical us metro area, in many parts of the Midwest and in many parts of the south and increasingly few parts of the Mountain West, homes are in that range of about three to five times the median household income, right? So that that's, that's a fairly that's a fairly normal, healthy range. That's a range to suggest that the average family can buy the average home. I think gym B's are mostly operating in environments where, like Los Angeles, we're at 10, or New York or or Massachusetts, or certain high cost, low supply jurisdictions where the multiple is 10 or above. In those contexts, yeah, home prices are well above what it actually costs to build a new home. Would we get nearly as many homes as if homes theoretically weren't an investment asset, maybe, but then I don't see how what the mechanism is for people actually building it. So, yeah, I do think a huge surge in supply in many US contexts would bring prices down, and in much of the rest of the country, keeping a steady supply of new housing units coming online is necessary to keep them from going on these California style spirals. You know. I mean, this is part of what I think you're seeing across the Mountain West, which is historically a very affordable region of the country, but what they're dealing with is a surge of demand as people move from places like Oregon and California, and there's no commensurate supply coming online, and you're seeing these Rapid Run up in prices that historically had never happened, because when there was a slight run up in prices in a place like Salt Lake City, you could have a lot of new supply coming online. Salt lakes may be a bad example, because they actually are, I think, building a lot. But you take maybe certain smaller towns across the mountain west where they're having huge surge in demand and not nearly enough new supply coming online, that's, I think that's the actual risk. Is that it's not necessarily, it's not. The pitch here is not, let's build a lot of housing in many of these contexts, and we'll actually crash home prices. The pitch and a lot of these relatively stable housing markets across the US is, let's keep building, otherwise we're going to fall into a California style housing crisis.

    Austin Tunnell 48:46

    Yeah. I mean, I think I'm borrowing this statistic from Daniel herrgas, but I think he said it's something like 3% of households can afford the median home price in California right now. So 3% a very tiny percentage. So Chuck, do you feel like that put the answered your question and put your question to rest about, or do you have more to kind of flesh out there

    Chuck Marohn 49:12

    it? I think it's always hard when you talk California, New York, because on any, on any metric that you plot up for the rest of the country, they're going to be outliers, right? I mean just population size, density, all these things that being said this, this argument about here's what a new home price costs to me, is a really interesting one. I was in Salt Lake City a few weeks back, and I actually gave a presentation to a bunch of real estate finance people, and they told me ahead of time, like, we don't we don't want to hear anything about finance. We want to hear about land use and building. And dotted on I gave them kind of the strong downs, 101, growth Ponzi scheme, stuff like, here's how we inject growth into cities, and here's how cities take on these long term liabilities. 90s. Here's what's going on with their balance sheet. And it was interesting because we got around to talking about housing towards the end, and their theory of housing, and it actually said, like, one woman stood up and said that she goes, housing is like big screen TVs. It's like cell phones. If we can just get more liquidity, more money in the system, people will figure out how to build it more and more efficiently, and that's how we'll lower prices. We will get more innovation, more efficiency, and prices will come down just like they do with flat screen TVs. And my response to her was, I think that that is nuts. I think that that is crazy. That actually was true in the 19 teens, when we figured out how to do standardized lumber and we, you know, could get lumber from mills out to railroads and around the country, as we did you know, in World War One, because of the building demands for the military. But it hasn't been true for a long, long time. If we look at markets like the medical market, or we look at a market like the university market, what we see is that in these places, the actual prices are rising faster than inflation, and have been for a long, long time. And I think Nolan and I step back and look at healthcare market, and we look at the university market, and we probably would reach very similar conclusions. The government has intervened in these in a way that actually makes them rather inefficient internally, makes them rather unresponsive to normal market demands and the prices have kind of gone bizarre. I look at the housing market and I see a lot of the same things, construction in general, every time we have an economic downturn, every time we have a recession, we pump all kinds of money into building, all kinds of money into construction. I can't tell you how many builders You see, I did. I did permitting for cities, a lot of that in the early 2000s and you saw these builders who were absolute buffoons, absolute idiots, who were bailed out over and over because the market was going up. I actually made this comment at a at a builders conference once. I know there's a lot of people in this room who are not good at their jobs, but they actually make bank, because prices are just going up, and that bails out a lot of really bad actors. You see who the good ones are when prices go down, and I got a standing ovation, because they all are frustrated by this effect, too. I think that the idea that we will, in a sense, make housing more efficient and deliver like the prices are the prices today, and they're high because that's what it costs to build a house. I think kind of misunderstands the entire supply chain of what it takes to actually build a house. I think the entire thing is pretty much broken, by the way. We have over financed and over leveraged and overvalued homes for decades now. To

    Austin Tunnell 52:42

    touch on your point about, you know, the flat screens and how it works. You know, as a builder, I can tell you like it costs us 40% more to build today than it did four years ago. And that's every builder I talk to, whether in multi family or housing high end or low end. Everyone just says it's about 40% more because of inflation and policy over the past four years. So there's that kind of statistic that seems to hold true across the country. Could

    Nolan Gray 53:08

    you unpack that a little more the 40% Why is that

    Austin Tunnell 53:12

    so? Well, there's a lot of reasons, but I mean, in 2020 and there's going to be different theories out here. So I'm really giving you my theory about why, you know, inflation is baked into our system, about how we think about, you know, our economics, particularly after coming off the gold standard, you know, we kind of want that 2% a year, well over the past four years. Just broadly speaking, if you add up all the inflation compounding year over year, I think it's about 25% over the past four years, just across the economy and housing, though it's it for whatever reason, I can't tell you exactly why that's 40% that's both labor, that's material. So labor is definitely going up. Materials have gone up. And I'm not just talking about commodities, lumber, that spike during COVID, that's crash, that's come back down. I'm talking about windows that you know went up 40% and they are stayed at 40% and they do not seem to be coming down. I don't see these prices coming down without a major like a major recession. My theory of why is, and I'm gonna get these statistics wrong. I'm not an economist, but depending on how you measure the money supply, the federal government pumped about six to ten trillion into the economy over four years, which is about a third of money in existence at the time. And you know, the definition of inflation is too much money chasing too few goods and and so I would actually argue that a huge part of the new construction housing problem. This is not housing supply, and why the housing supply? All housing prices going up. I'm talking about why new construction costs so much more today is largely because of monetary policy, and quite literally, the printing of money. And people imagining the printer of money as in, like they're literally printing dollars. That's not exactly how it works, but. Pretty close in terms of quantitative easing and things like that that the federal government's doing. And it really, I mean, there's some people that say, and I would want to please verify this, but some people will talk about the past four years as the greatest transfer of wealth between the poor and the rich in history, because inflation really hurts poor people, or people that are based on incomes and w2 and it really, really helps capital holders, the people that hold the means of production, the people that already hold the housing because once again, my house went up by literally, about 40% actually my value, the value of the house that I own today, which I have a two and a half percent mortgage rate on, too, you know, went up about 40% of value. Does that? Does that kind of address just

    Chuck Marohn 55:45

    Can you pass those costs on to the buyer? And the answer is yes, and then that means that the entire supply chain does not need to tighten up or reform at all. That's the answer. So prices will continue to go up.

    Austin Tunnell 55:57

    I can't always pass it on to the buyers, where we're trying to figure out, like, literally, what do we build? What can people actually afford? And then multi family, because it's these long term projects they take a while to permit get out of the ground. There's still multi family coming online that started years ago, but I forget what the actual statistic is. But in terms of new starts of multi family, which is kind of one of the primary supply sources of new housing production, besides single family detached those have, like, cratered. I know almost no one who can make multi family pencil right now, so all multi family is on hold. And while there's not necessarily a huge contraction now, because there's still all these projects that have been in the work for 234, years coming online. Literally nothing's coming out of the ground now. So we're going to see in 2026 2027 kind of this huge glut in new housing coming online, because investors literally can't make a pencil. And I mean, I hear this exact thing, and it's true. Until rents go up, they can't afford to raise the money to build more housing like that's exactly what multi family developers will tell you, is, until rents go up substantially, we can't afford to build new housing.

    Nolan Gray 57:08

    Yeah. I mean, I guess, I guess my focus here in this conversation is, what are the levers that we can pull to get down the actual cost to build a unit? You know? I don't, I can't speak to how inflation, other financial mechanisms, are affecting this. But right? I mean, we're, for example, Kamala this. We're recording this on election day. That's why we're all in such a good mood. Kamala Harris has committed to building 3 million homes over the next four years or so, right? Meanwhile, tariffs on lumber keep going up, and in many cases, many of the Trump era restrictions on migrant labor remain just as strict as they were coming into coming out of Trump's administration. In many blue cities, places where the housing crisis is most acute, it's still just as hard, if not slightly harder, to build owing to restrictive zoning rules limiting the supply of actually developable land, which increases land costs, slow permitting, lots and lots of exactions to my mind when I think of, okay, what can we do to actually just make it relatively affordable to build such that the actual rent doesn't need to be of such a high threshold to make the project pencil? Those are the levers that we can pull. And I think those are the things that yimbys focus on, I don't think necessarily to the exclusion of everything else, but just from a frame of, what can we what can policy makers, state and local policy makers, do in the near term to try to make more housing feasible? Yeah, I

    Austin Tunnell 58:30

    think that's a really reasonable response there. The only thing I would add to that is, for me, as a builder who is in the business of producing new housing national politics and kind of like Chuck and you guys have a pretty nuance. There's a lot of things that affects the price of housing, whether it's zoning or financial incentives and parking minimums and building regulations and things getting increasingly complex, and appraisal stuff like that, government debt and monetary policy matters. It really does, and it's really hard to see it, and it's hard to do something directly about it, but it is things that hopefully we can vote on over time. I'm not saying any of the politicians I'm hearing have great solutions right now, and you've got $35 trillion of government debt, but I'll just kind of leave that there. One of the things I wanted to touch on between kind of this strong towns, yimby, and I don't know if there's a difference here, and there might be a difference between kind of, like, yimby, you know, what you said, Chuck, is sometimes people will say things on behalf of strong towns. You're like, Dude, what are you talking about? You know, chuck you and strong tons, really focus on this kind of organic ground up, very, very human, slow, evolving change. And talk about, you don't really want fast change in a neighborhood. You want this slow, organic growth and and if. One of the solutions you present in the housing crisis book is, you know, always allowing the next increment of development, the next increment of density. And you actually keep that quite small. In the examples you use, you say, like, if it's if it's a neighborhood of single family houses, at least you should allow duplexes and ADUs. Maybe you don't allow four plexes yet. Maybe you don't allow six plexes yet, and so that way. And then once most of the neighborhood is duplexes and ADUs, maybe you up that increment a little bit on the yimby side, what I generally see. And once again, this is kind of more like me saying on Twitter, and what I overhear in conversations is yandies are more just like more housing, more density. If it's a 200 unit apartment complex, I don't care. We just need the housing. And I'm not even saying that's like, I'm just kind of curious. Do you think there is a tension there, that there is a little bit of difference between how you guys think about that? Yeah, can you guys respond to that?

    Chuck Marohn 1:00:58

    Let me, let me start. If I, let me point out to two things I think that are nuances here before let me push back on the idea of incremental equals slow. In our mind, incremental doesn't equal slow. It does mean an increment of change, but organic systems evolve very quickly. Sometimes doesn't necessarily mean slow. I think there's two aspects of this. In my hometown here, we have a we did a study a couple years ago and found that we needed 3300 new affordable units in the region. My city is in the process of getting a new five over one built in the core downtown. We have a federal housing grant. They have a state housing grant. We have a regional housing grant. We have waived their sewer and water connection fees. We've done a 20 year tax increment financing subsidy, and we put all this kind of we've marshaled everything we could to get this built. This is going to have 80 units, and 12 of them are going to be deemed affordable, below median household income, affordable. 12 units. We need 3300 today, right now in the region, when I look at the idea of, let's go build a new Greenfield subdivision, let's go build a new five over one. What, what I have found, and this is really, I think, where Daniel Harris and I spent a lot of time together working on this, is that as much as this approach does create units. It doesn't scale to the size of the problem. It doesn't scale to we will never build 80 unit buildings enough to create 3300 units in our market. We just won't it just won't happen. It's not possible to scale. What would actually scale to that size. And you said, slow. I pushed back on that. I said incremental. In the book, we talk about all of the kind of units that could come online very quickly. The idea that you've got a widow living in a house and have four bedrooms and they only need she only needs one, the idea that she could take in a weekend, have someone come in, put a kitchenette in, put an exterior door on, and rent that out as apartment. That is something that 100 years ago would have been very common. People would have done. You go travel around the world. People do this all the time here in the US, nope, that's a duplex. You've got to go through all these regulations. You got to get a home equity loan, really difficult to finance, not real, you know, these. There's all kinds of hurdles to doing that. If we eliminate those hurdles, there's tons of people out there who are house rich and cash poor who would love to rent some space to people. If you start looking at that scale of units, what you find is that there are tons of possibilities that yes, are incremental, but yes also scale to the size of the problem. And I think this gets to the second point where there's some nuance between California, yimby and a strong nouns approach, and that is really about who the enemy is. I mean, Nolan started the conversation by saying they're they're doing battle with NIMBYs. And I get that, I get that vibe from the yimbys, like the NIMBYs are our enemy. And I do think this is one of those places where our our approach at strong towns, our very bottom up, kind of organic approach, is to not draw our enemies in that way. I mean, I look at the system as our enemy more than anything. The yimbys and the NIMBYs both have to be our allies. And I know this gives comfort to the enemy at times, and it really makes some people in the yimby movement very mad at me. But at the end of the day, if we're going to actually scale this to meet the problem, we have to have our solutions actually work for people in NIMBY land who are house, rich and cash poor. And there's a lot of them out there who are backyard, rich and cash poor. There's a lot of them out there, we come up with solutions that work for them, that actually makes their life better, allow them to stay in a house, allow them to improve their place, allow them to cash to fix their roof, or whatever. We make them part of the solution, and this thing scales to the size of the problem. We don't make them part of the solution. We make them the thing we're fighting against, and we will have like endless trench warfare across this con. And not actually get to where we need to be in terms of affordability. Yeah.

    Nolan Gray 1:05:04

    I mean, I do think a real strength of the yummy movement is, I mean, maybe not on Twitter, where nothing is good and positive. But if you go into the real world, right, you go to a local yimby Group, which is probably going to be 75% people who also read and identify as strong towns members, it is mostly positive. I think a formative experience for a lot of Embs, especially in places like California, where every application is discretionary, is going to a public hearing speaking on behalf of housing, especially some form of affordable housing, and have people sort of yelling at you and saying very nasty things, and often saying explicitly segregationist things about building new housing, et cetera, et cetera. So there is a little bit of like this, you know, trench warfare, socialization that happened with the movement and, and I think that's, you know, of course, you want to remain positive, but it's okay to remember that, right? I mean, I think part of what's gone wrong with the American city is that I think some very, very unsavory, nasty perspectives have dictated it for so long, this idea of, Oh, my I have a right to keep my entire community exactly the way it is today, and it should never change. And I especially don't want those sorts of people living near me. I think it's, it's okay to confront that and to say that's a reality in many of these cities. And it's a thing that's, that's, that's good to fight with. I mean, to your point, of course, I think you have to create the sort of framework for growth that's going to give everybody some buy in. One of the most effective things we effective things we've done in California has been legalizing accessory dwelling units in 2017 before 2017 they were totally illegal all over California. Since then, we've had about 110,000 permitted, and that's all homeowners, sometimes small local investors buying a home, voluntarily building these things and adding tons of new supply. You know, I think I'm kind of taking my debate hat off and I'm noodling because I don't necessarily know that I have hard and fast opinions here to my mind absolutely, you know, my my ideal neighborhood is one that incrementally changes over time, that slowly adds housing, that slowly evolves and learns, right? You know, I think about Stuart brand's great book how buildings learn. Neighborhoods are the same way they slowly grow and adapt. And I think that's great. You know, I think, having said that, I think some of the, I don't think Chuck says this, but I think some of the people, and maybe that's the theme of, that's the theme of the podcast, maybe is we're arguing with people on your side who are not you, which is a little awkward. But I think some people say, okay, the incremental stuff is great. That's really all we need to do. I think in a lot of the context where nibbs are operating your northeast metros, your West Coast metros, you actually are going to have to build things like the mid rise apartment building. You are going to have to occasionally build the transit oriented high rises to maintain affordability. And that's okay. I don't think these things are mutually exclusive. I think that, you know, you can have the kind of classic transit oriented development. You can have, you know, higher density communities, you can have lower density communities that more incrementally change. I think whether or not we want that, that's kind of the political reality, and that's okay, you know, but I think sometimes these conversations veer into, oh, like, this is everyone's ideal of incremental change that that reinforces positive aspects of the community's character. And we don't need, you know? We don't need that five, four for one. And it's like, well, in many American cities, you are going to need those occasionally. Should they be subsidized to the extent that your community is subsidizing them? Yeah, totally. I think that that's probably not the right. Might be the right approach for a deed restricted, affordable building where it's like, it's just not gonna it's serving a population that's just never gonna be served by the market. It needs subsidies. But if that's the strategy for all of the housing that's coming online, that's not gonna work. I mean, here in California, every now and then we hear these ideas of, oh, let's have subsidies for middle income housing. Let's have, let's have some sort of public subsidy for people that earn 80 to one, 20% of the area median income. And it's like, well, what's your to that point, you've lost right to the extent that we have any subsidies to give out, they should be going to very low income households. And in a normal, healthy housing market, this stuff should be able to come online and serve folks. And I agree. I mean, I think this is why we should keep the focus on missing middle and continue to try to build the market of developers who can build that is those small scale duplexes and lot splits and small four plexes, especially after we get some of these building code rules that you know, deliberately make it hard to build missing middle housing, imposing sprinkler mandates and things of that nature. Those are forms of housing that are inherently more affordable to build, and so the rents don't have to be so astronomically high for those projects pencil. So I think we agree. I think that said, you know, incremental understood as communities changing and adapting over time. Totally good, incremental under as some people, I think, understand it as, Oh, okay. That means no high rises, no five over ones. I think then we get into a problem where it's like it's just going to unavoidable clash with what yimbys know needs to happen in a place like a San Francisco or a Boston. I

    Chuck Marohn 1:09:56

    do think that there's one place where I have, I mean, there's a lot of places where. I have modified or changed my opinion or changed my impression or understanding. I think one of them is in these high demand, low change, kind of cities where we have made massive transit investments. I mean, I was in Sacramento a few months ago, and they brought me out to their train site, you know, where they had train stops, and it was like a big parking lot, and they're showing me this, and I'm like, okay, so you just built this, right? And now you're going to build housing? And they're like, No, there's been here 20 years. Like, what are you talking about? Like, why is this sitting here in this shape? There's a there's a lot of catch up to be done in a lot of places where we've made bizarre levels of transportation investment with no strategy to actually make that transportation investment pay for itself and utilize itself. I think in those cases, there's no question that there needs to be, in a sense, catch up like a large leap in the development pattern. And California is just full of those places, especially in the big cities, the high demand places where you've had development stifled for a long time. You see this in Chicago, too, to a great extent. I do think, though, that, you know, I was on the Turtle River or Turtle Mountain Indian reservation at the beginning of of September. I get to go to all kinds of fascinating places. So I get to massive cities and tiny, tiny places where you've got 6000 people living in 144 square miles, and the federal government is coming in and building new housing for people living on this reservation. And what are they building? They're building five over ones. They're building two, five over one, buildings out in the in a place out in the middle of nowhere. And the question was like, why is this being built? And the reason it's being built is because it's a really good financial product. There actually is like a market, a secondary market, where this thing can be sold off and bundled with other similar products from around the country. And so in a market where we can build one type of housing, single family homes, we can build another type of housing, five over ones, where there's this robust secondary market. Or we can build the missing middle the other stuff, all these little things where there's no real easy, simple secondary market. For it, the default setting is for these two product mixes. And so if we're talking about around, like, transit stops, go build the five over ones. Like, absolutely. Like, my gosh, the stuff you've done in California to legalize that stuff is long overdue. Here in Minnesota, we built a bunch of transit stuff and had no real plan to thicken up those neighborhoods beyond giving out tons and tons of subsidies. This should be done. It should have been done decades ago. But if the idea that we should just pop up a 501, any place where someone wants it to me, I think that's where the tail is wagging the dog and where the financing, what is easily financeable, is driving the product that we bring to market, not what the actual like market demand is.

    Austin Tunnell 1:12:54

    I strongly agree with that Chuck from my experience, that you're right. What gets built single family, detached suburban subdivisions and five over ones, because both of those are financeable, because, once again, the the single family detached houses are really subsidized by Fannie and Freddie Mae federal government, 30 year mortgage. It's got to be a single family detached houses got to fit in this very narrow box. And then five over ones, once again, the financing has been worked out over the past decade, and because multi family is a fairly new kind of like investment product. Actually, whether it's a decade or two decades old, it's pretty new. But now you literally have endowments and pension funds and all that, because there it's, it's a financial product, as you're saying. And getting back to solutions, this is something I experienced, and I think probably this isn't really a debate point. It's more because more because I'm guessing everyone here agrees on it, whether we're talking about incremental change, adding an adu, and I'll be curious to hear Noel and what California has done there on the ADUs in terms of finance name, but just generally speaking, because 30 year mortgages are attached to single family detached houses that a local bank doesn't really, they don't own that loan. They kind of go through the process of checking the boxes, get you the loan, and then sell it off to a secondary market. And so it makes it a very, very like strict range of boxes you have to check. And then you have these monolithic subdivisions where everything's within 203 at $100,000 or if you're in California, you're in California, maybe it's between 800 and 1000 and a million dollars, you know, very narrow range. And if you're in one of those neighborhoods and you're on a 30 year mortgage, and you're a smart person because of appraisals, and everything's based on appraisals per foot and what's sold around you, you literally it would be a stupid financial decision of you to add a bedroom to your house, to build an adu up back, because the adu appraises at, you know, half the value of your house. It would be stupid to add a loft, because the loft appraises at 50% of the regular square footage, and that's all because it's not local government. It's. Because it's sold off in packages to investors, so it has to meet this very narrow range. So I'm very for and I don't know how to do this, so I think I'm at bringing it up to to see chuck or Nolan, if you've had any experience or seen people doing this at the local government level, I'm a big fan of tiff that's more on infrastructure side, but, but local banks, local government subsidizing, I say subsidizing issuing loans, kind of turning that appraisal stuff on its head, where it actually makes sense to build an adu and you're not going to lose your butt on it, trying to sell your house four years down the road, or adding a bedroom, or fixing up the kitchen, maintaining your house, do so it's hard to ask a specific question there, Nolan, maybe one for you is, I'd like to hear about the 110,000 units, and if California did anything about how they're financing those, and if either of you also have any experience at the local level of local government starting to get involved here, yeah,

    Nolan Gray 1:15:54

    well, so in California, one of the early things we did was The state had a grant program for soft costs. Normally, this is the sort of program that I would look at with a lot of skepticism. But the idea here was, we're hoping to build ADUs at scale for the first time in maybe 100 years, possibly ever. In the case of California, we want to make it really easy for especially homeowners, to hire an architect, hire somebody to file the plans for them and get the thing started. So that was key. Those programs are not permanent, so they've gone away. We were also, we had a little bit of a handicap with ADUs, because I just said we didn't build them at scale. But there were some ADUs being built, and there were a lot of historical ad use. So it was a product type that people knew about they're probably if you, if you were in a neighborhood that was built before World War Two, you probably had one in your neighborhood. A lot of them were being built without any sorts of permits. So the wind was already at the back of ADUs, like they were already people knew what they were, and there was a class of small builder who knew how to build them, or could easily start building them. What we're finding is that's not necessarily true of other typologies, like do multifamily buildings or townhouses, and so there's a lot of work going into trying to explain to the market what these are, and hopefully the financing products start to line up. I mean, in the case of ADUs, a lot of people finance them using home equity. And in many cases, I don't know that an adu is being built necessarily as a financial decision, but as I want more living space, or I want a place for my aging parents or young adult children and and that that type of development only works if it's incredibly easy to get a permit for an adu. You know, if you have to go get a special use permit for the Adu, or you have to pay a $50,000 impact fee, which sounds crazy in the rest of the country, if it's very common in California, the homeowners just gonna walk away. And so it's a testament to how easy we made it that homeowners are saying, Yeah, sure, I'll build an adu just so, you know, maybe I can rent it out for some extra income someday, but maybe to host mob while she's aging. That's

    Austin Tunnell 1:17:52

    amazing. That is, I would agree that is the kind of incentive you want make it easy. So it's not always a financial decision. If I'm making an investment. It's, I'm building something because I want to, because it'll make my life better. That's a that's a great way to add housing. Chuck, did you have anything about, you know, kind of your arguments in the escaping the housing trap, and just what you brought up about local governments getting involved here on financing a $10,000 you know, Adu conversion on a bedroom or something. California

    Chuck Marohn 1:18:19

    is such an interesting place, it's such a weird, distorted place that I hate to take a lot of examples from it, because it is such a anomaly. I mean, prop 13 distorts everything. It's really weird to pull policy out of California. That being said, I do think it's really interesting. What's happened there around accessory dwelling units, around these backyard cottages. You know, if you go and get an auto loan today, a bank will do an auto loan with you, and they will often hold that loan, but they'll often sell it off, and they'll sell it off to other banks, who will bundle them together and create, in a sense, the same kind of products that we see with mortgages, only. They're not backed by the federal government. There's been a private market for this kind of thing that has developed. And what we've actually seen now with ADUs in California, as they become more ubiquitous, as there's more and more of them, we actually have seen the financing kind of change, where local banks are more readily willing to write these loans. They realize that they'll be paid back. They realize that there's a market for them. And there's actually been somewhat of secondary market that started to form around these things, creating a lot more liquidity around them. You can actually, I tell this story because I've run into this. If you go to a used car lot and you're looking at a car, someone will come up with a clipboard and be like, you want to. You want to drive that one home, like sign here, and you can do it. We're getting to the point in California where, with accessory dwelling units, you can actually go to a lot, look at the different units, or, like, pick out your kind, and they'll sign. They got the financing right there, and they can set it up for you. It's really a matter of volume. I think, outside of California, you mentioned tax increment financing. I think. Texture and financing is a horrible tool misused by government, but I've seen places like Muskegon, Michigan use it for starter units and do it at scale and lower prices to where people could actually afford to get into a 600 800,000 square foot home. Cities have the capacity to use special assessments for housing, and when we're talking about that, that person who wants to take that spare bedroom and make it into another unit, they can go and get a home equity loan, go through that whole process, pay a higher interest rate. A lot of times, there's cultural hang ups with this. I mean, I've seen a lot of elderly people who would like to do this, but they had their burning the mortgage party two decades ago, and don't want to go take on housing debt that they're going to pass on to their kids, but if they do a special assessment, in a sense, the government is financing this that the local government is using their capacity to finance it. With you, you get a lower interest rate. It goes on your taxes, and it's very like, it's like paying a road assessment or a sewer assessment. It's very simple and easy, local governments have the capacity to do this at scale, because lower governments can borrow a lot of money really cheaply, and when they loan it to people on their houses, when they essentially use these programs like a tax increment finance or a special assessment to pump that money into people who want to do this kind of housing, they can make that money available to people really cheaply, really easily, and for the city, at extremely low risk, because if you read a special assessment or a tax increment financing project, you as a local government, jump in front of the primary mortgage holder. If there's a default, you know, the primary mortgage holder gets paid before the secondary mortgage holder, the local government will get paid before the primary mortgage holder. So these are really, really low risk ways for cities to inject a lot of liquidity in that part of the market that our big financialized market just isn't funding today. Chuck,

    Austin Tunnell 1:21:53

    I'm really curious to touch on the tip you mentioned. You think it's a I think you said horrible way for local governments. And I'll just kind of say my piece, and I want to hear your response, because I'm actually really big proponent of tiff Now, granted, I should say I'm a big proponent of TIF in the way that I've seen it done, and it's done differently across the country. So I'll just tell you, and I'll tell listeners really quick what it is. TIF stands for tax increment financing. You're essentially, if you're a developer, you're capturing the the increase in property tax value over time. So if a piece of land is $100,000 you build something worth a million dollars on it, and they've proved, I don't know, $50,000 TIF financing, it can work differently, somewhere at times, where you'll get that $50,000 up front. In Oklahoma, if we get 50,000 approved, it's, you know, if you've got $100,000 piece of land, your property taxes are $1,000 a year. When I'm done with the project, it's a mill assessed at a million dollars. The property tax would be 10,000 years. So there's a $9,000 Delta from when I started the project, when I finished it, and they approved $50,000 for me, I will be able to take that $9,000 so that the city still gets their $1,000 they don't lose any money. And I get that $9,000 annually, until I get 50,000 and then the city takes all 10,000 so in Oklahoma at least, where I've seen tip utilized is supporting missing middle housing, more walkable neighborhoods, things like that. And there's some other projects, some big downtown projects too, I should say, on top of that, and we're using tiff on a project doing missing middle housing, and the project would not work, but for TIFF, and the TIFF is not paying for brand new infrastructure out in green field development. We're on an infill lot, and they're helping us, you know, repave the alley, put street parking in public infrastructure. And once again, we're paying the money, we're taking the risk, and then we're get reimbursed over time from the value that we create. So Chuck, I'm curious if that's something you disagree with, or if you've seen it implemented differently in a way you disagree with or don't like.

    Chuck Marohn 1:23:53

    Most TIF projects in this country are ridiculous handouts to people, subsidizing things that would happen in the market anyway. So I see more chips on strip malls. People who know strong towns know the taco John story. Taco John's was a 28 year tax increment subsidy. Just an abomination that there are so many bad tiff projects. It's like an endless I've seen Greenfield tiffs. I've seen Matt. You know, these are things that are generally like, already subsidized in the marketplace. I brought up Muskegon. Muskegons, Tiffs are very targeted around housing, and they're similar to what you described in Muskegon. If you have a lot that has been there with sewer water utilities all in for decades and has not been developed, and you want to go in and build an entry level unit. So something 600 800,000 square feet, we're not subsidizing mansions. We're not subsidizing rich people's homes. We're not even subsidizing middle class or upper middle class homes. These are entry level homes. They will do a tax increment for you, and you can take that first 12 years, 15 years. Dollars of additional taxes that you're paying, and have that applied to, in a sense, your down payment as a side loan. The city has provisions where, if you flip the house, if you exit the house early, you pay that back in the sale price like you don't get that appreciation unless you live there for a while. But to me, this is a very judicious use of TIFF. It allows a unit to be built. It allows the taxes for that unit on land that has been shown to be sitting empty for a long period of time, right? Like, but for that TIFF, this is not going to happen. It allows that land to be put into good use and get someone into a house a lot cheaper. I think that's a good use of TIFF. What you described, I understand where you're at. I think that in most cases, I would probably say, yeah, like, let's do that missing middle stuff. Let's get that done. But I think there's a little bit more gray area than the like starter, the entry level unit on the lot with existing infrastructure that the market has not filled in for decades. To me, that's like, a no brainer, like, let's get this thing unstuck. That's,

    Austin Tunnell 1:26:06

    that's interesting, and I don't want to take over the debate here. I'll, I'll just kind of say, like, I think I've got I'm strong because I see I wouldn't. I would attach tiffs to the right kinds of projects, more missing middle. I actually would not attach you to only say low income starter homes, because I kind of take that perspective of more supply is good, and if we are creating the value, and I guess I'm, once again, I'm coming at it from a developer perspective, looking at the numbers, saying it doesn't work. We're not building this without the TIFF Carlton landing wouldn't be built without tiff Wheeler District 2t and Ds in Oklahoma City and around Oklahoma would not have been built without a tip. And they're extraordinary projects that add walkability, density, set of, you know, add tons of housing. And so I'm actually, like, really, really, really for TIFF, but honestly, not for tiff for, you know, strip malls or something like that, per se. But I'll, I'll just say my piece and leave it there. Maybe we'll have a little debate about that sometime. So Well, gentlemen, is there anything else I'm curious? You know that that's ever been on your minds between strong towns, yumby, where, you know, Chuck, you mentioned one like, hey, I want to put this one to bed. Any any other little things that you'd like to bring up while we're on the call today, I'll

    Nolan Gray 1:27:25

    just reinforce I think there's like 95% overlap. So even if Chuck and I are having fun, ruining our weekends, arguing on Twitter, I hope that yumbys and strong towns folks will continue to work together. I think we all agree we want a lot more infill housing. We don't want things like parking requirements and strict use zoning. We want walkable, affordable communities, and maybe folks talk about it in different ways, but go forward and do advocacy with the confidence that the young bees at your strong towns chapter, or the strong towns people that show up to your yimby Happy Hour are on your side. No, I

    Chuck Marohn 1:27:59

    was just gonna say I totally agree. I appreciate that we I've heard from a lot of people who identify primarily as yimby advocates since Nolan and I had our little fateful conversation. And you know, most of that outreach has been really, really good. There's been people who say, you know, there's a lot in common here. Let's keep working together. And I agree with that. I think that, you know, when we line up the things that that need to happen and the urgency around it, there's a lot of energy in the yumbi movement that strong towns people really benefit from, from being part of. And so I'd encourage anyone who identifies, you know, I I support strong towns. I want to see a bottom up revolution in this country. I think there's no bottom up revolution without the yimby movement. So many kudos.

    Austin Tunnell 1:28:52

    Yeah, I will say, from the from the outside, watching both movements has been really inspiring to me, and they make, you know, as someone that's trying to operate in the field, it literally is paving the way for us to do what we are doing. And it's slow and it's painful and it's difficult, it's going to take another 40 or 50 years, but the amount of progress I think that's been made in the past, you know, since the 80s, you know, even starting with seaside and but since then, I think things are accelerating, and I get the sense we're kind of at that right cultural, political, economic moment for things to accelerate a little bit where you've got younger people saying, like, let's do this. You know, they're just kind of more automatically going to be on the yimby side because they can't afford housing. You've got zoning being repealed. You've got real examples out there for people to go see the straw. I can't believe how many know people know what middle, missing middle housing. And I was reading, I was reading a book to my four and a half year old, or three and a half year old, when I read it, and it brought up walkable neighborhoods and blah, blah. I mean, I was blown away. So it's really starting to make its way into the into the COVID. Culture. So I'm really excited about the moment in time we live in, and I think we're gonna be able to make a huge difference over the next couple generations. So really appreciate what you guys do, and I appreciate you guys coming on here. I'm sorry it felt like a deposition. The funny thing, Nolan, you mentioned it feeling like a deposition, me reading this Twitter post to you is I had my first deposition this morning. I was being and I agree, it was not very comfortable, but no really great to have you guys on and admire you and appreciate your work.

    Nolan Gray 1:30:34

    Thanks so much, Austin. It's a real pleasure.

Featured
Charles Marohn
Charles Marohn

Charles Marohn (known as “Chuck” to friends and colleagues) is the founder and president of Strong Towns and the bestselling author of “Escaping the Housing Trap: The Strong Towns Response to the Housing Crisis.” With decades of experience as a land use planner and civil engineer, Marohn is on a mission to help cities and towns become stronger and more prosperous. He spreads the Strong Towns message through in-person presentations, the Strong Towns Podcast, and his books and articles. In recognition of his efforts and impact, Planetizen named him one of the 15 Most Influential Urbanists of all time in 2017 and 2023.

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