WEBVTT 00:00:00.000 --> 00:00:02.940 You know there's this phrase that has been playing 00:00:02.940 --> 00:00:06.040 on sort of a loop in my head lately. The housing 00:00:06.040 --> 00:00:08.900 crisis. It is everywhere. I mean it's in all 00:00:08.900 --> 00:00:11.279 the headlines. It's dominating city council meetings. 00:00:11.619 --> 00:00:14.599 And honestly for most people listening it's probably 00:00:14.599 --> 00:00:17.620 the single biggest line item in their monthly 00:00:17.620 --> 00:00:20.570 budget. It's the monster in the room. Yeah. And, 00:00:20.570 --> 00:00:22.289 you know, the problem with a phrase like housing 00:00:22.289 --> 00:00:24.309 crisis is that it gets used so much it starts 00:00:24.309 --> 00:00:26.230 to lose its meaning. It just becomes background 00:00:26.230 --> 00:00:28.890 noise. Right. But when you actually stop and 00:00:28.890 --> 00:00:31.429 look at the machinery behind that phrase, I mean, 00:00:31.429 --> 00:00:34.609 the level of dysfunction is, it's just staggering. 00:00:35.039 --> 00:00:36.740 That's exactly what we're doing today. We want 00:00:36.740 --> 00:00:39.979 to move past the simple rent is too high complaint, 00:00:40.240 --> 00:00:42.880 which, I mean, it's valid. It is. But we want 00:00:42.880 --> 00:00:44.820 to take apart the engine. Get under the hood. 00:00:44.960 --> 00:00:47.219 Exactly. We're looking at a stack of research 00:00:47.219 --> 00:00:49.820 that spans the globe from zoning wars in the 00:00:49.820 --> 00:00:53.039 Anglosphere to the renter's paradox in Germany. 00:00:53.380 --> 00:00:55.719 Because the question isn't just why is it expensive? 00:00:56.060 --> 00:00:58.960 No. The question is why is the cost of shelter 00:00:58.960 --> 00:01:01.539 rising faster than the ability of human beings 00:01:01.539 --> 00:01:03.789 to earn money? Right. That's the fundamental 00:01:03.789 --> 00:01:05.969 disconnect. And before we really get into the 00:01:05.969 --> 00:01:08.469 weeds with zoning laws and financial spirals, 00:01:08.510 --> 00:01:12.310 we have to pin down what crisis even means in 00:01:12.310 --> 00:01:14.530 this context. OK. Because technically, we're 00:01:14.530 --> 00:01:16.730 usually talking about two different things that 00:01:16.730 --> 00:01:19.189 are kind of colliding. So one is the physical 00:01:19.189 --> 00:01:21.709 shortage, right? Just literally not enough roofs 00:01:21.709 --> 00:01:24.329 for heads. Specifically, not enough roofs where 00:01:24.329 --> 00:01:27.450 the heads want to be. Ah, that's a crucial distinction. 00:01:27.890 --> 00:01:30.920 It's everything. We have Plenty of cheap housing 00:01:30.920 --> 00:01:34.920 in places with no jobs. The crisis is the mismatch 00:01:34.920 --> 00:01:38.819 between economic opportunity and housing supply. 00:01:39.000 --> 00:01:40.579 Okay, so that's one part. What's the other? The 00:01:40.579 --> 00:01:42.379 second part of the definition is the financial 00:01:42.379 --> 00:01:45.079 crisis within the housing market itself. We're 00:01:45.079 --> 00:01:47.840 talking asset bubbles, mortgage fragility, that 00:01:47.840 --> 00:01:49.700 kind of thing. And the metric that sort of ties 00:01:49.700 --> 00:01:52.239 them both together. It is the decoupling of income 00:01:52.239 --> 00:01:55.659 and housing costs. Simple as that. When you see 00:01:55.659 --> 00:01:59.900 housing costs rising by, say, 7 % a year, But 00:01:59.900 --> 00:02:02.260 household incomes are just grinding forward at 00:02:02.260 --> 00:02:04.799 2%. You're mathematically guaranteed to hit a 00:02:04.799 --> 00:02:07.280 breaking point. You are. And we are seeing that 00:02:07.280 --> 00:02:09.939 breaking point manifest differently all around 00:02:09.939 --> 00:02:12.319 the world. In the global south, it looks like 00:02:12.319 --> 00:02:14.939 informal settlements, slums. Yeah. In London 00:02:14.939 --> 00:02:18.460 or San Francisco, it looks like the eradication 00:02:18.460 --> 00:02:20.520 of the middle class. People just being priced 00:02:20.520 --> 00:02:23.500 out completely. So we have a pretty clear mission 00:02:23.500 --> 00:02:25.539 for this deep dive then. We're going to map out 00:02:25.539 --> 00:02:29.939 this web. of problems, as you put it. Yeah, that's 00:02:29.939 --> 00:02:32.300 the goal. We're going to look at the fierce economic 00:02:32.300 --> 00:02:35.340 debates on causes. You know, is it supply or 00:02:35.340 --> 00:02:37.919 the broader economy? We're going to compare the 00:02:37.919 --> 00:02:40.780 Anglosphere model of planning against the Japanese 00:02:40.780 --> 00:02:44.080 model, which is that's a fascinating case study 00:02:44.080 --> 00:02:45.740 and just doing things totally differently. It 00:02:45.740 --> 00:02:48.060 really is. Then we'll take a tour of the specific 00:02:48.060 --> 00:02:50.500 dysfunctions in Germany, the Netherlands, India 00:02:50.500 --> 00:02:53.419 and the UK. And we won't just leave you in the 00:02:53.419 --> 00:02:55.960 depression of the crisis. We are going to look 00:02:55.960 --> 00:02:59.110 at New Zealand. which actually offers a data 00:02:59.110 --> 00:03:02.069 -backed glimmer of hope. A glimmer of hope. I'll 00:03:02.069 --> 00:03:04.490 take it. And then we'll wrap up with the mechanics 00:03:04.490 --> 00:03:06.629 of financial bubbles, the doom loop scenario, 00:03:06.889 --> 00:03:10.270 which sounds ominous. It is. All right, let's 00:03:10.270 --> 00:03:13.990 jump in. Section one, the great debate, supply 00:03:13.990 --> 00:03:18.169 versus the economy. Let's do it. I feel like 00:03:18.169 --> 00:03:20.349 if you grab a random person on the street and 00:03:20.349 --> 00:03:22.270 ask them why housing is so expensive, they'll 00:03:22.270 --> 00:03:25.650 say greedy developers or maybe, you know, inflation. 00:03:26.430 --> 00:03:28.530 Sure. Those are the easy answers. But when you 00:03:28.530 --> 00:03:30.650 look at the academic literature, there is this 00:03:30.650 --> 00:03:33.409 massive fight happening. Is it really just that 00:03:33.409 --> 00:03:35.669 we aren't building enough? That is the million 00:03:35.669 --> 00:03:37.990 dollar question or I guess the trillion dollar 00:03:37.990 --> 00:03:40.310 question at this point. Yeah. And economists 00:03:40.310 --> 00:03:42.789 have been wrestling with this for decades. So 00:03:42.789 --> 00:03:45.530 it's not settled. Well. A consensus is starting 00:03:45.530 --> 00:03:49.310 to emerge, specifically in a 2022 analysis by 00:03:49.310 --> 00:03:51.789 Christian Hilber and Olivier Choney. We're seeing 00:03:51.789 --> 00:03:54.069 agreement around what they call the primary strand 00:03:54.069 --> 00:03:56.469 of the debate. The primary strand. And that strand 00:03:56.469 --> 00:03:59.469 points the finger pretty squarely at supply constraints. 00:03:59.830 --> 00:04:03.590 OK, supply constraints. That sounds very sterile, 00:04:03.590 --> 00:04:05.590 very academic. What are we actually talking about 00:04:05.590 --> 00:04:07.330 on the ground? We're talking about the physical 00:04:07.330 --> 00:04:09.710 inability to put a building on a piece of land. 00:04:09.810 --> 00:04:13.259 But. And this is the key point. It's not because 00:04:13.259 --> 00:04:16.040 we ran out of land. And it's not because we forgot 00:04:16.040 --> 00:04:18.860 how to build houses. It's because of land use 00:04:18.860 --> 00:04:21.819 restrictions. The rules. The rules. The argument 00:04:21.819 --> 00:04:24.480 here is that in the places where demand is highest, 00:04:24.560 --> 00:04:27.720 major cities with good jobs, we have erected 00:04:27.720 --> 00:04:31.819 this legal wall that prevents the market from 00:04:31.819 --> 00:04:34.279 responding to that demand. This is the regulatory 00:04:34.279 --> 00:04:36.360 tax concept I was reading about in the notes. 00:04:36.399 --> 00:04:37.740 I want to double click on that because I think 00:04:37.740 --> 00:04:40.000 people hear tax and they think of a check they 00:04:40.000 --> 00:04:42.480 write to the government. This is different, isn't 00:04:42.480 --> 00:04:46.160 it? It's an invisible tax. A shadow tax. Think 00:04:46.160 --> 00:04:47.779 of it this way. Let's say you want to build a 00:04:47.779 --> 00:04:49.379 house. You have the cost of the land, the cost 00:04:49.379 --> 00:04:51.579 of the lumber, the concrete, the labor. Let's 00:04:51.579 --> 00:04:53.300 say all of that adds up to, I don't know, $300 00:04:53.300 --> 00:04:55.600 ,000. Okay. The actual cost of construction. 00:04:55.819 --> 00:04:58.420 Exactly. But that house sells in the market for 00:04:58.420 --> 00:05:02.540 $500 ,000. Now, in a normal, efficient market, 00:05:02.600 --> 00:05:05.660 like the market for, say, toaster ovens, other 00:05:05.660 --> 00:05:08.000 companies would see that massive profit margin. 00:05:08.160 --> 00:05:10.079 And they'd rush in. They'd rush in, build more 00:05:10.079 --> 00:05:12.240 toasters, and drive the price down closer to 00:05:12.240 --> 00:05:14.139 the actual cost of production. Right. That's 00:05:14.139 --> 00:05:16.319 just capitalism 101. If there's profit to be 00:05:16.319 --> 00:05:18.920 made, competition comes in and eats it away until 00:05:18.920 --> 00:05:20.959 the price reflects the actual value of the thing. 00:05:21.279 --> 00:05:25.139 Precisely. But in housing, that mechanism is 00:05:25.139 --> 00:05:28.319 broken. Why? Zoning laws, height limits, density 00:05:28.319 --> 00:05:31.860 restrictions, minimum lot sizes, they physically 00:05:31.860 --> 00:05:34.000 prevent that competition from entering the market. 00:05:34.120 --> 00:05:37.379 So that $200 ,000 difference between the cost 00:05:37.379 --> 00:05:40.620 to build and the price to buy, it doesn't go 00:05:40.620 --> 00:05:42.740 away. It just stays there. It becomes a permanent 00:05:42.740 --> 00:05:45.079 premium. a scarcity premium. So you're saying 00:05:45.079 --> 00:05:47.920 it's the price of scarcity. You are paying an 00:05:47.920 --> 00:05:50.819 extra $200 ,000 just for the permission to exist 00:05:50.819 --> 00:05:52.800 in that space. That's a perfect way to put it. 00:05:52.839 --> 00:05:55.100 And the research Hilber and Shani cite suggests 00:05:55.100 --> 00:05:57.759 that in heavily restricted markets, we're talking 00:05:57.759 --> 00:05:59.980 places like New York, London, San Francisco, 00:06:00.160 --> 00:06:03.120 this Regulatory tax can account for more than 00:06:03.120 --> 00:06:05.560 50 percent of the home's value. Wait, say that 00:06:05.560 --> 00:06:07.420 again. More than half. More than half. That is 00:06:07.420 --> 00:06:09.660 wild to think about. Half the mortgage you're 00:06:09.660 --> 00:06:11.600 paying isn't for the physical house, the bricks 00:06:11.600 --> 00:06:13.939 and the wood. It's for the bureaucracy that prevented 00:06:13.939 --> 00:06:15.699 someone else from building a house next to you. 00:06:15.879 --> 00:06:18.879 That is a great way to put it. Yes. Now, to be 00:06:18.879 --> 00:06:22.000 fair, there is the other strand of the debate. 00:06:22.180 --> 00:06:25.959 OK. The other side argues that we can't ignore 00:06:25.959 --> 00:06:28.480 the macro economy. They look at interest rates. 00:06:29.079 --> 00:06:32.120 The availability of financing, speculation. The 00:06:32.120 --> 00:06:34.839 big picture stuff. Right. They argue that even 00:06:34.839 --> 00:06:37.860 if you deregulated everything, you'd still have 00:06:37.860 --> 00:06:40.699 incredible volatility because developers are 00:06:40.699 --> 00:06:43.139 just, they're terrible at forecasting prices. 00:06:43.439 --> 00:06:45.439 Right. I can see that. If a developer thinks 00:06:45.439 --> 00:06:48.000 prices are going to drop next year, they stop 00:06:48.000 --> 00:06:50.120 building today. Which then creates a shortage 00:06:50.120 --> 00:06:52.610 tomorrow. And prices shoot up again. So it's 00:06:52.610 --> 00:06:54.569 a boom -bust cycle that's just inherent to the 00:06:54.569 --> 00:06:57.209 industry. That's their argument. But the supply 00:06:57.209 --> 00:06:59.750 -siders would counter that, yes, those cycles 00:06:59.750 --> 00:07:02.250 exist. But if we didn't have the zoning straightjacket 00:07:02.250 --> 00:07:04.750 on, the market could adapt to those macro shifts 00:07:04.750 --> 00:07:07.050 much, much faster. It could respond. It could 00:07:07.050 --> 00:07:09.589 respond. As it stands now, the market is basically 00:07:09.589 --> 00:07:12.310 paralyzed. It can't build what's needed where 00:07:12.310 --> 00:07:14.529 it's needed. We've mentioned zoning a lot, but 00:07:14.529 --> 00:07:16.589 that's not the only rule in the book. What about 00:07:16.589 --> 00:07:19.259 something like building codes? This is a much 00:07:19.259 --> 00:07:21.839 trickier area, to be honest, because everyone 00:07:21.839 --> 00:07:24.220 agrees we need building codes. We don't want 00:07:24.220 --> 00:07:26.100 fires. We don't want buildings collapsing in 00:07:26.100 --> 00:07:28.579 an earthquake. Safety is paramount. Of course. 00:07:28.660 --> 00:07:30.879 But critics and even some of the sources we are 00:07:30.879 --> 00:07:34.100 looking at argue that we have let safety morph 00:07:34.100 --> 00:07:37.699 into exclusion. How so? What does that mean? 00:07:38.120 --> 00:07:39.860 Well, as codes become more and more complex, 00:07:40.040 --> 00:07:42.639 requiring specific, very expensive materials, 00:07:42.860 --> 00:07:45.480 intricate energy efficiency systems, massive 00:07:45.480 --> 00:07:48.160 elevators in small buildings, they raise the 00:07:48.160 --> 00:07:51.480 baseline cost of any new housing. It becomes 00:07:51.480 --> 00:07:55.860 literally illegal. to build a cheap house or 00:07:55.860 --> 00:07:58.839 even a simple no -frills house. So we have effectively 00:07:58.839 --> 00:08:01.620 legislated the starter home out of existence. 00:08:01.920 --> 00:08:03.800 It's like you either have to build luxury or 00:08:03.800 --> 00:08:05.259 you don't build at all because the code itself 00:08:05.259 --> 00:08:07.540 requires luxury -grade inputs. In many ways, 00:08:07.600 --> 00:08:10.160 yes. That's a huge part of the problem. But we 00:08:10.160 --> 00:08:12.620 also have to be fair to the reality on the ground. 00:08:12.699 --> 00:08:15.819 It is not just policy. Okay. A report by Moody's 00:08:15.819 --> 00:08:17.819 Analytics a while back highlighted that even 00:08:17.819 --> 00:08:20.220 if we fixed all the laws tomorrow, we're still 00:08:20.220 --> 00:08:22.939 facing very real... Physical shortages. The stuff 00:08:22.939 --> 00:08:27.560 shortage. The stuff and the people. We have chronic 00:08:27.560 --> 00:08:30.620 shortage of skilled labor plumbers, electricians, 00:08:30.620 --> 00:08:33.639 framers, you name it. And global supply chains 00:08:33.639 --> 00:08:37.419 for materials like lumber and steel are still 00:08:37.419 --> 00:08:39.480 reeling from the aftershocks of the pandemic. 00:08:39.960 --> 00:08:42.039 So even if you get a permit, you might not be 00:08:42.039 --> 00:08:44.399 able to find the people or the materials to actually 00:08:44.399 --> 00:08:46.480 build. Plus, you have these external shocks. 00:08:46.720 --> 00:08:49.539 We've seen migration crises, refugee movements, 00:08:49.879 --> 00:08:52.700 these sudden spikes in population in specific 00:08:52.700 --> 00:08:54.659 areas that the construction industry physically 00:08:54.659 --> 00:08:58.100 cannot keep up with. Absolutely. And we cannot 00:08:58.100 --> 00:09:00.000 ignore the other side of the equation. The income 00:09:00.000 --> 00:09:01.799 side. The income side. We've been talking about 00:09:01.799 --> 00:09:03.980 high prices, but the other part of that ratio 00:09:03.980 --> 00:09:07.100 is stagnant wages. A major driver of this crisis 00:09:07.100 --> 00:09:10.279 is simply that people are poorer. relative to 00:09:10.279 --> 00:09:12.139 the assets they need to buy than they were a 00:09:12.139 --> 00:09:14.620 generation ago. So it's a supply problem, a regulatory 00:09:14.620 --> 00:09:17.279 problem, a labor problem and a wage problem all 00:09:17.279 --> 00:09:19.820 tangled up together. A true web of dysfunction. 00:09:20.100 --> 00:09:22.340 It's not one thing. It's everything all at once. 00:09:22.639 --> 00:09:25.740 Let's let's zoom out a bit. I think there's a 00:09:25.740 --> 00:09:28.559 tendency, especially in the US or the UK, to 00:09:28.559 --> 00:09:31.580 assume this is just how it is. In rich countries, 00:09:31.779 --> 00:09:33.960 you know, you get wealthy, you get bureaucracy, 00:09:34.259 --> 00:09:37.019 housing gets expensive. End of story. Right. 00:09:37.100 --> 00:09:39.299 A law of nature. But that's not entirely true, 00:09:39.379 --> 00:09:41.620 is it? There's a divergent path. There is. And 00:09:41.620 --> 00:09:44.440 this brings us to what's been called the planning 00:09:44.440 --> 00:09:48.299 puzzle. If you look at the data, there's a really 00:09:48.299 --> 00:09:50.860 stark divide between what we call the Anglosphere 00:09:50.860 --> 00:09:54.620 and Japan. And the Anglosphere is the U .S., 00:09:54.620 --> 00:09:57.840 U .K., Canada, Australia, New Zealand. Correct. 00:09:57.899 --> 00:10:01.299 The English -speaking common law world. And these 00:10:01.299 --> 00:10:03.919 countries, for the most part, share a specific 00:10:03.919 --> 00:10:06.980 philosophy of planning that empowers local control. 00:10:07.220 --> 00:10:09.980 Local control. Which, in turn, creates the mechanism 00:10:09.980 --> 00:10:13.240 for what we all know as NIMBYism, not in my backyard. 00:10:13.519 --> 00:10:15.740 I feel like we use NIMBY as a slur sometimes, 00:10:15.919 --> 00:10:17.639 but let's actually unpack the mechanism. Why 00:10:17.639 --> 00:10:19.659 does the Anglosphere model lead to these incredibly 00:10:19.659 --> 00:10:21.820 high prices? It comes down to something called 00:10:21.820 --> 00:10:24.399 discretionary planning. In the Anglosphere, generally 00:10:24.399 --> 00:10:26.980 speaking, if you own a piece of land and want 00:10:26.980 --> 00:10:30.149 to build something new, Your neighbors get a 00:10:30.149 --> 00:10:33.070 say, a big say. The public hearings. The public 00:10:33.070 --> 00:10:35.070 hearings, the environmental reviews that can 00:10:35.070 --> 00:10:38.049 be weaponized to delay projects for years, and 00:10:38.049 --> 00:10:40.970 city councils that can ultimately just vote no 00:10:40.970 --> 00:10:44.070 based on subjective criteria like neighborhood 00:10:44.070 --> 00:10:46.690 character. So the system is designed from the 00:10:46.690 --> 00:10:49.190 ground up to prioritize the preferences of the 00:10:49.190 --> 00:10:51.740 people who already live there. Yes. over the 00:10:51.740 --> 00:10:53.379 needs of the people who want to live there. The 00:10:53.379 --> 00:10:56.399 outsider. Exactly. It creates an insider -outsider 00:10:56.399 --> 00:10:59.899 dynamic. If I am an existing homeowner, restricting 00:10:59.899 --> 00:11:02.379 new supply increases my property value. It's 00:11:02.379 --> 00:11:05.139 simple economics. So it's actually in my rational 00:11:05.139 --> 00:11:07.139 financial interest to show up at that city council 00:11:07.139 --> 00:11:10.179 meeting and scream about shadows or traffic or 00:11:10.179 --> 00:11:13.000 parking. The system empowers you, the insider, 00:11:13.259 --> 00:11:16.279 to block competition. And it works. And the result 00:11:16.279 --> 00:11:19.500 is a shortage. A chronic structural shortage. 00:11:19.820 --> 00:11:22.980 Now, contrast that with Japan. Japan is a wealthy, 00:11:23.080 --> 00:11:25.480 highly developed nation. Tokyo is the biggest 00:11:25.480 --> 00:11:28.940 city on Earth by a huge margin. But their housing 00:11:28.940 --> 00:11:31.960 costs have remained relatively flat and affordable 00:11:31.960 --> 00:11:34.940 compared to incomes for decades. Which is the 00:11:34.940 --> 00:11:37.200 opposite of what's happened everywhere else in 00:11:37.200 --> 00:11:39.080 the developed world. Completely the opposite. 00:11:39.200 --> 00:11:41.279 So what's the aha moment? Yeah. What's the secret? 00:11:42.080 --> 00:11:43.740 They just don't ask the neighbors. Essentially, 00:11:43.799 --> 00:11:46.500 yes. That's the simple version. Japan uses a 00:11:46.500 --> 00:11:49.659 system of nationalized zoning control. Nationalized, 00:11:49.659 --> 00:11:51.700 so not local. The central government in Tokyo 00:11:51.700 --> 00:11:54.379 sets the rules for the whole country. They have 00:11:54.379 --> 00:11:57.340 about 12 zones, like Category 1, low -rise residential. 00:11:57.940 --> 00:12:01.159 And if a developer's plan meets the mathematical 00:12:01.159 --> 00:12:05.320 criteria for that zone, height, setback, safety 00:12:05.320 --> 00:12:07.889 codes. They get the permit. It's a checklist, 00:12:08.029 --> 00:12:10.429 not a debate. It's buy -right development. It 00:12:10.429 --> 00:12:12.409 almost completely removes the power of local 00:12:12.409 --> 00:12:15.289 municipalities to block projects. A local mayor 00:12:15.289 --> 00:12:17.750 in a Tokyo suburb can't just decide to stop an 00:12:17.750 --> 00:12:19.169 apartment building because the neighbors are 00:12:19.169 --> 00:12:21.509 grumpy. If it meets the code, it gets built. 00:12:21.769 --> 00:12:24.500 Period. That is a massive, massive difference 00:12:24.500 --> 00:12:27.100 in philosophy. It turns housing construction 00:12:27.100 --> 00:12:29.759 into something more like a manufacturing process 00:12:29.759 --> 00:12:32.019 rather than a political battle. And the result 00:12:32.019 --> 00:12:34.440 is abundance. Yeah. Now, Japanese homes are smaller, 00:12:34.580 --> 00:12:37.919 yes. And they don't really view housing as an 00:12:37.919 --> 00:12:41.440 investment. The way we do houses there actually 00:12:41.440 --> 00:12:45.399 depreciate in value, like cars. Wow. But everyone 00:12:45.399 --> 00:12:48.220 has a place to live. And it's affordable. It 00:12:48.220 --> 00:12:50.340 really challenges this core assumption of the 00:12:50.340 --> 00:12:53.860 Anglosphere that local control is always and 00:12:53.860 --> 00:12:57.059 inherently good. Here, it seems like local control 00:12:57.059 --> 00:12:59.820 is the cause of the crisis. It's arguably the 00:12:59.820 --> 00:13:02.080 primary cause. Oh, where does Europe fit in this? 00:13:02.139 --> 00:13:04.620 Are they Team Anglo or Team Japan? They're sort 00:13:04.620 --> 00:13:07.460 of the middle path. Most developed European countries, 00:13:07.679 --> 00:13:10.240 France, Germany, the Nordics, they generally 00:13:10.240 --> 00:13:12.759 favor higher density than the Anglosphere. They 00:13:12.759 --> 00:13:14.620 don't have those sprawling suburbs of single 00:13:14.620 --> 00:13:16.720 family homes to nearly the same extent. Right. 00:13:16.799 --> 00:13:19.639 More mid -rise apartments. Exactly. But they 00:13:19.639 --> 00:13:22.059 have significantly more regulation and tenant 00:13:22.059 --> 00:13:24.759 protection laws than Japan. So it's a hybrid. 00:13:24.919 --> 00:13:27.059 So they build more than us, but they regulate 00:13:27.059 --> 00:13:31.330 it more than Tokyo does. Roughly, yes. As we're 00:13:31.330 --> 00:13:32.830 about to see when we look in the case studies, 00:13:33.009 --> 00:13:35.970 that middle path has its own very deep cracks. 00:13:36.230 --> 00:13:38.669 Before we get to the specific countries, I want 00:13:38.669 --> 00:13:41.509 to talk about the human cost of all this. We've 00:13:41.509 --> 00:13:43.950 established the machinery of the crisis. But 00:13:43.950 --> 00:13:46.710 what does this machinery actually do to a society? 00:13:47.110 --> 00:13:50.309 It fractures it. I mean, to put it bluntly, specifically, 00:13:50.490 --> 00:13:53.649 it creates a generational canyon. We are seeing 00:13:53.649 --> 00:13:57.250 a situation where millennials and Gen Z are entering 00:13:57.250 --> 00:14:00.299 the market at a distinct. And frankly, unfair 00:14:00.299 --> 00:14:03.320 disadvantage compared to their parents or grandparents. 00:14:03.679 --> 00:14:06.279 It's the classic pulling up the ladder effect. 00:14:06.600 --> 00:14:09.559 It is. They are paying a much, much higher percentage 00:14:09.559 --> 00:14:12.740 of their income just for basic shelter. But it's 00:14:12.740 --> 00:14:14.919 not just about the money. I think this is a point 00:14:14.919 --> 00:14:17.679 that gets missed. It's about time. The housing 00:14:17.679 --> 00:14:20.360 crisis is altering the timeline of human life. 00:14:20.519 --> 00:14:22.460 What do you mean by that? Well, think about the 00:14:22.460 --> 00:14:24.769 traditional milestones of adulthood. Moving out 00:14:24.769 --> 00:14:26.509 of your parents' house, moving in with a partner, 00:14:26.590 --> 00:14:28.730 getting married, having children. All of these 00:14:28.730 --> 00:14:31.009 things require space. They require stability. 00:14:31.450 --> 00:14:34.190 They require money. When the space is prohibitively 00:14:34.190 --> 00:14:37.769 expensive, the milestones get delayed. Or they 00:14:37.769 --> 00:14:39.990 don't happen at all. I see. So people are living 00:14:39.990 --> 00:14:43.090 with roommates deep into their 30s. They're delaying 00:14:43.090 --> 00:14:44.889 having kids because they literally don't have 00:14:44.889 --> 00:14:47.110 a spare room for a crib. Or they're staying in 00:14:47.110 --> 00:14:49.269 unhealthy relationships because they can't afford 00:14:49.269 --> 00:14:51.759 a separate apartment. It acts as a kind of social 00:14:51.759 --> 00:14:54.500 freezer, putting the natural evolution of life 00:14:54.500 --> 00:14:57.779 on hold. And that frustration that has to go 00:14:57.779 --> 00:14:59.519 somewhere, right? It goes directly into politics. 00:14:59.960 --> 00:15:02.279 Politico and other outlets have reported extensively 00:15:02.279 --> 00:15:06.080 on this. The housing crisis is a major, major 00:15:06.080 --> 00:15:08.879 driver of political instability and radicalization. 00:15:09.200 --> 00:15:12.519 Wow. Well, when a democracy fails to provide 00:15:12.519 --> 00:15:15.779 something as basic as shelter, young voters lose 00:15:15.779 --> 00:15:19.259 faith in the system itself. If the social contract 00:15:19.259 --> 00:15:21.960 is... Work hard, play by the rules and you'll 00:15:21.960 --> 00:15:24.000 get a home and the home never comes. The one 00:15:24.000 --> 00:15:26.740 uphold the contract. Exactly. And this creates 00:15:26.740 --> 00:15:29.720 a huge opening for populism. We see politicians 00:15:29.720 --> 00:15:32.480 stoking anti -immigrant sentiment, telling voters 00:15:32.480 --> 00:15:34.360 you can't afford a home because those people 00:15:34.360 --> 00:15:37.659 are taking them. It redirects the anger. It redirects 00:15:37.659 --> 00:15:40.600 the anger away from the complex reality of zoning 00:15:40.600 --> 00:15:44.399 laws and lack of construction. poured a vulnerable 00:15:44.399 --> 00:15:46.980 scapegoat. So the housing crisis isn't just an 00:15:46.980 --> 00:15:49.120 economic annoyance. You're saying it's a genuine 00:15:49.120 --> 00:15:51.700 threat to democratic stability. I don't think 00:15:51.700 --> 00:15:53.740 that's an exaggeration at all. We're seeing social 00:15:53.740 --> 00:15:57.200 unrest in cities worldwide directly linked to 00:15:57.200 --> 00:16:00.399 this. Okay, let's take a tour of the damage. 00:16:00.679 --> 00:16:02.980 We've selected four countries that highlight 00:16:02.980 --> 00:16:05.139 different aspects of this mess. And our first 00:16:05.139 --> 00:16:07.519 stop is Germany, the land of the happy renter, 00:16:07.580 --> 00:16:10.940 or so I've heard. Or, so the myth goes, yes. 00:16:11.600 --> 00:16:14.220 Germany is often held up as the alternative model. 00:16:14.460 --> 00:16:16.740 People say, be like the Germans, just rent forever. 00:16:16.919 --> 00:16:18.340 And it's true, their home ownership rate is really 00:16:18.340 --> 00:16:21.980 low, right? It's very low. Only about 46 .7 % 00:16:21.980 --> 00:16:24.960 as of 2022. So why is that? Is it just a cultural 00:16:24.960 --> 00:16:27.139 thing? It's partially cultural, but it's much 00:16:27.139 --> 00:16:30.220 more structural. The German tax code doesn't 00:16:30.220 --> 00:16:32.759 incentivize buying the way the U .S. or U .K. 00:16:32.799 --> 00:16:35.259 codes do. For instance, in America, you can deduct 00:16:35.259 --> 00:16:37.480 your mortgage interest from your taxes. That's 00:16:37.480 --> 00:16:39.799 a huge subsidy for homeowners. Germany doesn't 00:16:39.799 --> 00:16:41.960 have that for owner -occupiers. So the government 00:16:41.960 --> 00:16:44.539 isn't actively paying you to buy a house. And 00:16:44.539 --> 00:16:46.659 they had a lot of social housing historically. 00:16:46.779 --> 00:16:50.480 A robust supply of high -quality, rent -regulated 00:16:50.480 --> 00:16:53.080 social housing. So renting was stable. It was 00:16:53.080 --> 00:16:55.620 affordable. It was high quality. You could raise 00:16:55.620 --> 00:16:57.820 a family in a rental without that constant fear 00:16:57.820 --> 00:17:00.860 of eviction or massive rent hikes. But the notes 00:17:00.860 --> 00:17:04.339 say this is changing. The paradise is cracking. 00:17:04.599 --> 00:17:07.660 It's unraveling. In the early 2000s, the government 00:17:07.660 --> 00:17:10.140 reduced subsidies for both ownership and social 00:17:10.140 --> 00:17:12.500 housing, assuming the market was stable and could 00:17:12.500 --> 00:17:14.900 handle it. And then? And then came the era of 00:17:14.900 --> 00:17:16.839 ultra -low interest rates after the financial 00:17:16.839 --> 00:17:20.460 crisis. Investors, both domestic and international, 00:17:20.799 --> 00:17:23.220 flooded into German real estate looking for a 00:17:23.220 --> 00:17:26.720 safe return. Prices shot up, and now Germany 00:17:26.720 --> 00:17:29.299 is seeing a steep, steep rise in overcrowding. 00:17:29.420 --> 00:17:31.359 The renter's paradise is running out of rooms. 00:17:31.660 --> 00:17:33.680 Exactly. They stopped building enough social 00:17:33.680 --> 00:17:36.079 housing, and the private market pivoted entirely 00:17:36.079 --> 00:17:39.059 to luxury units for investors, leaving the middle 00:17:39.059 --> 00:17:41.640 completely squeezed. Okay, let's move next door 00:17:41.640 --> 00:17:43.779 to the Netherlands. This seems like a case study 00:17:43.779 --> 00:17:46.400 in what you call the policy trap. It is painful 00:17:46.400 --> 00:17:48.920 to watch. The Netherlands is currently facing 00:17:48.920 --> 00:17:54.160 a massive shortage, about 396 ,000 homes as of 00:17:54.160 --> 00:17:58.740 mid -2025. That is nearly 5 % of their entire 00:17:58.740 --> 00:18:00.960 housing stock just missing. And the government 00:18:00.960 --> 00:18:03.259 decided to step in, right? They tried to fix 00:18:03.259 --> 00:18:05.470 it. They did. They passed the Good Landlordship 00:18:05.470 --> 00:18:09.089 Act in 2023 and the Affordable Rent Act in 2024. 00:18:09.789 --> 00:18:12.589 These laws effectively capped rents for mid -priced 00:18:12.589 --> 00:18:15.269 dwellings at around 1 ,100 euros. Okay, stop 00:18:15.269 --> 00:18:17.210 right there. If I'm a renter in Amsterdam, I 00:18:17.210 --> 00:18:20.309 am cheering. Rent cap. My rent won't go up. This 00:18:20.309 --> 00:18:22.750 sounds great for tenants. In the very short term, 00:18:22.829 --> 00:18:25.450 for existing tenants, yes, you're safe. But here 00:18:25.450 --> 00:18:27.789 is the trap. In the Netherlands, a lot of new 00:18:27.789 --> 00:18:29.750 construction is funded by housing associations 00:18:29.750 --> 00:18:32.410 and large institutional investors, like pension 00:18:32.410 --> 00:18:34.890 funds. Right. They rely on rental income from 00:18:34.890 --> 00:18:37.190 their existing properties to generate the capital 00:18:37.190 --> 00:18:39.549 to build new projects. So when you cap the rent, 00:18:39.730 --> 00:18:41.930 you're also capping their revenue. And when you 00:18:41.930 --> 00:18:44.690 cap their revenue, the return on investment for 00:18:44.690 --> 00:18:47.849 building a new apartment building, it collapses. 00:18:48.069 --> 00:18:50.349 It falls below the line of viability. So what 00:18:50.349 --> 00:18:52.960 do they do? They stop building. Or even worse, 00:18:53.099 --> 00:18:55.559 they sell off their rental units to owner occupiers 00:18:55.559 --> 00:18:58.339 to get out of the rental market entirely, which 00:18:58.339 --> 00:19:00.640 reduces the rental stock even further. Oh, wow. 00:19:00.799 --> 00:19:03.160 So the intent was to make housing more affordable, 00:19:03.299 --> 00:19:05.539 but the mechanism actually choked off the supply 00:19:05.539 --> 00:19:08.200 of new housing, making the original problem worse. 00:19:08.640 --> 00:19:11.180 Precisely. The government's goal was 100 ,000 00:19:11.180 --> 00:19:14.430 new homes a year. In 2024, they only hit about 00:19:14.430 --> 00:19:17.250 82 ,000. And the social housing targets are being 00:19:17.250 --> 00:19:19.910 missed all over the country. It's a classic economic 00:19:19.910 --> 00:19:23.190 tragedy where the price control exacerbates the 00:19:23.190 --> 00:19:25.130 very shortage it was meant to solve. Let's jump 00:19:25.130 --> 00:19:28.210 continents now to India. When we talk about shortage 00:19:28.210 --> 00:19:30.849 here, the scale is just. It's mind -bending. 00:19:31.029 --> 00:19:32.650 It's a completely different universe of numbers. 00:19:32.789 --> 00:19:35.509 A 2012 report estimated the urban housing shortage 00:19:35.509 --> 00:19:40.470 at 18 .78 million units. 18 .78 million. Almost 00:19:40.470 --> 00:19:43.269 19 million homes just missing. That is the population 00:19:43.269 --> 00:19:46.150 of a medium -sized European country, just without 00:19:46.150 --> 00:19:49.009 homes. But in India, the story isn't just about 00:19:49.009 --> 00:19:51.430 the raw numbers. It's about staggering inequality. 00:19:52.319 --> 00:19:54.519 the shortage is not evenly distributed at all. 00:19:54.619 --> 00:19:56.940 How so? The data shows that the vast majority 00:19:56.940 --> 00:19:59.900 of that shortage, about 10 .5 million of the 00:19:59.900 --> 00:20:03.119 19 million units, is for what's called the economically 00:20:03.119 --> 00:20:06.519 weaker section and lower income groups. And what 00:20:06.519 --> 00:20:09.420 does economically weaker section mean in this 00:20:09.420 --> 00:20:11.519 context? We're talking about households earning 00:20:11.519 --> 00:20:15.099 less than 300 ,000 rupees a year. So the working 00:20:15.099 --> 00:20:17.500 poor. Okay. And for the wealthier groups? For 00:20:17.500 --> 00:20:19.680 the middle income group and above. The shortage 00:20:19.680 --> 00:20:24.259 was only about 0 .8 million units. That's a staggering 00:20:24.259 --> 00:20:27.039 disparity. So if you have money in India, the 00:20:27.039 --> 00:20:29.400 market basically works for you. If you're poor, 00:20:29.640 --> 00:20:31.839 the market doesn't even see you. It doesn't exist 00:20:31.839 --> 00:20:33.960 for you. Yeah. The formal housing market essentially 00:20:33.960 --> 00:20:36.000 ignores the bottom of the pyramid because the 00:20:36.000 --> 00:20:37.740 profit margins simply aren't there to build housing 00:20:37.740 --> 00:20:40.359 they can afford. And this forces millions and 00:20:40.359 --> 00:20:42.059 millions of people into informal settlements, 00:20:42.400 --> 00:20:45.539 slums, where they have no legal title, poor sanitation, 00:20:45.799 --> 00:20:48.599 and zero security. It's a crisis of poverty and 00:20:48.599 --> 00:20:51.019 market failure all rolled into one. Let's bring 00:20:51.019 --> 00:20:54.180 it back to the Anglosphere. The United Kingdom. 00:20:55.000 --> 00:20:57.500 This one feels like it's almost a geography problem. 00:20:57.859 --> 00:21:00.599 The UK is really a tale of two countries. You 00:21:00.599 --> 00:21:03.180 have the southeast and London, which have massive 00:21:03.180 --> 00:21:06.220 demand, huge job growth, and a severe, severe 00:21:06.220 --> 00:21:09.069 undersupply of housing. And then... Then you 00:21:09.069 --> 00:21:10.690 have parts of the north which have struggled 00:21:10.690 --> 00:21:13.890 economically, have lower demand, and plenty of 00:21:13.890 --> 00:21:16.069 empty or cheap housing. But you can't just tell 00:21:16.069 --> 00:21:19.450 a London banker or even a London barista to move 00:21:19.450 --> 00:21:22.130 to Newcastle if there isn't a job there for them. 00:21:22.329 --> 00:21:25.170 Exactly. Labor mobility is completely tied to 00:21:25.170 --> 00:21:27.890 the housing market. But the big controversy in 00:21:27.890 --> 00:21:30.430 the UK right now is about the math the government 00:21:30.430 --> 00:21:33.279 uses to decide where to build. They have a formula 00:21:33.279 --> 00:21:35.740 for it. Of course they do. It's called the standard 00:21:35.740 --> 00:21:38.319 formula for assessing housing needs. I love when 00:21:38.319 --> 00:21:40.500 governments have a standard formula. It usually 00:21:40.500 --> 00:21:42.859 means something important is being oversimplified. 00:21:43.000 --> 00:21:45.779 Oh, it is. The formula looks at projected household 00:21:45.779 --> 00:21:48.700 growth. So it asks, how many new families will 00:21:48.700 --> 00:21:51.200 form next year that need a home? Okay, that seems 00:21:51.200 --> 00:21:54.019 logical. It seems logical, but critics argue 00:21:54.019 --> 00:21:56.640 it ignores the backlog. It doesn't account for 00:21:56.640 --> 00:21:58.640 the millions of people living in overcrowded 00:21:58.640 --> 00:22:01.359 homes or substandard flats right now. It's like 00:22:01.359 --> 00:22:04.039 playing a dinner party for the guests who are 00:22:04.039 --> 00:22:06.500 scheduled to arrive at 7 .00 p .m., but completely 00:22:06.500 --> 00:22:08.660 ignoring the 10 people who have been standing 00:22:08.660 --> 00:22:11.500 in your kitchen hungry since 5 .00 p .m. That 00:22:11.500 --> 00:22:14.380 is a perfect analogy. A 2019 report estimated 00:22:14.380 --> 00:22:17.420 that 4 .75 million households in Great Britain 00:22:17.420 --> 00:22:19.579 are in need of adequate affordable housing today. 00:22:20.059 --> 00:22:23.519 The backlog is huge, but the formula is entirely 00:22:23.519 --> 00:22:26.190 focused on tomorrow's needs. And what's the target? 00:22:26.390 --> 00:22:28.890 Parliament has a target of 300 ,000 new homes 00:22:28.890 --> 00:22:31.130 a year. But given the planning restrictions and 00:22:31.130 --> 00:22:33.849 the NIMBism we discussed earlier, hitting that 00:22:33.849 --> 00:22:36.789 is a Herculean, if not impossible, task. This 00:22:36.789 --> 00:22:39.710 is all very heavy. We have zoning failures, policy 00:22:39.710 --> 00:22:42.230 traps, massive inequality, and just plain bad 00:22:42.230 --> 00:22:44.230 math. Is there any good news out there? Is anyone 00:22:44.230 --> 00:22:46.910 actually fixing this? Brace yourself. We actually 00:22:46.910 --> 00:22:48.730 have a hero in this story. Let's talk about New 00:22:48.730 --> 00:22:51.490 Zealand. New Zealand? Wait a minute. I thought 00:22:51.490 --> 00:22:52.970 they were the poster child for the housing bubble. 00:22:53.440 --> 00:22:55.259 Auckland was one of the most unaffordable cities 00:22:55.259 --> 00:22:58.519 on the planet. They were, absolutely. But that 00:22:58.519 --> 00:23:01.519 extreme crisis forced them to act. And what they 00:23:01.519 --> 00:23:04.599 did is a fascinating natural experiment in supply 00:23:04.599 --> 00:23:07.339 -side economics. It's one of the few places we 00:23:07.339 --> 00:23:11.440 have real hard data on what works. Okay, I'm 00:23:11.440 --> 00:23:14.819 listening. What was the move? In 2013, the city 00:23:14.819 --> 00:23:16.740 of Auckland passed what they called the Unitary 00:23:16.740 --> 00:23:20.039 Plan. It was a massive sweeping upzoning of the 00:23:20.039 --> 00:23:22.799 city. They basically looked at the map and said, 00:23:22.880 --> 00:23:25.759 OK, we're going to allow more density, more housing 00:23:25.759 --> 00:23:27.920 across about three quarters of the residential 00:23:27.920 --> 00:23:30.700 land. So they legalized apartments and townhouses 00:23:30.700 --> 00:23:33.359 in neighborhoods where only single family homes 00:23:33.359 --> 00:23:35.859 used to be allowed. Yes. And crucially, they 00:23:35.859 --> 00:23:37.880 didn't just do it in a few token spots. They 00:23:37.880 --> 00:23:40.380 did it broadly across the city. And because we 00:23:40.380 --> 00:23:42.319 have all this data from before and after the 00:23:42.319 --> 00:23:44.599 change, researchers can very clearly measure 00:23:44.599 --> 00:23:46.640 the impact. Did prices crash? Did the world end? 00:23:46.880 --> 00:23:50.140 Not a crash, but a significant measurable correction 00:23:50.140 --> 00:23:54.380 in affordability. Rents in Auckland grew much, 00:23:54.420 --> 00:23:56.900 much more slowly than they did in the rest of 00:23:56.900 --> 00:23:59.380 New Zealand, which didn't reform. How much more 00:23:59.380 --> 00:24:02.519 slowly? One researcher, Ryan Greenaway -McGreevy, 00:24:02.839 --> 00:24:06.019 Estimated that as of July 2024, rents in Auckland 00:24:06.019 --> 00:24:08.380 were 28 percent lower than they would have been 00:24:08.380 --> 00:24:11.039 without the reforms. 28 percent lower. That is. 00:24:11.450 --> 00:24:13.789 That is life -changing money for a renter. That's 00:24:13.789 --> 00:24:15.529 the difference between saving for a deposit and 00:24:15.529 --> 00:24:18.509 living paycheck to paycheck. It's massive. And 00:24:18.509 --> 00:24:20.210 it proved the theory in the real world. If you 00:24:20.210 --> 00:24:22.190 make it legal to build more housing, developers 00:24:22.190 --> 00:24:24.670 will build it, supply will increase, and price 00:24:24.670 --> 00:24:27.190 pressure will ease. So did the politicians take 00:24:27.190 --> 00:24:29.450 a victory lap and stop there? They actually doubled 00:24:29.450 --> 00:24:32.289 down. Yeah. In October 2021, the national government, 00:24:32.430 --> 00:24:34.109 and this is the key part with bipartisan support, 00:24:34.349 --> 00:24:36.369 passed the medium -density residential standards. 00:24:37.089 --> 00:24:40.059 Bipartisan on housing. In 2021. That might be 00:24:40.059 --> 00:24:42.039 the most shocking part of this whole story. It 00:24:42.039 --> 00:24:44.640 really is. It shows you how severe the crisis 00:24:44.640 --> 00:24:48.119 was. Both major parties agreed it was too big 00:24:48.119 --> 00:24:50.940 to ignore and play politics with. And the new 00:24:50.940 --> 00:24:54.059 law basically allows for three units and three 00:24:54.059 --> 00:24:57.460 stories on almost all residential parcels in 00:24:57.460 --> 00:24:59.839 large cities across the country. OK, explain 00:24:59.839 --> 00:25:02.000 three and three for me. It means on a standard 00:25:02.000 --> 00:25:04.900 suburban lot that used to hold one house, you 00:25:04.900 --> 00:25:07.369 now have the right by right. no public hearings, 00:25:07.490 --> 00:25:10.089 no special permission to build three townhouses 00:25:10.089 --> 00:25:12.930 up to three stories tall. So you can triple the 00:25:12.930 --> 00:25:14.869 density of the lot without needing to ask the 00:25:14.869 --> 00:25:16.910 neighbors for permission. It effectively ends 00:25:16.910 --> 00:25:19.710 the single family only zoning that dominates 00:25:19.710 --> 00:25:22.009 the entire Anglosphere. It's a huge shift. It 00:25:22.009 --> 00:25:24.329 moves New Zealand away from that discretionary 00:25:24.329 --> 00:25:27.930 NIMBY model and nudges it much closer to that 00:25:27.930 --> 00:25:30.349 predictable Japanese model. That's the idea. 00:25:30.680 --> 00:25:32.779 It is one of the boldest housing reforms anywhere 00:25:32.779 --> 00:25:35.059 in the developed world. That is genuinely hopeful. 00:25:35.220 --> 00:25:37.099 It shows that these aren't laws of physics. They're 00:25:37.099 --> 00:25:39.099 just laws of parliament. We made these rules, 00:25:39.180 --> 00:25:42.440 and we can unmake them. We can, but there's one 00:25:42.440 --> 00:25:45.000 last hurdle, and it's probably the biggest one. 00:25:45.160 --> 00:25:48.619 Let me guess. Section 6, the financial feedback 00:25:48.619 --> 00:25:51.619 loop. The money. The money. Because even if you 00:25:51.619 --> 00:25:54.059 fix all the zoning, you still have to deal with 00:25:54.059 --> 00:25:56.420 the fact that housing is not just shelter. It's 00:25:56.420 --> 00:25:59.569 a financial asset. and assets are prone to bubbles 00:25:59.569 --> 00:26:02.289 and crashes. We need to unpack this price default 00:26:02.289 --> 00:26:04.069 spiral. This sounds like a roller coaster nobody 00:26:04.069 --> 00:26:06.630 wants to ride. It is a concept detailed by researchers 00:26:06.630 --> 00:26:09.730 Gurin and McQuaid in 2020, and it explains why 00:26:09.730 --> 00:26:12.670 housing crashes are so uniquely destructive to 00:26:12.670 --> 00:26:15.069 an economy. So imagine we're in a recession, 00:26:15.250 --> 00:26:18.329 people lose their jobs. Okay, so step one, an 00:26:18.329 --> 00:26:20.849 income shock hits the system. Right. Step two, 00:26:21.190 --> 00:26:23.849 foreclosures begin. People can't pay the mortgage, 00:26:23.910 --> 00:26:27.269 so the bank takes the house. This starts to put... 00:26:27.440 --> 00:26:30.460 distressed inventory on the market. Step three, 00:26:30.559 --> 00:26:32.859 prices start to drop because there is suddenly 00:26:32.859 --> 00:26:35.480 more supply from these foreclosures and the sellers 00:26:35.480 --> 00:26:38.059 are desperate. Exactly. But here is where the 00:26:38.059 --> 00:26:41.079 spiral kicks in. When prices drop and the economy 00:26:41.079 --> 00:26:44.460 is shaky, banks get terrified. They tighten credit 00:26:44.460 --> 00:26:47.180 standards. They stop lending money. So even if 00:26:47.180 --> 00:26:49.400 you are a potential buyer who wants to buy that 00:26:49.400 --> 00:26:52.140 cheap foreclosed home, you can't get a loan. 00:26:52.359 --> 00:26:54.619 So the buyers just vanish from the market. Which 00:26:54.619 --> 00:26:57.660 pushes prices down even further. And this leads 00:26:57.660 --> 00:26:59.980 to the underwater problem. If you bought your 00:26:59.980 --> 00:27:03.799 house for $500 ,000 and its market value drops 00:27:03.799 --> 00:27:07.259 to $300 ,000, you now owe the bank more than 00:27:07.259 --> 00:27:10.079 the house is even worth. Which makes you much 00:27:10.079 --> 00:27:12.180 more likely to just walk away and default on 00:27:12.180 --> 00:27:14.400 the loan, leading to more foreclosures. And the 00:27:14.400 --> 00:27:17.859 spiral spins down and down. It creates that devastating 00:27:17.859 --> 00:27:21.160 boom -bust rebound pattern that we saw in 2008, 00:27:21.380 --> 00:27:24.369 and it harms the wider economy. Because housing 00:27:24.369 --> 00:27:26.490 is the primary collateral for so much of the 00:27:26.490 --> 00:27:29.630 banking system. When housing tanks, it drags 00:27:29.630 --> 00:27:31.549 the banks down, which drags business lending 00:27:31.549 --> 00:27:33.990 down, which kills more jobs. It connects right 00:27:33.990 --> 00:27:35.809 back to that core tension we mentioned at the 00:27:35.809 --> 00:27:39.369 very start. Housing has this dual identity. It's 00:27:39.369 --> 00:27:42.170 a human right. It's shelter. But it's also an 00:27:42.170 --> 00:27:45.230 asset. It's an investment. And those two identities 00:27:45.230 --> 00:27:47.490 are fundamentally at war with each other. Think 00:27:47.490 --> 00:27:49.170 about it. We tell people, buy a home. It's the 00:27:49.170 --> 00:27:51.009 best investment you'll ever make. Right. For 00:27:51.009 --> 00:27:53.289 it to be a good investment, its value has to 00:27:53.289 --> 00:27:55.930 go up, preferably faster than inflation. Of course. 00:27:55.950 --> 00:27:58.529 I want my house to double in value so I can retire 00:27:58.529 --> 00:28:01.359 comfortably. But if your house doubles in value, 00:28:01.539 --> 00:28:03.660 that means the next generation has to pay double 00:28:03.660 --> 00:28:06.480 what you paid to buy it. If housing is a great 00:28:06.480 --> 00:28:09.099 investment for the owner, it is by definition 00:28:09.099 --> 00:28:11.759 becoming unaffordable for the next buyer. You 00:28:11.759 --> 00:28:14.079 can't have affordable housing that is also a 00:28:14.079 --> 00:28:16.299 killer financial asset. You really can't. You 00:28:16.299 --> 00:28:18.460 have to choose. And that is the political paradox 00:28:18.460 --> 00:28:21.119 that no politician wants to admit to voters. 00:28:21.259 --> 00:28:23.359 We have covered an incredible amount of ground 00:28:23.359 --> 00:28:26.519 today. I mean, from the regulatory taxes hidden 00:28:26.519 --> 00:28:30.019 in our zoning codes to the the bipartisan upzoning 00:28:30.019 --> 00:28:32.579 revolution in New Zealand, to the terrifying 00:28:32.579 --> 00:28:35.500 math of these financial spirals. It's a massive 00:28:35.500 --> 00:28:37.839 topic, but you can see how all the threads are 00:28:37.839 --> 00:28:39.700 connected. It's not just one thing. So let's 00:28:39.700 --> 00:28:42.140 try to synthesize this. The housing crisis isn't 00:28:42.140 --> 00:28:44.980 one problem. It's a supply issue, first and foremost, 00:28:45.220 --> 00:28:48.180 largely caused by envyism and restrictive planning. 00:28:48.460 --> 00:28:51.480 It's a cost issue driven by shortages of labor 00:28:51.480 --> 00:28:54.480 and materials. It's a policy trap where well 00:28:54.480 --> 00:28:57.279 -intentioned ideas like rent caps can backfire 00:28:57.279 --> 00:28:59.849 and kill investors. And it's a financial stability 00:28:59.849 --> 00:29:02.369 issue where the whole economy is held hostage 00:29:02.369 --> 00:29:05.190 by the housing market. And it's a universal problem. 00:29:05.450 --> 00:29:08.130 But the takeaway for me is that the solutions 00:29:08.130 --> 00:29:11.430 do exist. This isn't an unsolvable mystery. We 00:29:11.430 --> 00:29:14.650 know what works. We do. Japan shows us that centralized 00:29:14.650 --> 00:29:18.170 buy -right zoning works. Auckland shows us that 00:29:18.170 --> 00:29:21.089 aggressive up -zoning works. The problem isn't 00:29:21.089 --> 00:29:23.569 a lack of knowledge. It's a lack of political 00:29:23.569 --> 00:29:26.180 will. Because the solution requires giving something 00:29:26.180 --> 00:29:28.539 up. Exactly. It requires the people who are already 00:29:28.539 --> 00:29:31.119 inside the castle to give up some of their control. 00:29:31.299 --> 00:29:33.200 And that brings us to the final thought I want 00:29:33.200 --> 00:29:35.599 to leave everyone with today. We spent a lot 00:29:35.599 --> 00:29:39.299 of time comparing the Anglosphere R model with 00:29:39.299 --> 00:29:41.640 the Japanese model. Our model gives us local 00:29:41.640 --> 00:29:44.079 control. It lets us say no to the developer, 00:29:44.240 --> 00:29:46.460 no to the traffic, no to change. It feels democratic. 00:29:46.559 --> 00:29:48.759 It feels like we have a voice. But the cost of 00:29:48.759 --> 00:29:51.500 that control is exclusion. The cost is high prices. 00:29:51.579 --> 00:29:54.740 The cost is an entire generation locked out of 00:29:54.740 --> 00:29:56.599 the stability and wealth creation that our parents 00:29:56.599 --> 00:29:59.240 took for granted. So the question is this. Are 00:29:59.240 --> 00:30:01.960 we culturally prepared to give up that not in 00:30:01.960 --> 00:30:04.740 my backyard power to solve the crisis? Or is 00:30:04.740 --> 00:30:07.660 our desire to control the character of our own 00:30:07.660 --> 00:30:09.980 neighborhood always going to outweigh the collective 00:30:09.980 --> 00:30:12.140 need for everyone to have an affordable place 00:30:12.140 --> 00:30:15.309 to sleep? That is the question. And I think the 00:30:15.309 --> 00:30:18.049 answer will define the next 20 years of our cities 00:30:18.049 --> 00:30:20.529 and maybe our societies. Thanks for diving deep 00:30:20.529 --> 00:30:22.329 with us. My pleasure. See you next time.