The Biggest Economic and Social Issue Of America: Young People Need To Be Able To Afford Homes -Action Economics

I recently witnessed this clip of Tucker Carlson talking about the single biggest issue in society, and he pinpointed that the measure of society should be “can young people afford homes”. This is something that is often talked about, but rarely as the most important issue to our country. Regardless of how you feel about Tucker Carlson, he is right. THIS IS the most important issue…and we are failing miserably at it.

Why Is This The Most Important Issue:

Stability: Uncertainty is terrible for decision making. Being a renter ensures that there is uncertainty. The owner could decide they don’t want to rent the unit anymore. The owner could sell it to someone else who may want to live in it…or tear it down. Rent prices can increase.

Ownership mentality: When people own a home they see themselves as invested in their community and their country to a greater degree. They have much more autonomy than renters. Being able to make decisions and execute on them from painting a room, to having a pet, to building a deck are all tasks that give and reinforce autonomy. We need a nation of invested owners.

Family formation: Forming a family: IE having children, is much easier to do in a home of your own. Once again, we have a need for stability, especially when having children. Children need a yard to play in. Having children is the #1 trend we need to change in our country and we can not fix the birth rate crisis without first fixing the housing crisis.

This is why I made it my goal to ensure all of my kids become home owners on a fast track schedule. My oldest bought his first home at 20 two years ago.

The Situation:

Home ownership for young people has become much more difficult over the last 20 years, and to a much greater degree over the last 5 years. Why?

We got rid of the entire “subprime market” following the 2008 housing crisis. Essentially, unless you have perfect credit and 2 years of stable job history, you can not buy a home.

We didn’t build enough houses for 45 years. I’ve written about this before. In the 1980s we stopped building small multifamily housing largely due to widespread adoption of local ordinances banning it. We completely stopped building housing in 2008, and that was following years of declining new housing stock. During the same 45 year period our population also increased drastically.

We decreased the number of people per housing unit: This is rarely talked about. Between fewer marriages, more divorces, and more old folks living alone, the # of people per housing unit has dropped considerably, meaning we need more total housing units and those that do exist have increased in price.

The cost of money: The federal reserve kept rates artificially low for a decade, then had the fastest increase in rates since we went off the gold standard. Interest rates for buying a home skyrocketed from 3% to 7.5%. This makes the same house at the same price with a $200,000 mortgage go from $843 per month to $1,398 per month, making the income required go from $2,529/mo to $4,194.

Income: Incomes, especially on the lower level have not increased to remotely keep up with housing.

Increased debt: Young people increasingly have student loan debt and car debt. Some of this is of course personal choices, however as a society we have brainwashed children into believing that they need to go to college and then made college extremely unaffordable while also issuing blanket loans regardless of degree path and job opportunities from that degree.

What Can We Do?

The first part of the equation to tackle is mathematics and policy. This set of actions will greatly increase the affordability of homes for young people:

Repeal the drastic over corrections following the 2008 financial crisis: In the aftermath of the 2008 crash we greatly increased the restrictions on mortgages and took away the profit incentive of lenders to make loans to the subprime market. What happened was the subprime market was completely eliminated. You CAN”T get a home unless you have really good credit, 2+ years of consistent job history, and a decent down payment. Lenders also were allowed to charge more for the origination of these loans that they deemed were riskier. Now they are unable to do that. It is much better for a home buyer to pay an additional $5,000 in closing costs (that can often be rolled into the loan and paid over 30 years) than to not be able to buy a home at all. By opening up the subprime mortgages again we will greatly increase home ownership rates. If an 18 year old has a job for 6 months, has $3,000 in cash, and earns $2,000 a month, then he or she should be able to buy a $100,000 home.
Change habitability requirements for conforming loans: It certainly makes sense that a house must be habitable to be able to get a loan, but the definitions used are far too stringent. People should be able to buy fixer uppers with conforming FHA loans. FHA essentially requires the house to be in perfect condition to be purchased.
Nationwide ban on zoning restrictions: This ban would essentially state that in America if you own the land, you are allowed to put housing on it. Period. You are allowed to put multifamily housing on any land you own. You are allowed to put mobile homes on land. Mobile homes parks can not be banned by municipalities. You are allowed to turn “commercial space” into residential space.
“Express loans for homes under $100,000”. This would largely increase home ownership in neighborhoods that have declined over time. Places like my own Benton Harbor, MI where there are livable homes that come up for sale for under $100,000. For homes under $100,000 that will be owner occupied underwriting would be simplified and the process reduced to 2 weeks from the roughly 5 weeks it takes now. These “lightning loans” would allow for owner occupant buyers to better compete with cash offers. You can sign and drive away a $70,000 truck with no money down as long as you have a paystub and a drivers license. Homes should be able to be financed in a similar way.
Nationally remove barriers on seller financed properties. In Michigan there is a maximum interest rate that can be charged on owner financed properties of 11%. Especially when mortgage rates on the open market for prime loans are at 8%, this does not allow for compensation for the risk involved in seller financing, therefore very few people seller finance and will opt to keep properties as rentals instead, or sell to a qualified repeat buyer.
Fire Jerome Powell. The Federal Reserve should not exist at all. In the confines that it does exist and does determine the price of money for our country, the FED has done a terrible job. For a decade it kept rates artificially low causing inflation, then they jacked up rates the fastest since we went off the gold standard, and have kept them artificially high despite low inflation. It isn’t just rates being high that caused the problem, it was how fast rates increased. Rates tripled in under a year. There are millions of homes with 3% interest rates. People who would normally sell their homes and upgrade are not selling because they would be trading 3% debt for 7.5% debt. This has led to a massive decrease in homes available to purchase. Jerome Powell is absolutely making the wrong moves. We need a 300 basis point reduction immediately.
By that same token, the federal government could make all contracts that make loans “due on sale” non enforceable, similar to the actions being taken to make non compete agreements non enforceable. This would allow home sellers to sell their properties and the buyers to assume their existing financing. This would immediately open up the floodgates for buyers and sellers, regardless of what the federal reserve does. When Jim decides to sell the home he has lived in for the past 5 years to Susan for $300,000, she can assume his existing 3% mortgage with 25 years remaining and a $240,000 balance, and then she can pay Jim the $60,000 remaining amount in cash or get a 2nd loan for the difference.
Continue with self deportations and mass deportations: The removal of millions of people who are not supposed to be in our country will free up housing units, and many housing units on the lower end of the housing spectrum. This decrease in demand will lead to a lowering of prices.

Now we have the actual supply side of building housing:

We as a country built too little housing for the last 40 years. We need to incentivize the building of housing to make up for this. Part of the problem is that you can’t build affordable housing. Housing is built and overtime it becomes affordable. The affordable housing we are lacking is the houses that should have been built in the 80s and 90s and 2000s that wasn’t.

So how can we make incentives to put more housing on the market?

Taxes on House Flipping:

Eliminate taxes on short term capital gains for housing units up to 4plexes IF they were unoccupied/derelict and are sold to owner occupants. This would include commercial spaces turned into housing units. This will provide a major incentive to turn around neglected buildings and put them back to economic use. If eliminating the taxes on capital gains is too big a step, at least for this category of housing charge the long term rate for short term gains.

Encourage Residential/ Multifamily Use: The first actions should be to turn properties that already exist into usable housing. Provide tax incentives for people to turn existing commercial spaces into residential spaces, while federally blocking all ordinances that prohibit this. The roofs, foundations, walls, electricity, and plumbing already exist. It is FAR cheaper to convert than to build from the ground up…and quicker too, provided government isn’t in the way.

Duplex Incentive:

Many houses can be turned into Duplexes relatively easily. Once again, we need to eliminate the local government’s ability to regulate this. Turning a single family home into a duplex greatly increases home affordability, because now the buyer can use the projected rental income to help qualify for the loan. Here’s an example:

The single family house is a 4 bedroom 2 bath worth roughly $200,000. To qualify at the current 7.5% interest rates a buyer would need to earn around $4,500 per month if they had no other debts, accounting for $1,356 payment being 30% of their income. Now if the property becomes a duplex with two 2 bed 1 bath units, then the rental income offsets the income requirements. The 2 bedroom unit could rent at market rate for $900/mo. The bank will give a 75% credit for this, so this income can count for $675 of the mortgage payment. Now the buyer only needs to qualify for a $681 payment. This now requires an income of just $2,270, less than HALF what was needed to own the same property before.

In the future when they feel they don’t need to income any more they can turn it back to a single unit.

This unit separation can often be done for only a couple thousand dollars, just some 2X4s, drywall and paint. Utilities don’t need to be separated, they can be included in the rent, which is relatively common with duplexes.

Here’s the incentive: IF you convert a home into a duplex, and sell to an owner occupant, you will received a $20,000 tax credit. This should more than cover the cost of the conversion and is an amazing ROI for the government to spend $20,000 to increase home ownership for lower income people AND to add a rental unit onto the market. Does this seem like to much? To put this in perspective the Feds are giving the city of Benton Harbor over $237,000 PER UNIT to renovate existing low income housing units, in an area where single family houses in livable condition routinely sell for around $75,000.

New Construction:

New construction is the last line of defense, because we must rely on trickle down economics for it to work. The new construction houses won’t be affordable, BUT because new units are added to the market the pricing of the market should fall.

The incentives for new housing should be focused on the affordability of projects. The Benton Harbor project at Buss avenue is a great example of what not to do. No new units will be created, yet $32 million will be spent. Rather than completely paying for projects the federal and state governments should provide tax incentives and regulatory incentives to developers directly.

Tax incentives such as a reduced capital gains tax rate for new construction that met certain affordability requirements would be the best action. Couple this with nationwide repeals of red tape put onto building at the federal, state, and local levels.

Federal Govt lot sales:

The most affordable new construction homes are mobile homes. Mobile home parks are not very affordable because private equity has bought up most of the parks in the country and jacked up the rates, knowing the residents can’t go anywhere else because virtually all municipalities have banned new mobile home parks from being built.

The solution is mobile homes on land. The vast majority of the time these are set up by an individual doing a single lot and it is a major headache and a large cost because everything is a “one off” for installing a septic system, a well, a foundation and electrical access.

What I would propose is that the federal government takes segments of land it already owns, using equipment it owns, and people under its control that it is already paying (US National Guard for instance) to set up these lots in large areas.

They grid out a section of land into quarter acre lots, they have a crew constantly drilling wells, another installing septics, another foundations, and another setting up the electric meter boxes.

The Feds then turn around and sell these lots to home buyers who purchase their own mobile home to put on the lot. Because the mobile home will be on a permanent lot it qualifies for an FHA loan. The fed sells the lots for $25,000 a piece and a new 3 bed 2 bath mobile home costs $65,000. For $80,000 A first time home buyers can buy a new house. Repeat a couple million times.

This can be done at the state level as well. MDOT and the DNR own tons of land that can be turned into housing lots for mobile homes.

Culture:

Our culture is another major problem. We have to address the occupants per housing unit trend. 50 years ago it was 3.5 today it is 2.5. There are 3 major areas of concern:

Young adults moving out and living alone: The idea that kids need to move out upon graduating high school or turning 18 is absolute insanity. It also economically only made sense for about a 40 year period directly after World War 2. We built a ton of economical housing directly following the war, so much so that there was an oversupply of housing AND the regulatory environment was highly favorable to building and converting units. Jobs paid a lot more in terms of purchasing power parity, especially on the low end, largely due to the war. The US was largely unscathed with manufacturing ramped up to supply the world, and Europe and Japan were largely destroyed. There was a roughly 35 year period following the war where it made sense to move out at 18. Housing was dirt cheap and entry level jobs for older teens paid well. That has not been the case for at least the last quarter century. We need to have our kids live at home for a couple years to save up cash. They should be saving 50%+ of their income while living at home. This will give them an amazing start in life, greatly reduce the demand for housing, AND put them closer in time to marrying so that these 2 people will be in individual housing units for less total time.

Increased divorce: Our culture has made getting divorced more common and more socially acceptable over time. When a couple divorces now they are using more total housing and far more people are single occupants in homes designed for 4+ people. I don’t have the actual solutions for this, but tax incentives and social welfare incentives are a large part of the overall long term decline in marriage.

Older Americans living alone: The numbers on this shock me. A third of Americans over the age of 65 live alone. We need to normalize room mates. We need to normalize living at home for a few years after high school. We need to normalize living like “The Golden Girls” to greatly save on housing expenses. Not only does having a room mate of 2 greatly reduce housing expenses for each person, it also helps increase the human contact people have, as our society has become more and more disconnected.

Jobs:

This one is much more difficult. We STILL have an oversupply of labor. This is largely due to Baby Boomers not retiring and to the massive immigration we have. Now we have AI on the cusp of eliminating massive sectors of the economy. There needs to be a strong focus on the job market. The current tariff policy seems to be effective in bringing manufacturers back to the US.

Sound Money:

We HAVE to have sound money. Go back to the gold standard today. Peg an ounce of gold to the dollar and end the FEDs ability to print money. I talked about how the period of time from 1945 to 1970 was fantastic for launching and owning homes early in life…a major factor to that was also that the dollar was still backed by gold. Yes, the feds confiscated all the gold under FDR but the dollar was still pegged to gold at $35/oz. The government couldn’t inflate away our money until the dollar was fully decoupled from gold by Nixon in 1971

What do you think?

What actions do we as a society need to take to make homes more affordable?