Now that the weather is nice I've been hitting the Atlanta Beltline more often, a long walking/biking trail that generally encircles the city. Parts of the trail pass by these older Atlanta neighborhoods, with classic and beautiful architectures of decades past. I'm struck by how beautiful some of these homes are, within very reasonable sizes and lots.
Maybe its a consequence of being involved in real estate for so long, albeit on the commercial end, but for the better part of 20 years I'm just struck at how homes just aren't built the way they used to. Something is clearly being lost.
The best question is "why?".
The cost of housing is a never ending storyline in the news, and for anyone attempting to purchase a home for the past five years, its a clear pain point. The answer, it seems from everyone, is to build more homes.
Yet...there are never quite enough.
And when they are built, I can't think of a better adjective than...cheap.
Their prices certainly don't suggest this, yet my argument is that it seems that the value that should be going to the home itself, from design, materials and care, has over the years being siphoned off by unproductive and wasteful measures.
My mental framing for this is to consider that value directed towards the end product of home is finite. As the value proceeds down the track toward the finished product, relative to previous decades, there are more and more stops along the way taking a cut that do not contribute to the end product. This is especially true for the rent seekers, so to speak, in local governments.
By the time the remaining value makes its way into the actual home, its insufficient to create anything of substance.
I would argue that regulations in all faucets of the production line, from financing, building codes, permits, environmental studies, classic NIMBYism (not in my back yard) etc., were all put in place by self-interested parties with the expressed aim of making homes better, while in my view only starved the capital needed to do so.
Peter Thiel, in a recent speech at Harvard, brought up a very interesting point that seems to be at the root of many of the ill effects in housing:
Speaking of larger cities, he indicated real estate has a price inelasticity of -2.00, which means that if you increase the supply by +1.00%, the average price goes down by -2.00%. This means that the more housing you build, the less it is collectively worth, and now we may be experiencing this phenomenon and all of its negative consequences, at scale.
In my view, this is exacerbated by the fact that so many Americans have much of their net worth in housing. So, if new supply entering your neighborhood directly negatively affects your most valuable asset, its easier to see the consequences of this economic phenomena.
I would argue this siphons value away from new construction by an incentive to create more onerous regulatory standards to protect your own investments. Its regulatory capture by another means. It also pervades the news covering housing, as nearly perfectly encapsulated by a recent WSJ article in which declining rental rates and home prices (a good thing in my view) is presented as a negative.
Housing prices in Austin went up 60% from 2020 to 2022 and now that things become slightly more affordable for a typical resident, its welcomed by the WSJ with photoshopped darkened pictures and empty stores.
This is also not a defense of the home builders today either, I've had enough experience with them to know they have other incentives to quickly throw together the cheapest homes packed onto the smallest lots possible. I sense they are just a manifestation of these incentives over the past 20-30 years.
2008 certainly threw a wrench into things, as the housing supply virtually froze after the cancerous incentives of mortgage-backed securities et al leading up to the GFC. The reaction to this by governments and regulators only increased the costs and siphoned more value away from the process of home building.
Its certainly a complex issue, but in some sense its simple. When you have finite resources, and a significant share of those resources are used for things that never find their way to a living room, there are less available to make beautiful things.
Less money for artful expression through architecture and more to your county commissioner.
What used to be brick is now plywood.
Hollow core doors.
Vinyl instead of stone.
There are many other things culturally that contribute to this problem; an increase in transience that lends the home buying process to a once in every three year experience. Maybe people just don't care.
Yet when I look at a beautifully crafted home, I can't help but to care.
So in that sense it will all start with me, and maybe not caring about the monetary value of my home after its built, to use it and enjoy it for what it is, rather than what the next person will pay me for it is a start.
Maybe its valuing beauty instead.
Will