PolicyCast: The Future of Housing “In This Economy” 

Kirk Willison, Arch MI’s Vice President for Government and Industry Relations:

There’s a fresh face shaking up the stuffy world of economics and her name is Kyla Scanlon. This whiz-kid is blowing up on TikTok, Instagram, YouTube, LinkedIn and breaking down the money game for all of us mere mortals. From the New York Times to Bloomberg, everyone is buzzing about Kyla’s latest hot takes. Her Substack newsletter, well, let’s just call it a must-read. And her new book, “In This Economy?”, well, it’s like Econ 101 on steroids for the everyman. We snagged Kyla for a chat on why housing is going bonkers. Be sure to watch our next PolicyCast when Kyla and I dive into the property insurance mess that’s giving homeowners nightmares. Trust me, you aren’t going to want to miss these.

Willison:

Kyla Scanlon, welcome to the Arch Mortgage Insurance PolicyCast. I’m really delighted to have you with me today.

Kyla Scanlon:

Oh, thanks for having me.

Willison:

We’re going to do this in in two parts, and this is going to be talking about housing for the most part, and then we’re going to be a little more specific in part two, and that’s going to be talking about homeowners insurance. So, you’ve recently written a book called, “In This Economy? How Money and Markets Really Work.” You’re a prolific writer, really Kyla, on the web, and a podcaster as well. I think it’d be fair to label you as probably the economist for the common man or woman, as you might want to say. What prompted you to write the book and what’s missing from the education of many Americans about economics?

Scanlon:

Yeah, so the book was really an incredible opportunity. I have been creating content on social media for about three years, and coined this word called the “vibecession,” to describe a disconnect between consumer sentiment and economic data, and I wrote a New York Times opinion piece about it, and Penguin Random House approached me, and they were like, “Have you ever thought about writing a book?” And I was like, “Oh, gosh, of course.” Like, that’s the dream, I think. And I wanted the book to be something static that people could go to. One of the problems that we have right now is there’s a lot of information. It’s really tough to sift through all of it, and I wanted to just summarize as best as I could everything that one might need to know about the economy, so inflation, the labor market, housing, fiscal and monetary policy. And that was that goal of the book was to make something that people could return back to and also make it fun. There’s 60 illustrations done by me throughout the book, and that’s why I decided to write it, was to really give people a guidebook.

Willison:

Well,I know you have a chapter specifically related to housing, and since this is a show about housing and housing policy, we’ll get to that in a minute. But first, let’s talk about consumer sentiment, because that drives housing and a whole lot of other things in the economy and you mentioned that you coined that term “vibecession,” meaning that, you know, even with decent economic numbers, people weren’t feeling very good about the economy. Now, you know vibes might be the consummate lagging indicator, and the latest jobs report just came out and not maybe as great as some people had hoped, not as bad as others worried it would be. The Federal Reserve is expected to finally cut rates in the next few days. How might these economic conditions affect consumer vibes as we head into the presidential election?

Scanlon:

Yeah, you do see an uptick in sentiment right now. People are feeling a little bit better. Sentiment pretty much skyrocketed after, you know, current president, Biden dropped, dropped out of the breeze, and Kamala Harris stepped in. So, people definitely are attaching vibes more so to politics than the economy right now, it seems so that that’s good to see that vibes are improving, sentiment is improving, and it seems to be trending in the right direction. But as you stated, we have a lot of uncertainty. We have an election coming up. We have the beginning of a cycle of rate cuts, and that could be really interesting to see how the economy responds to that. Right now, we have more economic questions than answers, but consumers seem relatively upbeat. They seem relatively hopeful, and hopefully we can continue giving them reasons to be upbeat and hopeful.

Willison:

Did you want to take a stab at how big of a cut the Fed might offer?

Scanlon:

Yeah, I think the jobs report that we got today wasn’t as bad as some people were fearing. It seems like things were mostly stabilizing, like obviously we have a deteriorating labor market. In this jobs report, it was just another confirmation of that. So I’m not sure if they’ll do 25 basis points or 50? I think that’s kind of the big question right now, a lot of people think the Fed has been behind the curve, and so they’re like, they shut it on 25 basis points at the last meeting. So therefore, at this meeting they should do 50, I think that it’ll depend on what the Fed thinks is happening. They’re very data-dependent, and they have a lot of data to react to, I think they’ll go slow at first, like I think we will probably see 25 because if they do 50, I think that’ll send alarm bells up across the economy, and it’s probably better to go slower at first than to go full steam ahead. But I’m not sure: You have the Bank of Canada who just cut rates a few days ago, and there’s speculation that they’ll do 50 in their October meeting. So definitely a lot of rate cuts happening.

Willison:

You write a lot about the “housing theory of everything.” What does that mean?

Scanlon:

So that is a term that was coined by the team over at Works in Progress, which is an incredible newsletter. Highly recommend it. And it’s basically this idea that all the problems that we have in society are dependent on housing. You know, our health issues, our issues around loneliness, some of our issues around maybe not getting the job that we want is because we’re not able to get into affordable housing. And so the housing theory of everything is this idea, which I think is completely accurate, where it’s like, if you don’t feel, number one, that you have a strong foundation of a home, like you don’t feel like you’re able to afford rent, you’re struggling month-to-month even to make those payments like you’re probably not going to be able to take on a lot of risk. You’re probably not going to want to explore a lot of opportunities because you’re focused on just affording things. And then I think number two, it really does set a precedent for how we interact and in society. The book “Paved Paradise” by Henry Graber talks a lot about how parking lots kind of dictate how we interact with one another. And I think that’s also the housing theory of everything, right? It’s like how our cities are designed really matters for how we interact with one another. And then just the concept of housing, as you very much know, is, you know, the basis for our economic experience.

Willison:

So, for the first time, I think in my life, the affordability, or perhaps the unaffordability, of housing is among the top three concerns of American voters. From a, from a Gen X perspective, how do you and your cohorts see the problem?

Scanlon:

As a Gen X or a Gen Z?

Willison:

Gen X and Gen Z.

Scanlon:

So, I’m a Gen Z, and so I think that for this cohort that I’m a part of, it’s definitely something that people are worried about. You know, one in four Gen Z do own homes, but 78% of those people got support financially from their parents or somebody else. And so it does feel like the only way that you’re going to be able to afford a home right now is if you do have a little bit of extra financial support, which a lot of people don’t have, and I think a lot of homes are just out of reach for the average American, you know, any demographic at this point, not just Gen Z. And it’s sort of this deterioration of the American dream, too. A lot of people look to the home as both a speculative asset and a place to live. It is kind of the number-one wealth-building tool in the United States. The bottom 50% of their wealth is in their house. And so, I think it feels like this opportunity has been kneecapped for younger generations, and there’s a lot of frustration that comes along with that, like, why would we not have the same opportunity as those before us?

Willison:

And it is interesting that if there’s one issue in American politics that seems to unite both sides of the aisle, it’s that we need to build more homes. But I think if you’ve written it’s easier said than done, right?

Scanlon:

Oh yes, yeah, it’s definitely easier said than done to build more homes. I’ve done a lot of interviews with policymakers about what it looks like to build more houses. Jared Bernstein of the Council of Economic Advisors, Wally Adeyemo of the Deputy Secretary of the Treasury, and they’re like, “yeah, we’re doing everything that we can to build more homes.” But it’s not like you can just go out and just pop up a bunch of them; like, you have to have labor. You have to have supplies. And with inflation, labor costs have risen for building housing. There’s all sorts of issues with sawmills and just having the raw supplies that you need to actually build homes. And then there’s just sort of zoning, as I’m sure your listeners know, that gets in the way, and it makes it very difficult to achieve that goal of housing supply, even though it is the number-one issue that I think most people

are reckoning with.

Let’s get in a little bit, because you referenced it earlier on, some of the inequities that we see in housing today. Certainly racial inequity in housing, you know, a balance. The gap between Black and white homeownership is about 30 percentage points higher. Costs are probably going to exacerbate that situation. You had kind of acknowledged that and proved out a recent Redfin survey showed that of the Millennials and Gen Zers who are looking to buy a home, about a third of them expect to get family financial assistance to do that, probably in the form of a down-payment assistance. My guess is that’s going to be skewed toward families that already have homeownership in their family lineage, and therefore they have a little more wealth to share. So, from an economist standpoint perspective, what do you think the best way to help level the playing field for first-time or first-generation homebuyers might want to be?

Scanlon:

Yes, this is super controversial, because Kamala Harris has put forward her proposals around housing. Some of that is $25,000 for down-payment assistance. And a lot of people don’t like that, because it’s like, well, you’re subsidizing demand, when really, we should focus on supply. I think you need a bit of both. “Noahpinion” has a Substack. His name is, I can’t remember his last name right now, but he writes a Substack, “Noahpinion.” And he talks about how you need to balance both demand and supply. Like you do have to have these subsidies for people to be able to afford a down payment, and you do have to focus on building supply. Jared Bernstein also talked about this in our interview together, where he was like, we can build all the affordable housing in the world, but that doesn’t mean that people are going to be able to afford it, and so I really think that you have to have a balance of the two. Like, even if we build 3 million more houses it’s not automatically going to make the entry point any easier, marginally, absolutely it will. But I think you do need to have a balance of both. And I think some economists agree on that, but it’s true, it’s very controversial.

Willison:

And, yeah, I mean, there’s certainly the early criticism that came of her approach is that it would be inflationary, every home would immediately jump $25,000. I don’t necessarily buy that because we’ve had state-run down-payment assistance programs. There’s been private down payment and you don’t see necessarily any of that reflected as a huge jump in the price of the home.

Scanlon:

Yeah, no, it wouldn’t. There’s a Supreme Court case out of New Jersey, where the NAACP, I believe, was suing Mount Laurel County Township, because Mount Laurel County was like, not building more homes, and they were like, if you build more homes around us, it’s going to reduce the value of our homes. And why would you do that to us as a community? And the Supreme Court case essentially found out that building more homes doesn’t necessarily reduce the value of homes, it just has more homes in that community. So, I think a lot of people kind of conflate the two, where it’s like, “oh, you know, if we build more homes, it’s going to radically reduce all value and totally demolish everybody.” But that’s not the case in a lot of circumstances.

Willison:

I mean that clearly that would just be marginal. Anytime you increase the number of homes, you would have a decrease in the price. And that clearly isn’t the case when you have communities where housing is in demand.

It kind of brings me to that, that question that’s constantly seems to be out there is, is that missing middle in, in housing, homes that fall between, let’s say, large single-family or even medium-sized single-family homes and large apartment complexes. I live in Northern Virginia, Arlington; Virginia, had a ballot proposition last year on this very issue, incredibly controversial. Even though Arlington is probably one of the most liberal communities in America, everyone would tell you that we need more housing, but I guess close to half the people that said “but not here.” What do you think that needs to be done in order to get us through this and build more mixed-use housing?

Scanlon:

Yeah, I think the biggest thing is you do have to kind of convince people that it’s important to build more housing, and it’s difficult because it’s a lot of “not in my backyard,” as you experienced in Arlington. And I think we just kind of have to zone these places where we’re able to build mixed-use housing. I believe it’s 95% of Los Angeles, an extraordinary amount is zoned single-family. So, it’s very difficult to build that missing-middle town homes, duplexes, triplexes, and that’s what we need, we need density, and so I think you just have to do as much zoning reform as you can. But right now, you’re pushing back on human psychology, and that is an incredibly challenging task. So, I’m not sure how you convince people that more housing is necessary, because that’s been the biggest barrier is NIMBYism.

Willison:

it’s “I’ve got mine, and you can get yours. But just not here.”

Scanlon:

Yeah, which is very selfish.

Willison:

We are, though, seeing some jurisdictions take measures to change the density. Minneapolis eliminated single- family-only zones. California, it enacted a law that permits anyone who has a single-family lot to some. Divide that and put up to four units on that, including ADUs. You know, there’s several proposals out there that would give federal block grant aids to communities, if and only if they would eliminate regulations constricting home building. You think those are sufficient to meet demand for new homes?

Scanlon:

I think you got to do everything you can at this point. You know, I think ADUs are important because there is a lot of land in California that is not properly utilized, and if you have a carriage house in the backyard that you should be able to rent it out if you choose to do so. So, I think that kind of stuff really does help, like the housing crisis is definitely on the margins and the more that we can add in these high demand places like California, the easier it is. And Minneapolis has seen great success from reforming their zoning laws, and they’ve seen an increase in housing, and they’ve done a lot of things right in Minneapolis, and I think they’re a good city to learn from. I think you can also look at Austin, Texas, which reformed their zoning, and they’ve built a bunch of new apartments, and that has helped rents go down. And then Burlington, Vermont, has done something similar, where reforming zoning will soon enable more building. And so, there are clear examples of this working, and we just have to figure out how to apply it on scale.

Willison:

It’s a challenge, though, that’s going to be with us for a while, because it’s not like making widgets to go through the permitting process and the construction process, it takes such a long period of time.

Scanlon:

Yeah, and I spoke with Wally Adeyemo of the U.S. Treasury about this, because the Treasury actually has their own housing policy. That’s how tough this stuff has become, and one of the policies that they’ve proposed and worked on is reducing that bureaucratic red tape, like there is so much bureaucracy around building housing, and it makes it really difficult, because it gets very confusing with all the different credit lines and all the different suppliers. And they are like, “Okay, we’re going to simplify things as much as possible so people can get out there and build,” and so I think stuff like that is also going to go a long way, like, don’t make it such a such a headache to build more homes.

Willison:

But of course, the real problem on a lot of that, and that was identified back just when the first Trump administration was leaving office, they filed a report on eliminating regulations that were preventing the construction of affordable homes, and then the Biden administration came out with its housing supply plan. Very soon afterward, they both said essentially the same thing, that land use restrictions and other regulations were keeping homes from being built, but so much of that is done at the state and local level.

Scanlon:

Yeah, and that’s kind of tough part, is there is that sort of push-and-pull between the federal government and state and local governments right now, where you can have the best housing supply plan in the world, but you know, state and local governments have to be on the same page. And there’s definitely a lot of them that are not, and like New York City, for example, and I think that that is something that’s really tough. And it’s just this kind of the structure of the United States. Like we’re gonna have to figure out how to manage that too. Because the states that are not building housing are the states that really do need to.

Willison:

And you know, one of the other real barriers from a pure political standpoint, is the people who would like to move into a community don’t live there now and therefore don’t have any voting voice in trying to persuade the existing city councils or county supervisors to change their land use laws. Instead, those folks are beholden to the current residents of that area who may be completely opposed to it.

Scanlon:

Oh, yes. And I think most of the time they are opposed to it. Like I don’t think you ever see a community really rally around building more housing, unfortunately,

Willison:

Final question for part one here. If you were invited into the Oval Office by the next President to help solve the housing crisis. What are some words of advice you would offer?

Scanlon:

I probably would not be the right person to tap for that job. But I mean, I think the biggest thing is, like the missing middle is what I see a lot of housing experts talk about, you really do have to have very creative uses of land. You have to have density, you have to focus on building all different types of housing. And I think mixed-use zoning is also an incredible thing to focus on. You know, how do we sort of redesign our cities to make them more people-centric? And mixed-use zoning, missing-middle housing are going to be two things that will help eliminate sprawl and also build the cities to be denser, hopefully more resilient. And that would be what I would focus on telling them is, “hey, other people are saying that mixed-use zoning and missing-middle housing are good things to work on.”

Willison:

Kyla Scanlon, thank you very much for the time. We look forward to talking to you about the homeowners insurance crisis in our next episode.

Scanlon:

Yeah, looking forward to it.