DEBATE: Chuck Marohn & Nolan Gray - Strong Towns & YIMBY Approach to the Housing Crisis

Austin Tunnell

Like the prices are the prices today and they're high because that's what it costs to build a house. I think kind of misunderstands the entire supply chain of what it takes to actually build a house. We have to remain focused on how this is interacting with the supply and demand that ultimately is sort of underwriting the housing affordability issues. If we have a shortage and housing is a good investment, it will become further and further financialized and out of reach of normal working people.

Austin Tunnell

Welcome to the Building Culture podcast, where we explore holistic solutions to crafting a more beautiful, resilient and thriving world through the built environment. I'm your host, Austin Tennell. I interview leading change makers, architects, developers, builders, engineers, entrepreneurs, inventors and more. I also share my own journey as the founder of Building Culture as we grow a holistic real estate development company from the ground up. Together, we can explore a new vision for city building in the 21st century. one that puts people at the center. If you enjoy this podcast or find value in what we're doing, please leave a five-star review, share it with your friends, and drop us a note. Thanks for listening. I want to take a moment to thank the sponsors of our podcast, Sierra Pacific Windows. They are a national window and door manufacturer, some really high-quality windows and doors. We use them regularly in our building culture projects. So if you've got a renovation or new construction, I highly recommend you talk to your local distributor and check them out. Also, OneSource windows and doors. doesn't just matter the manufacturer, it matters who you're buying your windows from. And if you're in the state of Oklahoma, OneSource windows and doors, they've got a showroom in Oklahoma city and in Tulsa, and they service the entire state. We work with them regularly to purchase our Sierra Pacific windows. So if you're in the state of Oklahoma, Check them out. Sierra Pacific windows and one source of windows and doors. If you're in the state of Oklahoma, I've got a really cool episode to share with you guys today. About a, about a month ago on Twitter, I saw Chuck Morrone and Nolan Gray having a debate. And for anyone who doesn't know Chuck Morrone, founder of strong towns and author of, well, strong towns, confessions of a recovering engineer and the most recent one escaping the housing trap recommend all of them and Nolan Gray. president of the California Yimby movement and author of Arbitrary Lines, which is another great book. So these two authors and really prominent figures in the New Urbanist community and then just the, you know, making our towns and cities and neighborhoods better community were having a pretty intense argument. And I was surprised because I would assume, I assumed they would agree on most stuff.

Austin Tunnell

And so I actually asked them, said, Hey, would you like to come on the podcast and have a debate about these things? And amazingly, they both said yes. So here's that episode. Very excited to share it with you. Here we go. Gentlemen. I am very excited to have you both on the podcast today. Thanks for joining me. Thanks for having me. Hey, very nice to be here. Yep. So Chuck Nolan, let's start with you, Chuck. Chuck, could you give us before we jump in and have a little mini debate here, Chuck, could you give, you know, like a 62nd background of you and Strong Towns and the work that you guys have been up to. Sure. My name is Chuck Marrone. I'm the founder and president of a nonprofit organization called Strong Towns. I started writing a blog in 2008 after working as an engineer and a planner for 15 plus years. And I started writing about why cities were going broke, why we were struggling financially, why a lot of the projects that I had worked on were resulting in cities. getting more prosperous, becoming stronger. That blog has grown into an international movement of people. The organization Strong Towns is set up to support that. We still do a lot of content. We also do a lot of work with groups around North America, increasingly around, even beyond that. We've got over 5,000 members, people who contribute to... our organization, both financially and in content and in doing work on the ground. And we're trying to make cities financially strong and resilient from the bottom up, focusing on what can we do together in a place, in a community with the tools we've got and the stuff we have on hand to make a big difference today. That's our core focus. Thanks, Jack. Nolan, you mind giving the 60 second background on you? And what you guys are up to at Yimbi? Yeah, totally. So I'm Nolan Gray. I'm the senior director of legislation and research at an organization called California Yimbi. That's yes in my backyard. As you probably might have guessed, our mission is to do battle with the NIMBIs and build the housing that our country so desperately needs. We believe that most of America is in a housing affordability crisis in part because we simply haven't been building enough housing and especially haven't been building enough housing in existing urban areas.

Austin Tunnell

near transit, near job centers where folks can live car light or car free. So do a lot of work there. Before this, I'm continuing to work on a PhD in city planning at UCLA. I was a city planner in New York City, AICP for whatever it's worth. And yeah, just happy to be here. Looking forward to the conversation. Well, great. I admire both of your guys' work and both prominent players and whatever you want to call it. The New Urbanist Movement and... even outside of that, suppose, but just an active housing policy. And what I love is actually doing things about it out there doing real work, not just talking about it. So I'm excited to have you guys on. And I'm going to start with what caught my attention and why I asked you guys on here together, which was a couple months ago on Twitter, hearing a little bit of battle between strong towns and Yenby. And it took me by surprise when I thought about it, I'm kind of like, think I understand it more, but going, I actually figure I was surprised you guys were on opposite sides. Because I think there probably is a lot you agree on between the strong towns and Yimby movement. But then there also are things that perhaps you guys disagree on and the movements disagree on. And so I'd like to kind of dive into some of that. So I'm going to start by reading. a little bit of the tweet and it's slightly incendiary and we all know what Twitter is like and these are not intended to be ad hominem attacks. I think these are attacking ideas. think everyone here, all three of us are very passionate about what we do and passionate about the movement. So keep in mind this is Twitter and- I think this is, you're triggering me about my ruined Labor Day weekend. So go ahead. That's funny. It is funny because I'm like, Chuck, know you're just such a very kind and nice person too. It was fun to see you get passionate. Thank you. Okay. But I'm going to start off with Chuck's, some of his points here and a couple of responses and I'll let you guys respond. Chuck started off with, it is painfully clear the blind spot in the Yimby conversation is finance. Financialization is a black hole to most Yimbys. Instead of observing the warping effects of its gravity, they aggressively insist it doesn't exist or has no impact. That strains credibility.

Austin Tunnell

There can be a housing shortage and widespread occupancy fraud. There can be a housing shortage and multifamily real estate fraud. There can be a housing shortage and hedge funds that are buying properties at scale. There could be a housing shortage and investors can have an incentive to leave property vacant. There can be a housing shortage and a bubble in Airbnb purchases. There could be a housing shortage and a run on second homes as luxury, good and investment properties. Why are these truths threatening to you, yumbies? Why is your narrative so fragile that it can't withstand what most of America observes reality? I can answer the question when yimbies have only one solution, build, they can only tolerate one problem. It must be demand, period, all stop, because the only strategy they entertain is supply, period, all stop. It's simple messaging, sure, but because it's undermined by reality, it will ultimately not get us to abundant and affordable housing. won't. Nolan's response. Yenbys have helped to pass 65 bills in 20 states in the past 12 months alone, putting in the work to actually end bad policies like parking mandates and apartment bans. It isn't just a top shop like so many, proceeding urbanist movements. Chuck, bravo, keep going. I'm sure I agree with you or I'm sympathetic to most of those bills elsewhere. Chuck mentioned, I'm pretty sure I probably agree with 90 % of what that is. Nolan responds just a couple more. And yet you call Yenbys, unserious and thoughtless and push supply denialism, housing bubble theories. Chuck, I hear this from you and others that looking at other causes can't be right because it gives aid and comfort to those you see as opponents. I don't think that is serious analysis. I think it is motivated reasoning. quoting Chuck, the US is in a massive housing bubble fueled by widespread fraud. This is not how I would characterize what I believe to be a minor variable contributing to a shortage. And lastly, Chuck, I'm also not saying it's minor variable. I've said over and over and over that there is an underlying shortage that financialization is spiking. I said that a decade ago, I said it year after year. I'm saying it again. Okay. So that's, that's a lot. And I'd be curious first of all, to hear, Chuck hearing that back, what's your initial response to that?

Austin Tunnell

I will say this, and I think I said something to Nolan in a private message too. I think that for me, as you're reading that, I'm having flashbacks to like, because Labor Day weekend is my wife's birthday, I'm tweeting while I'm trying to also be present for my family. I'm like, this is really bad. As you're reading that back, I'm getting these flashbacks. I feel like in that initial tweet, I went... a step too far. I was really good with everything that you read that I said up until the very end. I do think that I have been guilty to a degree. I feel like since this weekend, I've had a lot of people who I consider really thoughtful, really kind step forward and say, I think you're confusing the California yimby conversation, the California conversation with the general broader yimby movement. I actually think that is a really fair critique. of my critique. When I was listening to you, I'm like, that, went a step too far because there's a lot of really good work going on. I maybe want to emphasize one thing and then I'll stop and let Nolan chat. I do think that there is a Venn diagram of overlap between strong towns and the Yimby conversation. I think that overlap is about 95%. What we are really debating is that 5%, 10%. And I don't think that that is in like an actionable way when we get out on the street and like people are talking and they're meeting. That is not something that should prevent us from either understanding each other or working together or finding common cause. I think it does in a setting like this where I think we can delve into the nuance. I do think that it does set up some places of disagreement and some places of really strategy disagreement. But ultimately at end of the day, I will emphasize what I emphasize in that one tweet is that we all want to see lots of housing built. We all think that the world would be better off with a lot more housing. And I think how we get there is a question open to debate. But none of the real work that I've seen YIMBY organizations do around the country of loosening up zoning codes, changing building codes, make it easier to get housing permitted, very little of that I would call into question to any degree. It's all really, really helpful work.

Austin Tunnell

Yeah, first off, you know, we're all on Twitter and I've had things that I look back and like, yeah, I got too intense and something. So I didn't read that to try to, you know, stir up drama more just to, to frame the conversation. And, and, and also I agree that I think probably it's like tons of overlap, whether that's 90%. And we're really talking about that five or 10 % with that, which I think is pretty interesting to start getting into. So Nolan. you know, seeing that and seeing that some of the points that Chuck's bringing up, namely financialization here and that being an aspect, because I think we agree like zoning has to be fixed. Parking mandates has to be fixed. don't think, I don't think anyone disagrees with that here. You can let me know if you do. But when, Chuck starts bringing up financialization and saying, you know, the Yimby movement is really missing this piece. Would you agree with that? Would you disagree with that? How would you respond to that? Yeah, so I mean, I'll just start by saying I think having a Twitter argument read to me was the least fun I've had on a Zoom call since I was deposed. So thank you for that, Austin. Look, and I'll also start off too with an olive branch here. I totally agree with Chuck. I think there's about 95 % overlap, which is why I think when there is a big argument, it gets even more sort of caustic. It's almost like an argument among siblings, right? Whereas, you know, if we were radically different movements, I don't think there would actually be anything interesting to argue about. I was a Strong Towns member for probably close to a decade. in fact, Chuck's writing was one of the reasons that I got back into this policy area. I read Jane Jacobs in high school, and then I learned about the broader planning world. And I was like, this is totally not interesting. And then I heard Chuck on Econ Talk. And I was like, wow, this is really interesting, thoughtful work about cities. So I don't know if Chuck regrets doing that podcast, given some of the arguments we've had. No, I'm so grateful. I'll just say, I think there's a lot of overlap. think where folks on my side get upset, and I will be the first to say that Yimbies get a little overexcited and aggressive on Twitter, is that we often occasionally see financialization arguments offered as an alternative theory for why we're in a housing crisis. And you see this most acutely with some of the rhetoric

Austin Tunnell

It's actually kind of bipartisan, but some of the rhetoric on the far right and the far left of the far right's blaming immigrants bidding up housing, but also blaming investors for coming in. I don't doubt that investors coming in is complicating that Airbnb is a major factor in certain places, especially in a place like Charleston, South Carolina or New Orleans. But I think that one of the concerns is that this focus on financialization takes away from the supply focus. And now that's not to say that There doesn't need to be any conversation around that. But I think the fundamental reason why rents and home prices are going up is that there's simply a mismatch between supply and demand. I think we agree on that. I think it's a matter of what's being emphasized in the conversation that can get us tied up in the knots. Chuck, would you agree with that, that, you know, really the primary issue is a supply side or would you kind of push back or add some nuance there about financialization? playing a role and whether that's investors buying up stuff or government policy subsidizing finance. This is where we get in. Daniel Herrigus and I get into in the book the whole concept of the housing trap. The idea of the housing trap is not that, you know, we woke up one day and all of a sudden financialization. What we did is we tried to solve a series of problems related to housing. as we were going along, doing some things that at the time, at each step of the way, felt very logical and very sensible. But ultimately have put us into a position where the way we financed housing, the way we actually go about building, financing, funding, allowing families to buy homes, allowing individuals to buy homes, the way we actually do this has contributed or is part of the thing that is choking off the overall supply. Now, if we fix zoning, would that help? Absolutely. If we fix building codes, would that help? Without a doubt. Those two things would be huge benefits overall to helping us get further down towards a more supply and demand based system, a system where we are actually experiencing abundant housing at affordable prices. The challenge

Austin Tunnell

is that trying to do it with the existing financial tools that we have, trying to do it with the existing financial structure that we have, has created a feedback loop where prices can only go up. The way we try to solve the problems today is we try to make it easier for people to spend more money on the same house. We try to make it easier for people to borrow more money to pay more for the same house. And without kind of a corresponding conversation around finance and around the way we finance products, particularly the entry level products, products needed to get people into shelter. We are just going deeper and deeper into a system that is driving up, that like the feature of it, not the flaw, the feature of it is that it drives up prices. Right now, the innovation that's being proposed in the financial system to address housing is a 40 year mortgage. The idea that, you We used to have three to five year mortgages, and we had 12 year mortgages, and 15, and then 20 year, and the 30 year mortgage. Now we need to have a 40 year mortgage to take that payment that people can afford and spread it out over a longer period of time to allow them to pay more for a house. That may help a few people. That may help some people on the margins. It's not going to do anything to lower home prices. If anything, it will solidify higher prices. And so ultimately, we need to have a conversation about housing regulation. We also need to have a conversation about housing finance and those things need to be centered around how we get those entry level units built. know, on the finance, you know, one of the other proposals in addition to 40 year mortgage is you hear, think even recently in the most, this election, 20, $25,000 down payment assistance, which I would consider really a demand size subsidy, which for me, and from my perspective really is not helpful because the problem is not demand. And it kind of goes back to Chuck, your point of. helping people pay more for the same housing. I'm wondering for anyone listening, Chuck, if you could, I don't know how quickly you can do this, but could you give a brief history of the financialization of housing? I think you really start with the GI Bill in the housing crisis. And I don't know, if that takes 10 minutes, you can try to kind of give that condensed version, but just so everyone knows what we're talking about, because I think it's really easy to.

Austin Tunnell

gloss over that and people don't really know what we mean because reading that book and even some of the specifics was very eye opening to me. Even for example, hey, guess what? The 2008 financial crisis was not just greedy banks. Now, I'm not saying, or I don't think you were saying there wasn't greed, but there was a lot of things leading up to that through public policy that really laid the foundation for that. Yeah. I feel like you're asking me to summarize 150 pages of books in 30 seconds. Let me try to do this. When we entered the Great Depression, what you had was housing that was local, was abundant, was cheap, and was of low quality. The housing crisis at the time of the Great Depression or entering the Great Depression was that we had lots and lots of housing. People could afford it, but it was really, really poor quality. As we went into the Great Depression, What we saw was that housing prices started to fall and people who had these short-term local products were losing their house. They would have to roll them over periodically and when they did, they would have to come up with large amounts of cash. They couldn't do that. They were losing their homes. FDR, the New Deal, the Roosevelt administration came in, stabilized the housing market by basically saying to local banks, We need to spread these payments out over a longer period of time. We need to have lower down payments. We need to make it easier for people to get into housing and stay in their house. And in doing so, the federal government, in a sense, said to local banks, we got your back. Make these loans that you wouldn't normally make. If you make them in this way, we will buy them for you if you ever need the liquidity. We will take care of you. But go ahead and put these systems into place so we can stop this deflationary spiral of housing prices. At the end of World War II, the economists in the country were really freaked out. We were demobilizing all these troops. We were shutting down all these industries. There was a fear that we were going to go right back into the depths of the Great Depression. We know from hindsight that that's not what happened. What happened is we started this decades-long building a new version of America experiment. We built highways. We built infrastructure. We subsidized commercial businesses, and we subsidized to a large degree housing, suburban housing.

Austin Tunnell

build, build, build more and more and more. We look nostalgically on this period of time as a period of time where we created a middle class, the country grew, we lowered our jet to GDP ratio, private sector boomed. It was this amazing period of time. And often when we tell the story of American success, we start somewhere in this timeframe, right? When we look at it, at the end of the 60s and then from that point on through a 60s, series of bubbles. We experienced this kind of inflationary bank tightening. When interest rates go up, mortgages, especially long-term mortgages, become really bad financial products. Banks start to fail. Things start to go bad. The federal government, at regular intervals, whether it was creating Freddie Mac and Ginny May, whether it was the mortgage-backed security, whether it was taking mortgage backed securities and allowing them to be used as bank reserves in the 1980s, whether it was the deregulation that led to the SNL crisis or the decentralization that led to the 2008 bubble. In every instance of this, you see is housing prices start to take a dramatic rise largely with housing inflation, a correction down, and then a reinflation of an even bigger bubble. You see four series of this up to 2008. What happened after 2008 is another, in a sense, little bit higher crest. Each of these things, housing becomes, as a financial product, deeper and deeper embedded in our economy, less and less localized, and more and more centralized. It becomes a deeper part of our financial system, and not only that, a deeper part of the whole kind of betting and leveraging part of our system. So the part that becomes more more volatile, housing shifts from being a very local, very stable kind of product that is locally traded in a supply and demand market to something that is fully financialized and now performs like a volatile stock in the market with the actual transaction that you and I would make in buying a home being a secondary or a downstream effect of that overall financialization. We have taken a market that used to be very local.

Austin Tunnell

very stable and made it national and very volatile. That's not healthy for housing prices in any way. No, I'm curious. Just thank you, Chuck, very much. I thought that was a pretty good summary of summarizing 150 pages and, three minutes. Nolan, with the Yenby movement, how do you guys think about the financialization of housing, particularly, you know, what Chuck's pointing out, really used to be a local thing. Now it is not. And there's some benefits of that, like Joe Blow can walk, including myself, can walk into a bank with a W-2 income and being like, I'm, I'm approved like that. If you're self-employed, it's still really hard, but, you know, with the W-2, you can go get approved 30 year mortgage, get in the house. And that's like, in some ways it's really, really helpful. and in other ways it probably is driving up prices. How does the, this conversation play out in the Yimby movement? Do you guys talk about it and how do you think about it? Yeah, it's a good question. I mean, sure, anytime that you're subsidizing demand, you're probably unless you have total elasticity, you're probably cranking up prices. You know, I tend to think that a lot of the typical housing affordability intervention proposal is, just give more down payment assistance. You know, throw more dollars at the issue, even though throwing more dollars at a supply shortage is not going to help. I think we probably agree on that. You know, when I look at when I think about housing affordability, I think a lot of Yimby's think about it this way. The question is, why is there so much variation across the US, right? Why are some places so much more expensive relative to incomes than others? So you would expect all things being equal, California and New York are going to be more expensive than West Virginia and Mississippi, right? People just earn more in those places. But why are places like Texas and New York so much more unaffordable when accounting for income than places like Texas and Florida? And it's not entirely obvious to me that it's variations

Austin Tunnell

in the financial system. And in fact, it seems like actually over the last few years, there was a lot of investor purchases in places like Florida and Texas because there was so much new supply coming online. And the reason why these investors were buying up all these homes, you can read their financial reports, which they have to file with the SEC. They will they they're not hiding the ball. They say we're buying a bunch of homes in these places, because we think that there's not going to be enough supply in the long term, and prices are going to be going up. And this is going to be a valuable financial asset. Well, if they were buying homes in a place like California or New York City in the 70s and 80s, that would have been a great investment because they were right. There was not going to be a lot of new supply coming online and prices have spiraled out of control. But a kind of funny thing is that in Florida and Texas, they in a way called the bluff of a lot of these investors and built tons and tons of housing. And now in places like Florida, like places, know, large institutional developers are scrambling to get these houses off the books. you know, I think This is kind of how we think about it is I understand a lot of folks are upset about more institutional buyers in their neighborhoods. Occasionally this is offered up as a reason for why, it's not just, we can't just build more because BlackRock and so and so are gonna buy up all the homes. If you don't want that happening, you have to make housing bad as a pure investment and mostly useful as a reasonable store of wealth that's going to hold its value over time, but it's mostly going to be this thing that you consume, right? And that's how normal housing markets work, right? I remember when I was talking to my parents back in 2022, they were really, really excited about how their home had increased by so many hundred thousand dollars. They live in Lexington, Kentucky. It's got its housing affordability problems, but it's basically a functional housing market to the extent America has that. We can talk about that in a separate question. It's a basically functional housing market where most lower middle class people and above can become homeowners and have a basically stable store of wealth. So they saw they're like, cool. Like our home has increased by this many hundreds of thousands of dollars since we purchased it. And I just plugged it into an inflation calculator. And what would you know? It basically held its value. And then when you account for all the improvements that they're going to have to make to actually sell the home, it will not have, you know, been there not, there would not have been any return on investment. It would have been, you know, it would have been a store of value in some sense. It's something that they can get a, you alone from a bank against, but it's not this runaway investment and the way that it has become in places like California and New York. And so, you know, I think

Austin Tunnell

I think these things go back and forth and I think Chuck and I will probably agree on this is that part of what's gone so, so wrong in a place like California is that people have become habituated to this idea of housing as the spectacular investment that if you can just buy a home in California, it's going to 10X in value over your lifetime and that's good and normal and it's perfectly fine that your children will have to move to Arizona or Nevada because maybe that'll happen again for them there. I mean, you want to talk about a Ponzi scheme economy, that's completely where we're at today. The big challenge for us in California is how do we unwind this? So I think we agree on elements of this. think to my mind, though, you know, I think we have to remain focused on how this is interacting with the supply and demand that ultimately is sort of underwriting the housing affordability issues. You know, if we have a shortage and housing is a good investment, it will become further and further financialized and out of reach of normal working people. If you've been enjoying the Building Culture podcast and are listening on Apple or Spotify, could you pause for just a moment and leave a five star review? My goal is to get to a hundred reviews. And if you do take a screenshot and email it to playbook at building culture.com playbook, P L A Y B O O K at building culture.com. And when we hit a hundred, I'll randomly pick five winners and send them a building culture hat that looks just like this. I appreciate it and back to the show. I'm going to come back to the question on supply because I want to make a comment about it. But first, because there is, think, know, at least at least some disagreement or more emphasis from Chuck in Strong Towns on people buying up investors. But what is it? Three percent, because it's also a popular news headline of, you know, BlackRock and stuff buying up the most houses like you see it. pretty regularly. Does anyone know the statistic? it like 3 %? They made 3 % of purchases or own 3 % total of housing stock. Do you know? I don't know. And I feel like there's a certain fog of war here too, because like the statistics are not readily available and where they are readily available, they're not reliable. So, I mean, I don't think we know. And I'm actually not arguing that that is the principle issue. I mean, I

Austin Tunnell

I listen to what Nolan just said and I largely agree with it. I think that all of this works out in the way that he has described. I think the only pushback I would have, and I don't know if it's even a pushback, I would like to hear Nolan's reaction to this. I feel like there's a limiting factor in the market when we finance housing in this way, where housing prices cannot substantially fall or cannot substantially equilibrate. at a place where it would be affordable to people because if it did, it would start to negatively impact the people who are involved in the financialization of it. Let me give you an example of this. D.R. Horton, which is one of the largest home builders in Texas and in Florida, D.R. Horton this week came out with their earnings. They said, hey, our earnings are lower than what we expected. Okay, the market has some volatility. As Nolan said, they're trying to unload some of these things from the books because Prices are starting to fall. And so what is DR Horton looking at for 2025? They're looking at pulling back. They're looking at retrenching. They're looking at building fewer homes than they otherwise would because the profit margins aren't there and the appreciating value that they're used to is not there. And so they're actually building less. I don't think that either of us would say we should be building fewer houses in Florida. We should be building a lot more houses in Florida, a lot more houses in Texas. We are massively undersupplied in both places. The system relies on, in a sense, these large flows of capital and these large players to meet demand. There's a feedback loop that always pulls back the closer you get to affordability to ensure that prices stay elevated, that prices go up, and that we're going to always have, in a sense, a rising aggressive pricing structure because that's what is needed from a housing as a financial product point of view. Yeah. I mean, that sounds, mean, what Nolan, Nolan, it sounds like you got to be, you have a thought there. Go ahead. Yeah. I mean, I think this is where like the exuberance of markets and upturns actually does a lot of heavy lifting. Right. So you, you get this. Everybody wants to build a lot when there's a market upswing. Right. And then on the downturn, which is you're seeing this happen in a place like Austin, right? Tons and tons of housing is built in 2021, 2022. maybe, you know,

Austin Tunnell

too much housing was built according to people who thought they were going to build a rental and earn $3,000, now they're only earning $2,500 off of it. But for the renter, this is all a very good problem to have, and there will be a few years of maybe lower production. I don't necessarily know how long that's going to last and to what extent that's being influenced by interest rates. I guess I'm not really seeing, in the long term, you do have places that remain relatively affordable, and they're subject to the same sorts of market pressures and then you have places that become radically unaffordable and they have their subject again to these same sorts of systems. And to my mind, that's the puzzle is what explains the variation. And I feel like we are in a, we're in a place Austin, you can go back and I think one of the things that was fascinating to me as we were pulling research for the book is how the language of unaffordability that we use today was the same language they were using in the seventies. It's the same language that we're using in the eighties. in the 90s and the early 2000s in terms of housing not being affordable, being attainable for people. This is a feature, not a flaw of the current system. I think what we have seen right now is that the pandemic and what happened during the pandemic and the fact that we now have higher interest rates when we had low interest rates has really reduced the float in the market and it has made what has been a decades long chronic problem. into a short-term acute problem. It's taken what is like a painful tooth and made it into an abscess tooth. The last four years have been really, really painful from a housing standpoint, largely because of the fact that there's no float in the system. People with 3 % mortgage rates are not interested in moving right now, even if they can get a high price for their house, because they're not interested in taking on a 7 % mortgage. So you've got a whole part of the market that's stuck. that normal amount that is changing hands has been reduced to people who are going through divorces and people who are having weird financial circumstances where they have to move. This problem though is not one of, can we get back to something that's modestly affordable? We actually are multiples away from what would be considered broadly affordable. So we take

Austin Tunnell

the idea of affordability really, really seriously. We're like, how do we actually get down to levels where people can afford not only to get into a unit, but to save? And for us, that is a three-step approach. I mean, we have to build a lot of entry-level units. The renting out of the spare bedroom, the backyard cottage, the small 400, 500, 600 square foot starter home that we can fill in on the empty spot in a lot. We need get really, really aggressive about that. We need to build thousands of those units in every region. We need lots and lots of them. We need to create an ecosystem of incremental developers. actually need not the DR Hortons of the world, the Cenex of the world. They can still build the things that they're building fine, but we actually need these people who are out there building this entry-level stuff. Then we need local governments to step in and philanthropy to step in and help finance this stuff. There is no market for the the $10,000 home renovation. There's no real market outside of California for doing backyard cottages at scale. There's no real market to finance small entry-level homes. They're not great financial products, and so there's no secondary market for these things. There's no fluid way to do this without asking local banks to do things that they don't want to do. Local governments have lots of financing power and can actually do, in a sense, the reverse of what The federal government did in the 1930s. The federal government took a localized market and made it a nationalized market. We can actually take a nationalized market and add a local component to it and allow people to build in very profitable ways and ways that benefit lots and lots of people tons of housing at the local level. If we do that, it won't get everyone into the house of their dreams, but it will get people into a stable place that they can then decide to join that nationalized market. from a position of strength and not from a position of desperation. And I think that will change that feedback loop that continues to drive prices upward. Yeah. I want to come back to that local government financing power in a little bit, but I want to make a couple of comments because both of you guys are talking about it, but Nolan, were saying talking about supply and you even brought up Austin and both of all of us are talking about housing as an investment. And so Chuck, you know, I think you are right that if housing prices go down, D.R. Horton scales back.

Austin Tunnell

and Nolan, you're kind of acknowledging this with Austin and I I've been, as I'm getting in more into real estate and syndication and actually raising money, talking to him, more investors working in those circles. I can attest and I was recently at a real estate conference for investors, you know, and these are people doing multifamily and some of industrial and stuff, but a lot of housing multifamily. Their number one concern is people adding supply. And it's not that they're bad people, right? Like it's just, they're thinking about it. How do I protect my investors? How do I protect the investment? I'm raising money. I need to give them a return. need to ensure I can get them return over a long period of time. The number one thing they look for is people adding supply. And if they think a market is going to be added supply, they won't do it because they know prices will come down, which is real. They're acting rationally and they're not acting as bad actors because they literally could not raise the money. If they can't promise, you know, market rate returns. So that's a really kind of just interesting thing about supply completely true. And Austin was brought up multiple times specifically as, that's been one of the worst performing markets over the last four years because there was actually so much multifamily built in the past four years that prices started going down. Good for everyone else. But you also see in the news going, investors losing money. All that. And then I think you're right. You're not going to see any multifamily housing starts over the next four years. prices go back up. So it's just interesting because housing definitely has turned into a financial asset. And so you've got supply issues, I think, and this is my perspective because of zoning, because of zoning and regulation and financing, it has become a big boys game where everything is kind of centralizing, where you've got bigger, bigger developers. bigger builders. And I saw a statistic about this recently. I reposted it on Twitter. I can't remember what it is, but the amount of small builders has really, really, really dwindled over the years. So now they're bigger builders, bigger investors, attracting bigger dollars from institutional money, all enabled by difficult bureaucracies and zoning and regulations and building codes that make it hard for any little guy to do anything. If you're going to build a fourplex, you might as well build 200 units. 200 units is way more affordable.

Austin Tunnell

And then once housing truly becomes an investment, it's not a product of a person of a community and you're trying to attract pension funds, you know, to raise the money to do it. It really is kind of this spiraling issue that makes it very, very, very difficult. And I'm not really presenting a solution here, but just kind of acknowledging what both of you guys are saying that is my experience. That's what I see. I even Once again, it's not that there's bad actors. They're responding rationally to the incentives that have been created. Yeah. I mean, I think we completely agree on this, that in the typical American city, the growth is virtually all going to be new detached single family homes, greenfield developments. You need some of that, but probably not at the scale we do it in the U S and then occasionally a national builder comes in and requests the rezoning or does a plan unit development or a PUD. I'm going to avoid the planning acronyms, out of respect to the audience. And they build a big giant five over one and that's all the apartments that are built for a decade now again I think the hate to five over once got a little bit crazy but I'm with you to my mind a healthy housing market is a lot of Local or regional builders building a lot of different types of products that serve a lot of different types of households That are able to build things even when market conditions aren't necessarily in the extreme upswing So, you know, I do want to return to one point though, right? I mean part of what I think is Explaining long-term varies there's there's cycles in Los Angeles as there is in Austin, right? But in Austin when there's an upswing a relatively liberal zoning framework and speedy permitting allows you to get a huge amount of new supply Probably more supply than the market would have known if it had known what everybody else was building Whereas in Los Angeles because the zoning is so much more restrictive. The land is so much more expensive The permitting is so much more difficult. You don't get this huge surge in housing And you know, I mean we're coming off of a cycle right now that was a 36 year permitting high in Los Angeles. And we were maybe barely cracking five units per thousand residents, right? Whereas Austin in the same sort of period is going up to like 20 units, right? So there's the idea here is to like sort of leverage the irrationality of some of these upswings to get a big surge in supply. Of course, while in the longterm, hoping that we can create this more stable longterm market that's an ecosystem of small builders, I would say too, mean, Chuck's always pushing on this and it's exactly right. We need to bring back these small builders.

Austin Tunnell

I think we also have to have a lot more conversations with folks in finance. I mean, one of the challenges that we face is we'll change laws to eliminate parking requirements, for example. The developer who's closest to their customer will say, well, yeah, I can definitely lease out these units with maybe 0.5 parking spaces per unit or maybe a zero parking building. But then I go to the bank and they say, this is a weird, we've never seen this before. This is a weird product type. Every other type of building like this is parked one to one or 1.5 to one, so we're not going to finance it. I'm with Chuck on this that we have to have a broader conversation that includes some of this. think that step one, though, is allowing for the flexibility for folks to actually do it, to create outstanding products where everybody says, OK, this guy built a five over one next to the train station, it's 0.25 parking spaces per unit. And it was fully leased up on day one because everybody likes the lower rents. Right. Yeah. The financing conversation doesn't matter if you can't first address the zoning and parking minimums and stuff like that. I would completely agree there. feel like there's a statement that I have heard said, not necessarily by Nolan, but by a lot of UMBs. And granted, there's a lot of people who say things under the guise of strong towns that I'm like, what the heck are you talking about? But I want to put this out there and I want to either... Talk about it or put it to bed. There's this idea underlying what I'm just going to call a very ideological belief in supply and demand that we could actually create enough supply in the current system. Like if we just eliminate building, know, zoning requirements, reduce building codes, let the market go out and build, build, build, that we will, and I'm going to use Nolan's word here, have an irrational building environment. where we will build so much that we will actually crash prices. And I guess I have heard that said many, many times, that that's in a sense the market we're trying to create. And I get how that works in theory, but absent of finance. If we actually continue to finance housing the way that we finance it, there is no way for us to build enough to actually crash the market. And in fact, I would even argue,

Austin Tunnell

There's a limiting factor that would keep us from actually having a meaningful downward impact on prices. The best thing we could hope for today would be a decade of wage inflation where wages catch up to housing prices, but not a decade where housing prices slowly fall or fall dramatically down to a price that would be affordable. And I do think that that is one of those nuances where I'd be interested in hearing what Nolan thinks about. Well, I think it, I mean, it totally depends on the zoning tax, right? It depends on how much more expensive our home prices relative to the actual cost of building a new home when you factor for land, right? In many parts of the country, are pretty close, right? A new home is gonna cost roughly what it costs to actually build it. That's what you would actually like an efficient housing market to be doing. In a place like, of course, or New York, certain extreme cases, a new home that gets built is so much more expensive than it actually cost to build the home. And that suggests to me something of there's some regulatory hurdle. It's hard to get the zoning. It's just hard to build a lot of these units. It's hard to get the permits. That's an alternative barrier. And so, you know, certainly in a place like California or New York, where the Yen-Bin movement's, I think, most developed. Yeah, I do actually think a lot of building would actually bring down the price fairly substantially. Now, in much of America, where there's no zoning tax or very small zoning tax, I think you're probably right that there probably wouldn't be a huge surge of supply that would bring prices down dramatically. That said, I don't want to overstate the case with housing affordability. In your typical US metro area, in many parts of the Midwest and in many parts of the South and increasingly few parts of the Mountain West, homes are in that range of about three to five times the median household income. Right? So that's a fairly... That's a fairly normal, healthy range. That's a range to suggest that the average family can buy the average home. I think Yimbys are mostly operating in environments where, like Los Angeles, we're at 10, or New York, or Massachusetts, or certain high cost, low supply jurisdictions, where the multiple is 10 or above. In those contexts, yeah, home prices are well above what it actually costs to build a new home. Would we get nearly as many homes as if

Austin Tunnell

homes theoretically weren't an investment asset, maybe, but then I don't see how what the mechanism is for people actually building it. So yeah, I do think a huge surge in supply in many US context would bring prices down. And in much of the rest of the country, keeping a steady supply of new housing units coming online is necessary to keep them from going on these California style spirals. You know, I mean, this is part of what I think you're seeing across the Mountain West, which is historically a very affordable region of the country. But what they're dealing with is a surge of demand as people move from places like Oregon and California. and there's no commensurate supply coming online. And you're seeing these rapid run-up in prices that historically had never happened because when there was a slight run-up in prices in a place like Salt Lake City, you could have a lot of new supply coming online. Salt Lake's maybe a bad example because they actually are, I think, building a lot. But you take maybe certain smaller towns across the Mountain West where they're having a huge surge in demand and not nearly enough new supply coming online. That's, think, that's the actual risk is that it's not necessarily, it's not, the pitch here is not. Let's build a lot of housing in many of these contexts and we'll actually crash home prices. The pitch in a lot of these relatively stable housing markets across the U.S. is let's keep building. Otherwise, we're going to fall into a California style housing crisis. Yeah. I mean, I think I'm borrowing the statistic from Daniel Herrigus, but I think he said it's something like 3 % of households can afford the median home price in California right now. So 3%, a very tiny percentage. So Chuck, do you feel like that? put the answered your question and put your question to rest about, or do you have more to kind of flesh out there? I think it's always hard when you talk California, New York, because on any metric that you plot up for the rest of the country, they're going to be outliers, right? I mean, just population size, density, all these things. That being said, this argument about here's what a new home price costs to me is a really interesting one. I was in Salt Lake City a few weeks back and I actually gave a presentation to a bunch of real estate finance people. They told me ahead of time, we don't want to hear anything about finance. We want to hear about land use and building and da, da, da. I gave them the strung down 101 growth Ponzi scheme stuff. Here's how we inject growth into cities and here's how cities take on these long-term liabilities. Here's what's going on with their balance sheets.

Austin Tunnell

It was interesting because we got around to talking about housing towards the end and their theory of housing and they actually said like one woman stood up and said that she goes housing is like big screen TVs. It's like cell phones. If we can just get more liquidity, more money in the system, people will figure out how to build it more and more efficiently and that's how we'll lower prices. We will get more innovation, more efficiency and prices will come down just like they do with flat screen TVs. And my response to her was, I think that that is nuts. I think that that is crazy. That actually was true in the 19-teens when we figured out how to do standardized lumber and we could get lumber from mills out to railroads and around the country as we did in World War I because of the building demands for the military. But it hasn't been true for a long, long time. If we look at markets like the medical market or we look at a market like the university market, what we see is that in these places, The actual prices are rising faster than inflation and have been for a long, long time. I think Nolan and I stepped back and look at the healthcare market and we look at the university market and we probably would reach very similar conclusions. The government has intervened in these in a way that actually makes them rather inefficient internally, makes them rather unresponsive to normal market demands, and the prices have gone bizarre. I look at the housing market and I see a lot of the same things. Construction in general every time we have an economic downturn every time we have a recession We pump all kinds of money into building all kinds of money into construction. I Can't tell you how many builders you see I did I did permitting for cities a lot of that in the early 2000s and you saw these builders who were absolute buffoons absolute idiots who were bailed out over and over because the market was going up I actually made this comment at a at a builder's conference once. There's a lot of people in this room who are not good at their jobs, but they actually make bank because prices are just going up and that bails out a lot of really bad actors. You see who the good ones are when prices go down. I got a standing ovation because they all are frustrated by this effect too. I think that the idea that we will, in a sense, make housing more efficient and deliver ...

Austin Tunnell

Prices are the prices today and they're high because that's what it costs to build a house. I think kind of misunderstands the entire supply chain of what it takes to actually build a house. I think the entire thing is pretty much broken by the way we have overfinanced and overleveraged and overvalued homes for decades now. To touch on your point about the flat screens and how it works, as a builder, can tell you it costs us 40 % more to build today than it did four years ago. Every builder I talked to, whether in multifamily or housing, high end or low end, everyone just says it's about 40 % more because of inflation and policy over the past four years. So there's that kind of statistic that seems to hold true across the country. you unpack that a little more? The 40 %? Why is that? So, well, there's a lot of reasons, but I mean, in 2020, and there's going to be different theories out here. So I'm really giving you my theory about why, you know, inflation is baked into our system about how we think about, you know, our economics, particularly after coming off the gold standard, you know, we kind of want that 2 % a year. Well, over the past four years, just broadly speaking, if you add up all the inflation compounding year over year, I think it's about 25 % over the past four years just across the economy. And housing, though, it's it for whatever reason, I can't tell you exactly why that's 40%. That's both labor, That's material. So labor's definitely going up. Materials have gone up. And I'm not just talking about commodities. Lumber, that spike during COVID, that's crashed. That's come back down. I'm talking about windows that, you know, went up 40 % and they are stayed at 40 % and they do not seem to be coming down. I don't see these prices coming down without a major, like a major recession. My theory of why is, and I'm going to get these statistics, Ram, I'm not an economist, but depending on how you measure the money supply, the federal government pumped about six to $10 trillion into the economy over four years, which is about a third of money in existence at the time. And, you know, the definition of inflation is too much money chasing too few goods.

Austin Tunnell

And so I would actually argue that a huge part of the new construction housing problem, this is not housing supply and why the housing supply, all housing prices going up. I'm talking about why new construction costs so much more today is largely because of monetary policy and quite literally the printing of money and people imagine the printer of money of as in like they're literally printing dollars. That's not exactly how it works, but it's pretty close in terms of quantitative easing and things like that, that the federal government's doing. And it really, I mean, there's some people that say, and I would want to, you know, please verify this, but some people will talk about the past four years as the greatest transfer of wealth between the poor and the rich in history. because inflation really hurts poor people or, or, or people that are based on incomes and W2. And it really, really helps capital holders, the people that hold the means of production, the people that already hold the housing. Because once again, My house went up by literally about 40 % actually, the value of the house that I own today, which I have a two and a half percent mortgage rate on too, went up about 40 % in value. Does that kind of address that? Can you pass those costs on to the buyer? And the answer is yes. And then that means that the entire supply chain does not need to tighten up or reform at all. That's the answer. So prices will continue to go up. I can't always pass it on to the buyers where we're trying to figure out like literally what do we build? What can people actually afford? And then multifamily because it's these long term projects, they take a while to permit, get out of the ground. There's still multifamily coming online that started years ago, but I forget what the actual statistic is, but in terms of new starts of multifamily, which is kind of one of the primary sources of new housing production besides single family detached, those have like I know almost no one who can make multifamily pencil right now. So all multifamily is on hold. And while there's not necessarily a huge contraction now, because there's still all these projects that have been in the work for two, three, four years coming online, literally nothing's coming out of the ground now. So we're going to see in 2026, 2027, kind of this huge glut in new housing coming online because investors literally can't make a pencil. I hear this exact thing and it's true.

Austin Tunnell

Until rents go up, they can't afford to raise the money to build more housing. Like that's exactly what multifamily developers will tell you is until rents go up substantially, we can't afford to build new housing. Yeah. I mean, I guess, I guess my focus here in this conversation is what are the levers that we can pull to get down the actual cost to build a unit. you know, I don't, I can't speak to how inflation and other financial mechanisms are affecting this, but right. mean, we're, For example, Kamala, we're recording this on election day. That's why we're all in such a good mood. Kamala Harris has committed to building three million homes over the next four years or so, right? Meanwhile, tariffs on lumber keep going up. And in many cases, many of the Trump era restrictions on migrant labor remain just as strict as they were coming out of Trump's administration. In many blue cities, places where the housing crisis is most acute, It's still just as hard, if not slightly harder to build owing to restrictive zoning rules limiting the supply of actually developable land, which increases land costs, slow permitting, lots and lots of exactions. To my mind, what I think of, okay, what can we do to actually just make it relatively affordable to build such that the actual rent doesn't need to be of such a high threshold to make the project pencil? Those are the levers that we can pull. And I think those are the things that Yenbi's focus on. I don't think necessarily to the exclusion of everything else. but just from a frame of what can we, what can policymakers, state and local policymakers do in the near term to try to make more housing feasible? Yeah, I think that's a really reasonable response there. The only thing I would add to that is for me as a builder who is in the business of producing new housing, know, national politics and, and, you know, kind of like Chuck and you guys have a pretty nuanced, there's a lot of things that affects the price of housing. Whether it's zoning or financial incentives and parking minimums and building regulations and things getting increasingly complex and appraisal, stuff like that. Government debt and monetary policy matters. It really does. And it's really hard to see it. And it's hard to do something directly about it, but it is things that hopefully we can vote on over time. I'm not saying any of the politicians I'm hearing have great solutions right now. And you've got $35 trillion of government debt.

Austin Tunnell

I'll just kind of leave that there. At this point, you all know that Sierra Pacific Windows and OneSource Windows and Doors sponsors the podcast, but I want to take a moment to tell you about why we use them at Building Culture and why I personally love their product. Take their H3 casement series, which is probably the line we use the most. It's their entry level aluminum clad window. And what's so cool about it is it has a ton of options. It has something like 27 different colors you can get. Maybe it's more at this point. And also you got all sorts of different Muntin profiles that in a lot of other entry-level series you're only gonna get five or six colors and you're gonna only have like maybe one profile that you can get say an OG profile. Sometimes we use OG profile, but what I really love, favorite, my personal favorite window that we use absolutely the most is with a 5-8 putty profile. And this all of is very nerdy, but if you're an architect, you're a builder, you're redoing your home, this is really important stuff. And I love the five eights putty because it's narrow, but it's got these clean lines compared to a, an OG profile. So it feels, it feels both historic because it is a historic profile, but it also feels kind of modern. So it can hit that really nice transitional style and vibe also as a really like thin frame. And so it's just a really nice window that I feel it feels sleek. feels a little bit modern, but it also feels historic and classic. And so. That's why we use them. if you, the Sierra Pacific distributes all over the country. And then if you are in the state of Oklahoma, one source windows and doors is who we source our Sierra Pacific through. So check them out. Got the links and the show notes back to the show. One of the things I wanted to touch on between kind of this strong towns, EMB. And I don't know if there's a difference here and there might be a difference between kind of like Yimby, you what you said, Chuck is sometimes people will say things on behalf of Strong Towns. You're like, dude, what are you talking about? You know, Chuck, you and Strong Towns really focus on this kind of organic, ground up, very, very human, slow evolving change and talk about you don't really want. Austin Tunnell (01:01:07.597) fast change in a neighborhood. You want this slow organic growth. And I think one of the solutions you present in the housing crisis book is, you know, always allowing the next increment of development, the next increment of density. And you actually keep that quite small. the examples you use, say like, it's a neighborhood of single family houses, at least you should allow duplexes and ADUs. Maybe you don't allow fourplexes yet. Maybe you don't allow sixplexes yet. and so that way, and then once most of the neighborhood is duplexes and ADUs, maybe you up that increment a little bit on the Yenby side. What I generally see, and once again, this is kind of more like me saying on Twitter and what I overhear in conversations is Yenby's are more just like more housing, more density. If it's a 200 unit apartment complex, I don't care. We just need the housing. And I'm not even saying that's like, I'm just kind of curious. Do you think there is a tension there that there is a little bit of difference between how you guys think about that? Yeah, can you guys respond to that? Let me start. Let me point out two things I think that are nuances here. Let me push back on the idea of incremental equals slow. In our mind, incremental doesn't equal slow. It does mean an increment of change, but organic systems evolve very quickly sometimes. It doesn't necessarily mean slow. I think there's two aspects to this. In my hometown here, We did a study a couple of years ago and found that we needed 3,300 new affordable units in the region. My city is in the process of getting a new five over one built in the core downtown. We have a federal housing grant, we have a state housing grant, we have a regional housing grant, we have waived their sewer and water connection fees, we've done a 20 year tax increment financing subsidy, and we've all this kind of, we've marshaled everything we could to get this built. This is gonna have 80 units. and 12 of them are going to be deemed affordable, below median household income affordable, 12 units. We need 3,300 today, right now in the region. When I look at the idea of let's go build a new Greenfield subdivision, let's go build a new five over one, what I have found, and this is really, I think where Daniel Hergis and I spent a lot of time together working on this, is that as much as this approach does create units, Austin Tunnell (01:03:34.687) It doesn't scale to the size of the problem. It doesn't scale to that. We will never build 80 unit buildings enough to create 3,300 units in our market. We just won't. This won't happen. It's not possible to scale. What would actually scale to that size? And you said slow. I pushed back on that. I said incremental. In the book, we talk about all of the kind of units that could come online very quickly. The idea that you've got a widow living in a house and have four bedrooms and she only needs one. The idea that she could take in a weekend, have someone come in, put a kitchenette in, put an exterior door on and rent that out of his apartment. That is something that a hundred years ago would have been very common. People would have done, you go travel around the world, people do this all the time. Here in the US, nope, that's a duplex. You've got to go through all these regulations. You're going to get a home equity loan, really difficult to finance. not real, you know, there's all kinds of hurdles to doing that. If we eliminate those hurdles, there's tons of people out there who are house rich and cash poor who would love to rent some space to people. If you start looking at that scale of units, what you find is that there are tons of possibilities that yes, are incremental, but yes, also scale to the size of the problem. And I think this gets to the second point where there's some nuance between California yinbi and a strong downs approach and that is really about who the enemy is I mean Nolan started the conversation by saying they're they're doing battle with nimbus and I get that I get that vibe from the yinbis like the nimbus are our enemy and I do think this is one of those places where our our Approach at strong towns our very bottom-up kind of organic approach is To not draw our enemies in that way. I mean I look at the system as our enemy more than anything The Yimbis and the Nimbis both have to be our allies. And I know this gives comfort to the enemy at times, and it really makes some people in the Yimbi movement very mad at me. But at the end of the day, if we're going to actually scale this to meet the problem, we have to have our solutions actually work for people in Nimbiland who are house rich and cash poor. And there's a lot of them out there who are backyard rich and cash poor. There's a lot of them out there. We come up with solutions that work for them. Austin Tunnell (01:05:54.039) that actually makes their life better, allow them to stay in a house, allow them to improve their place, allow them the cash to fix their roof or whatever. We make them part of the solution and this thing scales to the size of the problem. We don't make them part of the solution, we make them the thing we're fighting against and we will have like endless trench warfare across this continent and not actually get to where we need to be in terms of affordability. Yeah, I mean, I do think a real strength of the Yen-Bi movement is I mean, maybe not on Twitter where nothing is good and positive, but if you go into the real world, right, you go to a local Yenby group, which is probably going to be 75 % people who also read and identify as Strong Towns members. It is mostly positive. I think a formative experience for a lot of Yenbys, especially in places like California, where every application is discretionary, is going to a public hearing, speaking on behalf of housing, especially some form of affordable housing, and have people sort of yelling at you and saying very nasty things and often saying explicitly, segregationist things about building new housing, cetera, et cetera. And so there is a little bit of like this, you know, trench warfare socialization that happened with the movement. I think that's, know, of course you want to remain positive, but it's okay to remember that, right? I mean, I think part of what's gone wrong with the American city is that I think some very, very unsavory nasty perspectives have dictated it for so long. This idea of, I have a right to keep my entire community exactly the way it is today and it should never change. And I especially don't want those sorts of people living near me. I think it's okay to confront that and to say that's a reality in many of these cities. it's a thing that's good to fight with. I mean, to your point, of course, I think you have to create the sort of framework for growth that's going to give everybody some buy-in. One of the most effective things we've done in California has been legalizing accessory dwelling units. 2017, before 2017, they were totally legal all over California. Since then, we've had about 110,000 permitted. And that's all homeowners, sometimes small local investors buying a home, voluntarily building these things and adding tons of new supply. I think I'm kind of taking my debate hat off and I'm noodling because I don't necessarily know that I have hard and fast opinions here. To my mind, absolutely. My ideal neighborhood is one that incrementally changes over time, that slowly adds housing, that slowly evolves and learns. I think about Stewart Brand's great book, How Buildings Learn. Austin Tunnell (01:08:11.861) neighborhoods are the same way, they slowly grow and adapt and I think that's great. You know, I think having said that, think some of the I don't think Chuck says this, but I think some of the people and maybe that's the theme of that's the theme of the podcast maybe is we're arguing with people on your side who are not you, which is a little awkward. But I think some people say, okay, the incremental stuff is great. That's really all we need to do. I think in a lot of the context where Nibbies are operating your Northeast metros your west coast metros You actually are going to have to build things like the mid-rise apartment building You are going to have to occasionally build the transit oriented high rises to maintain affordability and that's okay I don't think these things are mutually Exclusive. I think that you know, you can have the kind of classic transit oriented development You can have you know higher density communities. You can have lower density communities that more incrementally change I think whether or not we want that, that's kind of the political reality. And that's okay. But I think sometimes these conversations veer into, like, this is everyone's ideal of incremental change that reinforces positive aspects of the community's character. And we don't need that five over one. And it's like, well, in many American cities, you are gonna need those occasionally. Should they be subsidized to the extent that your community is subsidizing them? Yeah, totally. I think that that's probably not the right, it might be the right approach for a deed restricted affordable building where it's like, it's just not gonna, it's serving a population that's just never gonna be served by the market and need subsidies. But if that's the strategy for all of the housing that's coming online, that's not gonna work. I mean, here in California, every now and then we hear these ideas of, let's have subsidies for middle income housing. Let's have some sort of public subsidy for people that earn 80 to 120 % of the area median income. And it's like, well, once you're to that point, you've lost, right? to the extent that we have any subsidies to give out, they should be going to very low income households and in a normal healthy housing market, this stuff should be able to come online and serve folks. And I agree. I I think this is why we should keep the focus on missing middle and continue to try to build the market of developers who can build that is those small scale duplexes and lot splits and small fourplexes, especially after we get some of these building code rules that, you know, deliberately make it hard to build. Austin Tunnell (01:10:32.877) Missing middle housing and posing sprinkler mandates and things of that nature Those are forms of housing that are inherently more affordable to build and so the rents don't have to be so astronomically high for those projects pencil So I think we agree I think That's Eddie, you know incremental understood as a community is changing and adapting Over time totally good incremental under as some people I think understand it as okay. That means no high rises No, five over ones. I think then we get into a problem where it's like It's just going to unavoidably clash with what Yimby's know needs to happen in a place like a San Francisco or a Boston. I do think that there's one place where I have, I mean, there's a lot of places where I have modified or changed my opinion or changed my impression or understanding. I think one of them is in these high demand, low change kind of cities where we have made massive transit investments. I I was in Sacramento a few months ago. and they brought me out to their train site, know, where they train stops and it was like a big parking lot and they're showing me this and I'm like, okay, so you just built this, right? And now you're going to build housing and they're like, no, this has been here 20 years. Like, what are you talking about? Like, why is this sitting here in this shape? There's a lot of catch up to be done in a lot of places where we've made bizarre levels of transportation investment with no strategy to actually make that transportation investment pay for itself and utilize itself. I think in those cases, there's no question that there needs to be, in a sense, catch up, like a large leap in the development pattern. California is just full of those places, especially in the big cities, the high demand places where you've had developments stifled for a long time. You see this in Chicago too, to a great extent. I do think though that I was on the Turtle Mountain Indian Reservation at the beginning of September. I get to go to all kinds of fascinating places. I get to go to massive cities and tiny, tiny places where you've got 6,000 people living in 144 square miles. The federal government is coming in and building new housing for people living on this reservation. What are they building? They're building five over ones. They're building two five over one buildings out in a place out in the middle of nowhere. The question was, why is this being built? The reason it's being built is because it's a really good financial product. Austin Tunnell (01:12:59.351) There actually is like a market, a secondary market where this thing can be sold off and bundled with other similar products from around the country. And so in a market where we can build one type of housing, single family homes, we can build another type of housing, five over ones, where there's this robust secondary market, or we can build the missing middle, the other stuff, all these little things where there's no real easy, simple secondary market for it. The default setting is for these two product mixes. So if we're talking about around transit stops, go build the five over ones. Absolutely. My gosh, the stuff you've done in California to legalize that stuff is long overdue. Here Minnesota, we built a bunch of transit stuff and had no real plan to thicken up those neighborhoods beyond giving out tons and tons of subsidies. This should be done. It should have been done decades ago. But if the idea that we should just pop up a five over one any place where someone wants it, to me, think that's where the the tail is wagging the dog and where the financing, what is easily financeable is driving the product that we bring to market, not what the actual market demand is. I strongly agree with that Chuck, from my experience that you're right. What gets built single family detached suburban subdivisions and five over ones, because both of those are financeable because once again, the Single family detached houses are really subsidized by a named Freddie Maeve, federal government, 30 year mortgage. It's got to be a single family detached house. It's got to fit in this very narrow box. And then five over ones. Once again, the financing has been worked out over the past decade. that cause multifamily is a fairly new kind of like investment product actually, whether it's a decade or two decades old, it's pretty new. But now you literally have endowments and pension funds and all that because it's a financial product as you're saying. And getting back to solutions. This is something I experienced and I think probably this isn't really a debate point as more, cause I'm guessing everyone here agrees on it, whether we're talking about incremental change, adding an ADU. I'll be curious to hear Nolan what California has done there on the ADU in terms of financing. But just generally speaking, because 30 year mortgages are attached to single family detached houses that a local bank Austin Tunnell (01:15:15.789) doesn't really, they don't own that loan. They kind of go through the process of checking the boxes, get you the loan and then sell it off to a secondary market. And so it makes it a very, very like strict range of boxes you have to check. And then you have these monolithic subdivisions where everything's within 203 at the a hundred thousand dollars. Or if you're in California, maybe it's between 800 and a thousand and a million dollars, know, very rare range. And if you're in one of those neighborhoods and you're on a 30 year mortgage and you're a smart person, because of appraisals and everything's based on appraisals per foot and what's sold around you, literally, it would be a stupid financial decision of you to add a bedroom to your house, to build an ADU up back because the ADU appraises at half the value of your house. It would be stupid to add a loft because the loft appraises at 50 % of the regular square footage. And that's all because it's not local government. It's cause it's sold off in packages to investors. So has to meet this very narrow range. So I'm very for, I don't know how to do this. So I think I'm bringing it up to see Chuck or Nolan, if you've had any experience or seen people doing this at the local government level. I'm a big fan of TIFF. That's more on infrastructure side, but, local banks, local government subsidizing, I say subsidizing issuing loans. kind of turning that appraisal stuff on its head where it actually makes sense to build an ADU and you're not going to lose your butt on it trying to sell your house four years down the road or adding a bedroom or fixing up the kitchen, maintaining your house. so it's hard to ask a specific question there, Nolan, maybe one for you is I'd like to hear about the 110,000 units and if California did anything about how they're financing those. And if either of you also have any experience at the local level of local government starting to get involved here. Yeah. Well, so in California, one of the early things we did was the state had a grant program for soft costs. Normally this is the sort of program that I would look at with a lot of skepticism, but the idea here was we're hoping to build ADUs at scale for the first time in maybe a hundred years, possibly ever in the case of California. We want to make it really easy for especially homeowners to hire an architect. Austin Tunnell (01:17:32.749) hire somebody to file the plans for them and get the thing started. So that was key. Those programs are not permanent, so they've gone away. We were also, we had a little bit of a handicap with ADUs because I just said we didn't build them at scale, but there were some ADUs being built and there were a lot of historical ADUs. So it was a product type that people knew about. They're probably if you if you were in a neighborhood that was built before World War two, you probably had one in your neighborhood. A lot of them were being built without any sorts of permits. So the wind was already at the back of ADU's like they were already people knew what they were and there was a class of small builder who knew how to build the market easily start building them. What we're finding is that's not necessarily true of other typologies like multifamily buildings or townhouses. And so there's a lot of work going into trying to explain to the market what these are and hopefully the financing products start to line up. mean, in the case of ADUs, a lot of people finance them using home equity. And in many cases, I don't know that an ADU is being built necessarily as a financial decision, but as I want more living space or I want a place for my aging parents or young adult children. And that type of development only works if it's incredibly easy to get a permit for an ADU. You know, if you have to go get a special use permit for the ADU or you have to pay a $50,000 impact fee, which sounds crazy in the rest of the country, but it's very common in California. The homeowner is just going to walk away. And so it's a testament to how easy we made it that homeowners are saying, yeah, sure. I'll build an ADU just so, you know, maybe I can rent it out for some extra income someday, but maybe to host mob while she's aging. That's amazing. That is, I would agree that is the kind of incentive you want, make it easy. So it's not always a financial decision. If I'm making an investment, it's I'm building something because I want to, because it'll make my life better. And that's that's a great way to add housing. Chuck, did you have anything about your arguments in the escape and the housing trap and just what you've brought up about local governments getting involved here on financing a $10,000 ADU conversion on a bedroom or something? California is such an interesting place. It's such a weird distorted place that I hate to take a lot of examples from it because it is such an anomaly. Prop 13 distorts everything. It's really weird to pull policy out of California. Austin Tunnell (01:19:46.455) That being said, I do think it's really interesting what's happened there around accessory dwelling units, around these backyard cottages. If you go and get an auto loan today, a bank will do an auto loan with you and they will often hold that loan, but they'll often sell it off and they'll sell it off to other banks who will bundle them together and create, in a sense, the same kind of products that we see with mortgages, only they're not backed by the federal government. There's been a private market for this kind of thing that has developed. And what we've actually seen now with ADUs in California, as they become more ubiquitous, as there's more and more of them, we actually have seen the financing kind of change where local banks are more readily willing to write these loans. They realize that they'll be paid back. They realize that there's a market for them. And there's actually been somewhat of secondary market that started to form around these things, creating a lot more liquidity around them. You can actually, I tell this story because I've run into this. If you go to a used car lot and you're looking at a car, someone will come up with a clipboard and be like, you want to drive that one home? Sign here and you can do it. We're getting to the point in California where with accessory dwelling units, you can actually go to a lot, look at the different units or pick out your kind and they'll sign. They got the financing right there and they can set it up for you. It's really a matter of volume. think outside of California, you mentioned tax increment financing. think tax increment financing is a horrible tool misused by government. But I've seen places like Muskegon, Michigan use it for starter units and do it at scale and lower prices to where people could actually afford to get into a 600, 800,000 square foot home. Cities have the capacity to use special assessments for housing. And when we're talking about that person who wants to take that spare bedroom and make it into another unit, they can go and get a home equity loan, go through that whole process, pay a higher interest rate. A lot of times there's cultural hangups with this. I mean, I've seen a lot of elderly people who would like to do this, but they had their burning the mortgage party two decades ago and don't want to go take on housing debt that they're going to pass on to their kids. But if they do a special assessment, in a sense the government is financing this, that the local government is using their capacity to finance it with you. You get a lower interest rate. It goes on your taxes and it's like paying a road assessment or a sewer assessment. It's very simple and easy. Austin Tunnell (01:22:13.781) Local governments have the capacity to do this at scale because lower governments can borrow a lot of money really cheaply. And when they loan it to people on their houses, when they essentially use these programs like a tax increment finance or a special assessment to pump that money into people who want to do this kind of housing, they can make that money available to people really cheaply, really easily, and for the city at extremely low risk. Because if you write a special assessment or a tax increment financing project, you as a local government jump in front of the primary mortgage holder. If there's a default, the primary mortgage holder gets paid before the secondary mortgage holder, the local government will get paid before the primary mortgage holder. So these are really, really low risk ways for cities to inject a lot of liquidity in that part of the market that our big financialized market just isn't funding today. Chuck, I'm really curious to touch on the TIF. You mentioned, I think you said horrible way for local governments and I'll just kind of say my piece and I want to hear your response because I'm actually really big proponent of TIF. Now, granted, I should say I'm a big proponent of TIF in the way that I've seen it done and it's done differently across the country. So I'll just tell you, and I'll tell listeners really quick what it is. TIF stands for Tax Increment Financing. You're essentially, if you're a developer, you're capturing the... increase in property tax value over time. So if a piece of land is $100,000, you build something worth a million dollars on it. And they've proved, I don't know, $50,000 tiff financing, it can work differently somewhere at times where you'll get that $50,000 upfront in Oklahoma. If we get 50,000 approved, it's you know, if you've got $100,000 piece of land, your property taxes are $1,000 a year when I'm done with the project. It's a mill assessed at a million dollars, the property tax would be 10,000 a year. there's a a $9,000 Delta from when I started the project and when I finished it and they approved $50,000 for me, I will be able to take that $9,000 so that the city still gets their thousand dollars. They don't lose any money and I get that $9,000 annually until I get 50,000 and then the city takes all 10,000. So in Oklahoma at least, where I've seen TIP utilized is supporting missing middle housing, more walkable neighborhoods. Austin Tunnell (01:24:27.447) things like that. And there's some other projects and big downtown projects too, I should say on top of that. And we're using TIF on a project doing missing middle housing and the project would not work, but for TIF and the TIF is not paying for brand new infrastructure out in greenfield development. We're on an infill lot and they're helping us, you know, repave the alley, put street parking in public infrastructure. And once again, we're paying the money. We're taking the risk. And then we get reimbursed over time from the value that we create. So Chuck, I'm curious if that's something you disagree with or if you've seen it implemented differently in a way you disagree with or don't like. Most TIF projects in this country are ridiculous handouts to people, subsidizing things that would happen in the market anyway. So I see more chips on strip malls. People who know Strong Towns know the Taco John story. Taco John's was a 28-year tax increment subsidy, just an abomination. There are so many bad TIF projects. It's like an endless ... I've seen Greenfield TIFs. These are things that are generally already subsidized in the marketplace. I brought up Muskegon. Muskegon's TIFs are very targeted around housing, and they're similar to what you described. In Muskegon, if you have a lot that has been there, with sewer, water, utilities all in for decades and has not been developed. And you want to go in and build an entry-level unit, so something 600, 800,000 square feet. We're not subsidizing mansions. We're not subsidizing rich people's homes. We're not even subsidizing middle class or upper middle class homes. These are entry-level homes. They will do a tax increment for you. And you can take that first 12 years, 15 years of additional taxes that you're paying and have that applied to, in a sense, your down payment as a side loan. The city has provisions where if you flip the house, if you exit the house early, you pay that back. In the sale price, you don't get that appreciation unless you live there for a while. But to me, this is a very judicious use of TIF. It allows a unit to be built. It allows the taxes for that unit on land that has been shown to be sitting empty for a long period of time, but for that TIF, this is not going to happen. Austin Tunnell (01:26:44.205) It allows that land to be put into good use and it gets someone into a house a lot cheaper. I think that's a good use of TIFF. What you described, I understand where you're at. I think that in most cases, I would probably say, let's do that missing middle stuff. Let's get that done. But I think there's a little bit more gray area than the entry level unit on the lot with existing infrastructure. that the market has not filled in for decades. To me, that's like a no-brainer. Like, let's get this thing unstuck. That's interesting. And I don't want to take over the debate here. I'll just kind of say, like, think I've got, I'm strong, because I see, I wouldn't, I would attach TIFFs to the right kinds of projects, more missing middle. I actually would not attach you to only say low-income starter homes because I kind of take that perspective of more supply is good. And if we are creating the value and I guess I'm, once again, I'm coming at it from a developer perspective, looking at the numbers saying it doesn't work. We're not building this without the TIF. Carlton landing wouldn't be built without TIF Wheeler district, two TNDs in Oklahoma city and around Oklahoma would not have been built without a tip. they're extraordinary projects that add walkability density set up, you know, add tons of housing. And so I'm actually like really, really, really for TIF. but honestly not for TIFF or strip malls or something like that per se, I'll just say my piece and leave it there. Maybe we'll have a little debate about that sometime. Well, gentlemen, is there anything else I'm curious, know, that that's ever been on your minds between strong towns, Yimby, where, know, Chuck, you mentioned one like, Hey, I want to put this one to bed. Any, any other little things that you'd like to bring up while we're on the call today? I'll just reinforce. I think there's like 95 % overlap. So even if Chuck and I are having fun ruining our weekends, arguing on Twitter, I hope that Yimby's and Strong Towns folks will continue to work together. Austin Tunnell (01:28:49.773) I think we all agree we want a lot more infill housing. We don't want things like parking requirements and strict use zoning. We want walkable, affordable communities. Maybe folks talk about it in different ways, but go forward and do advocacy with the confidence that the Yenbis at your Strong Towns chapter or the Strong Towns people that show up to your Yenby happy hour are on your side. No, I was just going to say, I totally agree. I appreciate that. I've heard from a lot of people who... identify primarily as Yimbi advocates since Nolan and I had our little fateful conversation. Most of that outreach has been really, really good. There's been people who say, there's a lot in common here. Let's keep working together. I agree with that. I think that when we line up the things that need to happen and the urgency around it, there's a lot of energy in the Yimbi movement that strong towns people really benefit from being part of. And so I'd encourage anyone who identifies, you know, I support strong towns. I want to see a bottom-up revolution in this country. I think there's no bottom-up revolution without the Yimby movement. So many kudos. Yeah, I will say from the outside watching both movements has been really inspiring to me. And they make, you know, as someone that's trying to operate in the field, it literally is paving the way for us to do what we are doing. And it's slow and it's painful and it's difficult and it's going to take another 40 or 50 years. But the amount of progress I think that's been made in the past, you know, since the 80s, you know, even starting with Seaside. But since then, I think things are accelerating. And I get the sense we're kind of at that right cultural, political, economic moment for things to accelerate a little bit where you've got younger people saying like, let's do this. You know, they're just kind of more automatically going to be on the Yimby side because they can't afford housing. You've got zoning being repealed. You've got real examples out there for people to go see the straw. I can't believe how many people know what middle, missing middle housing. I was reading, was reading a book to my four and a half year old or three and a half year old when I read it and it brought up walkable neighborhoods and blah, blah. I mean, was blown away. So it's really starting to make its way into the, into the culture. Austin Tunnell (01:31:13.197) So I'm really excited about the moment in time we live in. And I think we're going to be able to make a huge difference over the next couple of generations. So really appreciate what you guys do. And I appreciate you guys coming on here. I'm sorry. It felt like a deposition. The funny thing, Nolan, you mentioned it feeling like a deposition me reading this Twitter post to you is I had my first deposition this morning. I was being deposed. And I agree. It was not very comfortable. But No, really great to have you guys on and admire you and appreciate your work. Thanks so much, Austin. was real pleasure. Austin Tunnell (01:31:51.777) If you've been enjoying this podcast, please like, subscribe and share with your friends. And on, if you're listening on Apple or Spotify, please leave us a five star review and take a screenshot, send it to playbook at buildingculture.com. And when we reach a hundred reviews, I'm going to send out a 10 building culture hats, like up there behind my head. If you're watching video and I'll send it to your house. Thanks so much for listening and catch you on the next episode.