Erdmann Housing Tracker · Housing & Cities
TIER 5 Tue, 14 Apr 2026 14:03:16 +0000
A recent article in the Wall Street Journal reflects a number of common statistical and rhetorical claims regarding home affordability that I think are misleading or call for some rethinking, and I thought it might be worthwhile to review them. ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ | | ---|---|--- | | | Forwarded this email? Subscribe here for more --- --- # The housing crisis is making young Americans poorer. | | Kevin Erdmann --- | Apr 14 --- | --- --- | | | --- | | --- | | --- | | --- | | READ IN APP --- A recent article in the Wall Street Journal reflects a number of common statistical and rhetorical claims regarding home affordability that I think are misleading or call for some rethinking, and I thought it might be worthwhile to review them. The article, itself, is relatively balanced. It discusses the complaints that Millennials and Boomers have and had about relative economic stresses in their times. It suggests that they both have legitimate complaints, but notes, reasonably, that these complaints tend to never go away and sometimes are overstated. Upgrade to paid On housing, it happens to make some common and poorly specified references to relative costs that, unfortunately, economists in some corners of the think tank world like to amplify. First, just a prerequisite note, at a very basic level, elevated housing costs are not hard to see. Go to a random house in Los Angeles, New York City, San Francisco, and increasingly in Phoenix, Atlanta, or Cincinnati, in a neighborhood with negative amenities that are bad enough that most readers likely would object to letting their adult children move into them. Houses in that neighborhood likely rent for 25% to 100% more than they would have a generation or 2 in the past, relative to the incomes of their residents. Or, stepping back and looking at the big picture, the total value of residential real estate is about 50% higher, relative to total personal income, than it typically was in the 20th century. _That 's a lot! This shouldn't be hard!_ | | ---|---|--- Figure 1 Unfortunately, this problem lacks adequate public advocacy because many economists and pundits who would normally be leading the charge on the supply-side reforms that are needed blue-pilled themselves on wrong causes, and now they are devoted to those wrong causes. Since NYC, LA, and San Francisco were early to this problem, it became popular to associate high housing costs with success. If you only look at metro area averages, you can't see that the neighborhoods with negative amenities are the ones that have become more costly, and so many economists associate the most expensive metro areas with positive amenities, and assume that that pattern applies within the metro areas too. At least those economists and pundits recognize that supply constraints are what causes the problem, though they still overemphasize the role of demand, and they tend to be skeptical that the crisis could be encroaching on flyover country. Others were convinced that the 2000s spike in home prices were caused by mortgage access or artificially low interest rates, or federal housing subsidies, or spoiled young adults who feel entitled to more than they should be, etc. The Financial Crisis Inquiry Report is a good compendium of all the wrong answers that experts end up at when the right answer exists outside the view of the Overton Window. Inflated urban land rents - the single secular reason for elevated home price/income levels - don't make an appearance in those hundreds of pages, even in the 2 dissenting opinions. And, the report ended up producing conclusions that codified the mortgage crackdown that made the crisis much worse. The analogy I frequently make is that the literature on post-2008 housing is equivalent to writing a report on the state of New Orleans since 2005, with input from the world's leading experts, that doesn't mention Hurricane Katrina and concludes that the city should divert expenditures away from levee maintenance to fix its problems. Anyway, there is now a set of think tank economists who say that, actually, housing costs aren't even high, and so complaints about stagnant real incomes aren't legitimate. Americans, on average, are getting richer, they say, and we don't have to spend more on housing than we used to. On the political left, a common refrain is that housing costs aren't the problem - income inequality is. They say that families are having trouble affording housing because their incomes are too low, not because homes cost too much. This is a contradiction of the right-leaning claim that incomes are, in fact, rising. Both groups are wrong because what is making poor Americans poorer is the highly regressive effects of rent inflation on real incomes after rent expenses. They both are wrong in a way that contradicts each other and that sets each group on a mission to undermine their effectiveness to advocate for the very issues that are important to them. #### Mortgage Payments, Then & Now On to the statistical fibs in the article. This first chart from the article is meant to support the claim that new homes were more expensive for Boomers than they are for Millennials. First, it is true for the period from 2009-2020 that entry level homes were very cheap to purchase. That was a result of the 2008 crackdown on mortgage access, so millions of families weren't able to take advantage of it, and, the fact that millions of families weren't able to take advantage of it is _the reason_ homes were so cheap. And, homes were the cheapest in the most affordable neighborhoods where homeownership provides the highest returns. Homeownership declined by about 10% when homes were so cheap. The number of owner-occupied homes per adult declined from about 36% to 33% during a period where age demographics should have been biasing homeownership upward. That equates to more than 10 million missing homeowners. The scale of both the collapse in home prices and the collapse in ownership points to a clear and massive demand shock. It is easy to write that off by believing that the pre-2008 market was characterized by overly stimulated homebuying demand and a supply glut. The blue-pill is one hell of a blinder. During that period, rent inflation was climbing at an unprecedented pace, and rent is the more important gauge of housing costs. In the end, rising rents end up pushing prices higher, too, as they have since 2020. But, the more technical problem with this chart is that it leans heavily on mortgage rates. The fallacious claim it supports is the claim that the average mortgage payment in the 1980s was much higher than the average mortgage payment is today, for the median household buying the median home, and so it is wrong to claim that housing is unusually expensive today. This is a side-effect of our focus on fixed rate and fixed payment mortgages. The 30-year fixed rate mortgage creates an amortization schedule that is highly sensitive to inflation rates. Those mortgages consist of 360 payments, and any analysis of housing costs that focuses only on the starting payment is only telling you 0.3% of the story. | | ---|---|--- Figure 2 It is true that, on the single issue where the only option is a 30 year fixed rate mortgage and the starting payment is the sole binding constraint directing housing consumption, that in that respect homes in 1980 were "less affordable". But, it is not a legitimate way to compare housing costs over time. Figure 3 compares 2 hypothetical mortgages on a home selling for 3x the buyer's income. The red line represents the monthly payment as a percentage of income in a context where inflation is at a steady-state 6% rate, the mortgage interest rate is 10%, and real incomes are growing at 2%. The black line represents 2% inflation, a 6% mortgage rate, and 2% real income growth. _By definition_ , the real total payments over the life of those 2 loans is exactly the same, but because of how the math works on a fixed rate mortgage, the payments in the high-inflation scenario are more front-loaded than the payments in the low-inflation scenario. To be frank, I don't know if they understand this or not, or if they are overemphasizing the starting payment for comparison and they just aren't thinking thoroughly about it because it supports their claims, but anyone who claims that housing costs aren't elevated today because the starting payment was higher when mortgage interest rates were in the teens is lying with statistics. They are telling you 0.3% of the story and not telling you the other 99.7% of the story. Over the entire period that they own the home, home buyers today will be paying much more than buyers in the 1980s did, in real dollars, for the same house. It just so happens that the starting payment amount is the single data point that most biases the comparison against the high-interest rate context, and the tendency to discuss mortgage access in terms of the starting point makes this utmost biased comparison sound reasonable. | | ---|---|--- Figure 3 By the way, you could say that this issue is what my proposed alternative mortgage product is intended to solve. My idea is to have a predetermined payment rate that starts at a known amount, and when the market interest rate differs from that, the difference is applied to the mortgage principal and paid off over time with the remaining payments. In this way, buyers still get the relative certainty that they get with fixed rate loans, but with lower mortgage rates. And, this type of mortgage can be used to flatten the line in Figure 3. Instead of creating payments that take 30% of income and decay to 4% over the course of the loan, or even start at 20% and decay to 7%, safe loans can be specified so that the payment goes from, say, 16% to 7% of income over the life of the loan - still declining in real terms over time and still accumulating equity over the 30 year period. Because my product allows borrowers to pay based on floating rates instead of the significantly higher fixed rates, it can lower the payment line over the entire life of the mortgage in most scenarios. #### Net Worth is biased higher by the housing shortage. The next figure compares net worth of Millennials and Baby Boomers at age 35, showing that Millennials are wealthier than Boomers at equivalent ages (and, that, subsequently Boomers became much wealthier themselves as they aged). Some will argue that a better measure is the median net worth, not the average, because the average is skewed by very rich households. That's probably a good point, though I'm not sure how much difference it makes on the inter-generational comparison. It is true that the majority of the median household's wealth is home equity. I think the more important issue here is the imperfect measurement of net worth. This is the topic of my most recent paper at the Mercatus Center. As I noted in the paper: > When aggregate real estate wealth grew because new and better homes were being constructed, it represented real wealth. For more than four decades, the construction of new homes has declined, and higher valuations are due to rent inflation on existing homes. Higher prices on unchanging assets do not represent real wealth. We are not communally better off because that house in the poor neighborhood in LA with negative amenities that you wouldn't let you daughter move into sells for triple what it used to sell for. Where this creates a bias in the net worth data is that the high price comes from rent inflation that accumulated over decades because the lack of housing in LA pushes rents higher until some 50,000 or so families decide, each year, that being regionally displaced is better than being poor. That home is expensive because families have to feel poor enough to move out of it. Displacement is the primary source of new housing for the families that remain in the shrinking metro area of Los Angeles. If you think that Los Angeles is expensive because the world is beating a path to the sun and beaches of Santa Monica, then you probably won't blink at the notion that American net worth is at all time highs. But, if you think that Los Angeles is expensive because working class Angelinos are beating a path to Phoenix after much resistance and financial stress, then this chart should be puzzling. | | ---|---|--- Figure 4 The problem is that public accounting is not comprehensive. The price of that home includes the capitalized value of all those inflated rents from now until eternity. But, we don't subtract those expected future rent payments from the tenants' net worth. (If they were a corporation reporting their balance sheet to the SEC, they would have to report those future rent payments as liabilities.) Now, this wasn't a problem in the 20th century when the value of homes was based on their size, quality, and location. But, in the 21st century, most houses across the country have an urban scarcity premium attached to their lot, which is what I call the bribe you have to pay the land in order to buy a house under shortage conditions. It's a true shortage that can be measured from metro area to metro area, and I have. If that house had tripled in value because it is 3 times nicer than it used to be, then the higher rent payments would reflect a better standard of living, and net worth would be accurate. But, as it stands, those elevated rent payments are just a transfer, having no different effect on our communal wealth than a mugging would. We add the value of those transfers to the wealth of homeowners, but there is a mathematically equal negative effect on current renters and future homeowners. There is no communal gain in wealth from that, and, in fact, the high property values reflect forms of poverty and stress that aren't reflected in our measured incomes. When the next family gives up on living in Los Angeles, where they have a history, family, a career path, and local knowledge, and moves to Texas or Georgia, public statistics usually reflect an increase in income because they lower their housing costs, but we don't account for all the things they gave up. In short, Millennials that own homes _are_ as wealthy as Boomers were at the same age, but it comes at the unmeasured expense of Millennials who currently rent. Reported Millennial net worth is inflated in a way that Boomer net worth wasn't when they were 35, but is now (mostly at the expense of younger generations). I would say that in 2005, when the migration away from the expensive coastal cities was associated with a building boom in the destination cities of those refugees, it was already worthy of being called a crisis. Those families would have considered it a crisis. Today, when we are unable to match that migration with adequate new housing in the destination cities, so that patterns in rent inflation across the country now match the patterns that the coastal cities already had in 2005, we're well into "crisis" territory. Now, families across the country are paying rents that caused coastal families to choose displacement, but they have no acceptable and affordable location to be displaced to. #### Rent inflation has been really high. Finally, the article shows that rent inflation has tracked roughly 1:1 with nominal income growth for 35 years. It can be easy to understate what that means. Since 1990, inflation has risen by a bit more than 2% annually and the median real household income has risen by about 1%. Over the same period, rent inflation has averaged about 3%. So, the median family today is earning about 40% more than they did in 1990, but after all that income growth, they are not able to afford any better housing. In Figure 5, the black line shows the change in real median household income. The other 3 lines are housing costs as ratios. The black line represents median household income after adjusting for general inflation and the red line represents rents over time after adjusting for general inflation. They have roughly moved together. | | ---|---|--- Figure 5 Over that time, families have cut back on housing, relative to their incomes. The yellow line represents real housing consumption relative to real incomes. That has declined by 20%. In other words, the typical family has a 40% higher real income, but they have only increased their consumption of housing by about 20%. Since rent inflation has accumulated to more than 50%, they are spending 20%+ more of that higher income on rent. If they were spending 20% of the $65,000 income on housing in 1990, they are spending 25% of their $84,000 income today on housing. Comparing a family that has $65,000 income today to a family that had $65,000 income in 1990, the family today lives in worse housing and is paying much more for it than the 1990 family did. And, these averages understate the problem because rent inflation that comes from a shortage is very regressive. From 1995 to 2022, it lowered the incomes of families with the lowest quintile of incomes by 15% compared to families in the highest quintile of incomes, because rents in poor neighborhoods have outpaced rents in rich neighborhoods by more than 25%. So, it is likely that the $65,000 family today is living in housing that is 30% worse than the $65,000 family did in 1990, and is probably paying 30-40% more for it. And, it has eaten up most of their real income growth over the past decade. The reason it plays out so regressively is that as families compromise away parts of the basket of goods and services that we call "housing", the remaining compromises become systematically harder - giving up individual bedrooms, taking on longer commutes, moving to less safe neighborhoods, etc. The salience of the compromises just keep getting worse. This is what the "average incomes are rising" claim is missing. For the families where the housing crisis is really biting, the decisions we are forcing them to make aren't about whether everyone should get to live beachside in Santa Monica. The decisions are stressful decisions - decisions none of us want to make. And it is the difficulty of those decisions that leads to costs rising so far above historical norms. The total value of American residential real estate relative to incomes could never rise 50% because families would like to live in Santa Monica. The only things that could motivate such income-correlated rent inflation are decisions so hard we wouldn't want to contemplate them. All of these outcomes are just in an entirely different universe than what the Boomers experienced in the 1980s. Nationally, real rents had declined from World War II to the 1980s. For decades, families were consuming more housing in line with their rising real incomes. For Boomers, the red line and the yellow line in Figure 5 were flip-flopped. Rising real consumption of housing and moderating rents. There are aspects of my claims that are debatable. Is housing just like education or other services where productivity hasn't improved as much as it has in agriculture and manufacturing, so it just is more expensive relative to other goods and services? Is there no more of a crisis in housing than there is in those sectors? Or are families purchasing housing under duress, or going without it? The homelessness epidemic is the obvious tip of the iceberg that anyone can see. I encourage you to go visit your local parks with a copy of that net worth chart and explain to the folks there how great they have it. Point out that most of them have cell phones, which homeless people in 1970 didn't have, so that living in a tent doesn't technically make them worse off, all things considered. Also, statistically, households are not forming by the millions; families are being forced to leave neighborhoods and regions against their strong preferences; and more often they are paying ransom rents because they are unwilling to move to neighborhoods with negative amenities in order to stop the housing crisis from making them poorer. I wish we could debate those issues instead of having this discourse about whether the objectively important problem exists at all. One easy way to tell if someone is out of touch is if they frame the problem in terms of homeownership. The average home has a price that is about 25% lower than it would otherwise have, given its current rental value, because in 2008 we permanently blocked about 15 million families from mortgage access. For the 88 million households that own homes and the hundreds of thousands of new homeowners each year that can still qualify for mortgages, there is no crisis. The average home price is temporarily elevated for those families - by $100,000s in some markets - but the depressive effect of the mortgage crackdown on prices makes those homes a much better deal for owners than they are for renters. That's not a crisis for owners. The total return on their ownership of their homes over the next 30 years will be, say, 6% annually instead of the 8% it should be or the 10% current homeowners have earned. Not the best news, but also not a crisis. The crisis is distributional, not average. The crisis is among the renters and the millions of heads of households that are holed up either at their parents' homes or in tent encampments on street corners and in parks. In other words, the crisis exists solely among Americans for whom the interest rate on mortgages in 1980 is emphatically irrelevant. Anyone who thinks that should be a central talking point isn't just wrong. They don't even know what question to ask. Upgrade to paid And, by the way, Congress is currently debating whether to make large landlords illegal, which might sound like a reasonable solution to the pundits and economists that think homeowner affordability is the central issue. And it should scare the crap out of you if you know what questions we should be asking about how to solve the _crisis_. The camp that should be irrelevant is, unfortunately, very relevant to the policy debate. And, the decisions families have to make today that you and I wouldn't want to contemplate will keep getting worse if we try to make homes cheaper by banning landlords. Some of the talking points I discussed above are precisely aimed at missing the point, and the policy discussions they have led to will be precisely aimed at making the crisis worse. It's a damned shame. You're currently a free subscriber to Erdmann Housing Tracker. For the full experience, upgrade your subscription. 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