'What Does It Mean For The Future Of The American Dream?': Banks Raises Concerns Over Building Costs

yesterday

During a Senate Banking Committee hearing prior to the Congressional recess, Sen. Jim Banks (R-IN) questioned witnesses about dramatic increases in housing costs, and the gap between the cost of building a home and the cost of buying a home.

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Transcript

00:00Yes, ma'am. Thank you as well. Senator. Thanks. Mr. Chairman. I want to I want to thank you for having this hearing

00:06This is such an important topic and I've learned so much. I appreciate

00:11Everyone who's been here today the price of a typical home in

00:16Indiana has gone up

00:1860% in five years and I think mr. Chairman that what we're talking about today how how how much

00:24Home ownership is linked to the American dream is this is fundamental to why we're here and what what we're here to work toward

00:31I that's why I think this hearing is so important

00:34Dr. Glazer, you've you've studied and written papers on the differences between

00:40Building a home and buying an existing home and I wonder if you can unpack some of your findings

00:46What does it mean for the future of the American dream when it it as that gap between the two changes?

00:53What what did it used to be? What is it now? Maybe I'm not making enough sense, but there's there's a divide there that's changing

01:01Rapidly, and I wonder what that means. Thank you senator. That's that's a wonderful question

01:04It gives me a chance to sort of talk a little bit about some of the basic evidence about how we know how powerful

01:08zoning is

01:09so the basic logic of economics is that if you have a

01:13Relatively competitive market the price of what it costs to buy something should be close to what it costs to make something, right?

01:19otherwise, you know

01:20More competitors are going to come in and and construction is a really competitive industry

01:25But increasingly about 20 years ago a body of evidence that I was involved with primarily

01:30Documented a growing gap between how much it cost to buy and how much it cost to build

01:35in

01:36Really dense environments you can just look at how much it cost to buy an apartment in New York City versus how much it cost

01:40To build and the beauty of that is the building is just physical

01:42You can always just ask you add an extra story and it was twice as much right 20 years ago

01:47And it's more today right and so I heard some language about zoning adding 25%

01:53This is more like land use controls adding doubling the effective price

01:57In lower density environments, it's a little bit harder because you've got a price to land and you don't actually often know that

02:02but one of the tricks that we have

02:04Is that we can compare how much an acre is worth if it extends an existing lot?

02:09Versus how much an acre is worth if it sits under an existing lot and the answer is in many of our environments

02:15It's ten times more valuable if it sits on an existing under a house versus extends an existing lot

02:20and

02:21so with those those tools

02:23we can say that in fact the gap between the land cost plus the housing cost and how much it cost to buy has just

02:29Gone way way up and that's a way that we know that you know

02:32It's one of my favorite ways to knowing that that land use regulations are really playing an outsized role of this now

02:38I think of Indiana as being typically a place where you know, it is relatively

02:42Easy to build but it is clear that places where I once thought it was easy to build are becoming harder and as it becomes

02:48Harder that wedge between buying costs and building cost has just has just expanded. What what's healthy?

02:55What do we want that gap to look like?

02:58I'd

02:59You know

03:0020% for land cost 25% land cost you point to a year or a time where there was a healthy gap between

03:06Building and buying. Oh, well, you know

03:08Senator in for most of the time when we started working

03:11It was actually typically less expensive to buy than it was to build in most of America

03:15And the reason for that is houses has been mentioned for houses depreciate

03:18And so the new houses that were being bought are actually at a premium

03:21So building a house was actually more expensive than it was to buy a typically used house

03:25So typically it was negative

03:27That would be a fantastic thing to get back to that where it actually costs more to build than it does to buy the typical

03:31home, I think

03:33We understand why it's zoning and regulations and those issues that are driving it one other question I had for you a lot of the

03:41affordable

03:43housing programs the federal government are focused on

03:46Building apartments and apartments are good and a lot of a lot of Hoosiers live in apartments

03:51But there are a lot of first-time homebuyers that want to buy a single-family house

03:56Rather than live in a apartment. We can't talk about how we can reform some programs to

04:01Give first-time homebuyers of an opportunity

04:05using federal support

04:07To it to achieve that American dream rather than living in an apartment

04:10One thing I would think about is to think about how particularly HUD treats manufactured housing

04:15I think there are some very exciting things that are going on in manufactured housing

04:19In fact, they're exciting things going on in the state of Indiana and manufactured housing

04:23You know the the city of Chicago is actually looking to source its manufactured homes for public housing from Indiana

04:29in fact from an Indiana producer

04:31I

04:32Think making sure that HUD doesn't discriminate against manufactured housing would be a great thing

04:36In terms of making ordinary homes affordable to first-time homebuyers and then in general just sort of leaning against local land-use regulations

04:43And it's important to remember that

04:45Even if the homes are being built are sort of too expensive for first-time homebuyers because they alleviate the pressure on the used housing

04:51They're still good for affordability for for first-time buyers really helpful and interesting. Thank you very much. I yield back. Thank you senator

04:58Thanks, senator banks appreciate that senator warnock

05:03Well

'What Does It Mean For The Future Of The American Dream?': Banks Raises Concerns Over Building Costs

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