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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NewsTranscript
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