The Prof G Pod with Scott Galloway
00:26:43 · Aziz Sunderji
[00:26:43] S3: Yeah. So I think part of the problem that's overlooked is that the people who build... The companies that build housing need to achieve certain returns. So if you look at Austin, for example, we had like, you know, a boom really across the Sunbelt of apartment building. And so why why did that happen? Does that kind of lead the way forward? Is that a solution for the country? Well, I think these builders were responding to, one, rock bottom interest rates during the pandemic. And then two, the fact that these rents across the Sunbelt were were soaring. So, like, there's a lot of focus on how Sunbelt rents have come down because of all this building, and that's true. But that building was unlocked firstly by zoning. You can't build where it's illegal. But secondly, by these conditions where interest rates were low, but rents were really, really high, and that sucked in all this development. And that led to today, where rents are much lower. So, you know... And again, if you look at what's happening in Austin today, these builders have pulled back now at these lower rents. You know, rents have fallen a ton, like, you know, 2021% in real terms in places like Austin. That's great for renters for now, but it also means that builders are pulling back. Cause they're like, I'm not gonna make any money in this market anymore. And what I'm worried about is that it's gonna take higher rents again in places like Austin for builders to come back to the market. And so it kind of speaks to the problem that builders need to make a return. And I think that we need to find ways to lower that return that they need. That's a major lever on affordability in a lasting way. So for example, Fannie Mae, Freddie Mac, they're huge players in the residential mortgage market. They, you know, they buy up. They securitize residential mortgages. They're not very active in the market for for loans for for constructing apartment buildings. And they very well could be. If they got into that market and provided cheaper financing, the government is able to finance cheaply, much more cheaply than the private sector, you could lower the the rates of return that builders need and you could have building at lower rates of rent growth.
00:28:40 · Scott Galloway, Aziz Sunderji
[00:28:40] S1: But at the end of the day, that's that's a subsidy. It might be the most efficient one, but it's a subsidy to encourage building, right? [00:28:45] S3: It is a subsidy, but it's a relatively good one. You know, all a lot of the measures that we talk about are subsidies. They all have leakages. They all they all they're all bad. They all have downsides in various ways. But this one less bad. The incidence of this subsidy falls in a way that it actually gets better results than many other approaches. [00:29:04] S1: So on the show we talk a lot about young people and relationships. And specifically how hard it's become for them to hit a milestone or the milestones that the parents took for granted. Finding a partner, a home, a family. And housing sort of sits at the middle of that. Eighty percent of married adults own a home versus forty eight percent of never married adults in 2021 data. Among first time buyers, 50% are married couples, 25% single women, 11% unmarried couples, 10% single men. There are now more single women who own homes than single men. How does housing, well, the question I would have, and it's a genuine question, not a comment. What came first? A lack of relationships or formation of relationships or the fact that people can't buy homes, which creates another barrier to forming a long lasting relationship. Any thoughts on the connection between housing and relationships? Aziz, I'll start with you.
00:30:01 · Aziz Sunderji
[00:30:01] S3: Yeah. So I think it goes both ways. If you look at people coupling us less than they did historically or doing that at older ages, if you look at the drop in fertility, that's happening all over the world. It's happening in all kinds of places, even those where home prices have not gone up that much. So there... There's something there that is distinct from housing. But I think in a place like The US, those two issues are are really are really tangled up. As I was saying earlier, I, you know, I did some work trying to trace, you know, where is it going wrong for young people? Like, if you look at how many young people at the age of 30 own their homes versus baby boomers when they were 30, that's like an 18 percentage point gap between the two. And I was trying to try to trace out, like, where does that go wrong? Is it, you know, if you think about the different steps you have to... The hoops you have to jump through to get to owning your own place, you're you're living with your mom and dad or with roommates. You gotta move out, get your own place. You might get married along the way, and then you might buy a home. And the big leakages, that that 18 percentage point gap between boomers and millennials at age 30 in terms of homeownership, a ton of it is coming just from kids not even moving out of their parents' home. So, like, a third of millennials at age 30 live with their parents. The number for boomers was 19%. And then even contingent on moving out, marriage rates are much lower. If you look at the number of, millennials who... There's the share who are in their own home and married, they actually own homes at a rate that's not that much lower than boomers did. But this leakage is happening happening much earlier. And, I think part of it is cultural. People are doing all this stuff later in life. The good news is that by age 40, that gap shrinks. That 18 percentage point gap drops to eight percentage points. So it does get better over time. And part of this is just, you know, you know, delays in life. But also part of it certainly probably is that, you know, culture has changed and housing is more expensive. And so even just getting out of your parents' home, getting out
00:32:03 · Scott Galloway, Aziz Sunderji, Kyla Scanlon
[00:32:03] S1: of a home you're [00:32:03] S3: sharing with roommates, and heading your own household even as a renter is much tougher than it was historically. Kyla? [00:32:10] S2: Yeah. I think that people are getting into homes later, like Aziz is saying. And even when you look across generations, so, like, Gen X and boomers were in homes at the age of 28, a much higher rate than Gen Z is now, right, who are 28 years old. So I think there was a faster track. It almost feels like I've heard before that 25 is the new 18, that everyone is just, you know, pushing things off a couple years. It makes sense with all the longevity technology. People are living a whole lot longer and a whole lot healthier. And so it makes sense that there is... There's this delayed life cycle, but I don't know if, like, the way that we talk about that has quite caught up yet as people are taking a little longer to age into the economy and to find their stable footing, to find partners. But it does seem, yeah, like as he said, that they eventually find their path, but it definitely is taking a whole lot longer than it used to. [00:33:06] S1: So recently, Zohran Mamdani, the mayor of New York, ran on freezing the rent. Last Thursday, that freeze went into effect on roughly 1,000,000 rent stabilized apartments in New York City and made an ongoing lawsuit made by a group of landlords. Curious to get your thoughts, and I'll start with you, Kyla, on the thoughts of a rent freeze as a solution.
00:33:06 · Scott Galloway, Kyla Scanlon
[00:33:06] S1: So recently, Zohran Mamdani, the mayor of New York, ran on freezing the rent. Last Thursday, that freeze went into effect on roughly 1,000,000 rent stabilized apartments in New York City and made an ongoing lawsuit made by a group of landlords. Curious to get your thoughts, and I'll start with you, Kyla, on the thoughts of a rent freeze as a solution. [00:33:27] S2: Rent control definitely tends to complicate the supply and demand mechanics, you know, to Azeez's point about people wanting some sort of return. Landlords wanna return to... They want to match the market forces that are happening in a city. So I think that the rent freeze is an attempt to address how painful housing is, especially in a place like New York, but the economics of it are are quite complicated, and it can end up exacerbating existing problems. [00:33:59] S1: Is this?
00:34:01 · Aziz Sunderji
[00:34:01] S3: If you if you look at the policies to help renters, there there are there are two big policies that most economists feel very differently about. There's rent control or rent freezes. And I think there's a very strong consensus among economists that that's not a great approach for the reasons that that exactly that Kyla mentioned. I would add also that it's a little bit unfair. Like, you know, the the distribution of rent controlled apartments, it's kind of arbitrary and it's kind of unfair. And it also disincentivizes supply. So you have all these problems with it that leads to that that policy really being viewed pretty negatively by most economists. On the other hand, you have section eight, which I think we we just don't talk about enough. Section eight vouchers, which are are not arbitrary. They're given out according to need. The problem with section eight, and just to be clear about what section eight is, it it says that if your income is too low, if you're struggling with housing, the federal government will give you a voucher that pays such that you you pay 30% of your income towards housing and the government picks up the rest of it. That is a policy that I think is widely and the people who certainly disagree with it, but it is compared to other policies much more highly regarded than rent control. The problem with section eight is that it's just underfunded. Like we have this program here. It could be very helpful for all kinds of people, but only one out of four, roughly one out four, one out of five people who qualify for it get these vouchers because it's simply underfunded.