The Prof G Pod with Scott Galloway
00:00:01 · Scott Galloway
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00:02:16 · S5
[00:02:16] S5: Hey, Scott. Have you ever taken a reasonably deep wonky dive into what would really make housing affordable? I just keep wondering what would it really take.
00:02:26 · Scott Galloway
[00:02:26] S0: Thanks for the thoughtful question. First off, what do we get wrong around housing? Probably the worst thing we've done in housing is everyone complains about bureaucrats. The worst thing to happen to the housing market, especially for entrants, is we took power around housing permits out of the hands of bureaucrats, local civic officials, and we put it into the hands of homeowners. Now what are the incentives of a homeowner? They live in a neighborhood, they like the fact there's not traffic, they like the fact there's not construction, and free gift with purchase, and everyone, this is the atmospherics, is they know that the less housing that is built, the greater the scarcity of housing, which creates their primary asset, or incentivizes or fuels an increase in value of their primary asset. So the people in charge of issuing permits for economic growth and to provide more housing to meet the needs of new entrants who want to have their own house, the incentives of the people issuing permits is totally contrary to the needs of entrants. And that is a larger metaphor for the country the last forty years. And that is the incentives have created regulatory capture such that the incumbents deny admission to the club such that their membership goes in value. This is a supply problem, not a demand problem. And the way we approach it and actually end up making things worse is the government provides tens of billions of dollars in what is a good intention, and that is creating more demand. Low income housing tax credits, Tax advantage on mortgage interest rate, which is tax deductible, right? First time home buyers credit. All this does is create more demand when we don't address the supply side and maintain a national kind of nimbyism as a public policy, we just again further escalate the price of housing. We need to address the supply side. We need federal legislation and local legislation that says look you cannot you cannot access federal funds if you do not, or if you create a NIMBY like situation where it's very hard to issue permits. We need to provide tax credits to developers such that they have greater incentives to build.
00:04:34 · Scott Galloway
Some examples of places that have done a decent job both Austin and Minneapolis have increased affordability by getting rid of certain regulations such as height limits, or a regulation that you had to have a car for every parking spot for every new unit built, which added on a ton of capital and expense to build sometimes underground garages in high density areas. According to a 2020 Brookings study, locals zoning regulation prohibit building anything other than single family detached houses on 75% of the land in most US cities. High limits and minimum lot sizes can further restrict apartments. Smaller multifamily buildings have become rare. Duplexes, triplexes and fourplexes accounted for 7% of new home completions in 1979. Get this, it's 1.1% in 2025. And why does that matter? Nationwide, 20% of middle income renters couldn't afford to pay their full rent at least once during 2025, up from 14% in 2024. Let's look at that same number for low income renters. It's 28%, up from 24% in 2019. So I think housing is so Robert Shiller did a study. And In his study he was able to prove that housing underperforms most other asset classes when you take into account taxes, maintenance, and all those things. Why do I think that study is incomplete? The psychic income and the component of wealth building is what is so powerful about housing. It is a step towards a key relationship. Whether you have a serious boyfriend or girlfriend, whether you decide that you want a bigger house to take care of your parents at some point, whatever it might be, pride of ownership, something, you know, having that asset. Owning your home, owning your nest has real psychic ROI. It just does. And while there are some cities where you're better off renting, essentially you take the yield, you take year long cost of the rent, divide it into the cost to buy it. And if above a certain return, you probably want to buy. If it's below a certain return, in other words it's cheaper to rent, you want to rent. So I'm not saying everyone has to buy. That's a, you know, you never lose in real estate. And the American dream, those are all brought to you by the American Realtors Association. It does make sense in many cities now in this market to rent, not to buy. And you wanna speak to people smarter than me. You wanna use AI.
00:06:51 · Scott Galloway
You wanna talk to friends in the real estate industry and see if it makes sense for you to buy a home. Having said that, real benefits, psychic benefit, and also the economic benefit not captured in Schiller's analysis is the following: if someone says to you you need to spend $2,100 a month and put it into a Vanguard low interest index fund, You get an opportunity to go to Cabo. You think, oh, you know, I really would like to upgrade my car. And okay, you don't put the $2,100 that month into Vanguard. People typically make their mortgage payment, and that is it's a means of forced investment, which is good for younger people. It's good for all of us if we're trying to you know, you don't want to have your house repossessed. So you tend to plan and impose a certain amount of self discipline around investing in an asset that does grow. It may not grow as fast as the S and P nationally over a long period, but if you get lucky in certain areas it does grow as fast or even faster. And also it's really tax advantaged. When you sell it, you 250,000 or 500,000 if you're married of tax free income on the upside of the sale. It also against the above mortgage interest rate tax deduction. So there's psychic benefit, it's forced savings. So I do think housing is an enormous issue for The United States. The thought of unleashing kind of the private sector, while also reducing, if you will, the ability or the inability, unshackling the housing market through economic incentives, and also pulling down or lowering the bar on what can get built by national and local NIMBY laws. The big mistake we make in housing is believing it's a demand problem flooding the market or buyers with additional tax credits, which just gives them more money on the same base of supply, which drives up the cost. The issue is a supply problem, and we need to refocus our attention on the supply side versus the demand side. I appreciate the question. Question number two comes from Jackson who emailed us. He says, hi Scott, you've talked about selling Netflix at a loss early on, and selling real estate in Potrero Hill, and I imagine those kinds of missed opportunities haunt you differently than a straight up bad bet. I recently sold a large position in a big tech company I worked at for six years, forced to liquidate to close on a Brooklyn townhouse. The stock has since run up significantly.
00:09:13 · Scott Galloway
I know the sale was the right call for my family, but the number is real and it stings. How do you mentally separate? I made the right decision with the information and constraints I had from the raw regret of watching the gains you left behind. My brother, get used to it. It's just the cruel truth of capitalism is you're gonna have a scarce amount of resources. At some point you're probably gonna decide that it's worth it to send your kid to a great school that he or she got into that just costs an arm and a leg, and you're gonna have to sell stuff. And some of the stuff you sell will go up in value. Now the way you console yourself on a very existential level, or how I console myself, is that something that just changed my life is my colleague at NYU Adam Alter studies regret, or one of the things he studies regret. He spent a bunch of time in palliative care and interviewed people who were at the end. These are people that have zero fucks to give, have real perspective around the end of their life. And their biggest regrets in reverse order are number three, not staying in closer touch with their friends. Two, not living the life they wanted to lead. Not one, their parents or society or their spouse or themselves wanted to lead, or felt they should lead instead of living the life they actually wanted to lead. But the number one regret of people at the end, are they wish they'd been less hard on themselves. I'm like you. I have a tendency to focus on all my mistakes. I did a speech at UC Santa Barbara on Friday, it went so well, and I'm happy about that. But I'm mostly fixated on the one or two things I could have done better, or I said something stupid or provocative, or I dropped an f bomb where I really didn't need to. That's what I obsess about. And that's part of being I think successful, is really trying to get better at something and recognize your mistakes, I have a tendency to dwell on them. Anxiety is about fear of the future, and depression is about fear of the past, or upset over the past. And by the way, okay, the stock has gone up you've sold, but so likely has the value of that Brooklyn home you purchased. It's not like you took the money and put it in treasuries, or invested in another stock, or invested in Nike, which got cut in half in the last year, or Netflix, got cut in half the other year.