Building from the Ground Up: Reclaiming the American Housing Boom

After reading this book, you will question the conventional wisdom in the financial press. Kevin Erdmann makes a compelling case that the GR was not due to a housing bubble: rather the US has been under-housed since the early 2000’s.During the crisis, vacancy rates in closed cities remained at 4%. In 2007, the alleged peak of the bubble, home ownership rates were normal. Relative to other OECD countries, price rises were not considerably higher. In 2005, homeowner debt was well in line with historical trends. From 2005-2007, almost all new households became renters, not owners. Sales of homes priced under 200k went down 80%. Rents seemed to show a rational pricing in cities.The impetus for the price volatility was government actions that stiffened GSE lending standards and saw the FED raise interest rates. The GSE’s market share in 2007 decreased to 38% from an average of 50% a few years before. House price limits were capped at percentage rises well below house inflation. Sales dried up and cancellations on new builds topped 40%. Compounding the problem was that new construction was in “contagion” cities. As financing dried up, migrants from closed cities stopped moving to them since the appeal of affordable housing was no longer on the table. Homeowners began to rent and first time homeowners decreased.It has now become clear. We are paying the highest rents relative to income since the Great Depression. 2009-2010 saw some of the slowest rates of new housing starts ever. Vacancy rates in closed cities are extremely low. Developers do not build affordable housing because finance is still shut to poorer people and closed cities offer opportunities to sell housing at inflated prices. Tight lending standards still exist as credit scores from 720-760 are borrowing 58% less since the crisis.The two most salient movements fomented by the GR was Occupy Wall Street and the Tea Party. Yet Erdmann’s narrative implies that bankers nor borrowers were at fault en masse. GSE borrowing to those with scores under 740 was never high. Most of the subprime loans issued before 2006 were paid off. Only once there was an economic implosion did subprime look reckless although that abated with lower rates by the Fed. Losses on AAA CDO’s remained low with most of the damage done on vintages after 2008. Some of the riskiest loans were kept by the originating banks themselves indicating they thought it was good risk. For all the stories of novel loan terms, the majority of defaults were due to price declines.Did the government provide a bailout? Only if you think the Fed should stop prices from moving up too fast but not stabilize them on the way down. The Fed actively slowed down housing inflation with higher rates without worrying that house prices were rising because of constrained supply. Rates were even kept at 2% after Lehman failed.

The book was pretty boring and just kept talking about 2008 in the crash and why we need more affordable housing in big cities yada yada yada we all know big cities need affordable housing but it’s never gonna happen so it was sort of a just a pipe dream dumb topic what are winding

Erdmann does not disappoint and follows up on Shut Out with another compelling challenge to the conventional wisdom about the housing bust/GFC. Housing market analysts and fans of Shut Out (which should be read before Building from the Ground Up) will have a lot to enjoy and consider in this work.

Erdmann is back with a shorter, more accessible treatment of material he introduced in "Shut Out". Everything we learned about the housing crash & Great Recession was wrong! For me in particular, I've learned from Erdmann's work to distinguish the 2002-2005 price boom from the 2006-2007 period, which was much weirder. That's when funky financial products appeared, and the housing market started to come unglued. Some areas still had booms (or what looked like booms), others had already peaked.It's frankly frightening to read this in 2022. My news feed has daily articles claiming we're in a housing bubble or that prices are set to collapse. But that doesn't make much sense, since rents are at an all-time high now and the housing market is still trying to work off a missed year of production. If the Fed screws this up again, are we going to have another crash? Or would it look entirely different because the CDOs and swaps are absent this time?(Rumor: this book was supposed to be called "The Canary Had it Coming", which captures the message in a way the final title doesn't - nothing's perfect).

Building from the Ground Up is a truly excellent book. It is deeply researched, contrarian, and well-written. The author reframes recent trends in housing by zooming out much farther than most economic analysts in the space, situating short-term market phenomena within a much longer, more fundamental, and dysfunctional trend. It will be edifying for policymakers, investors, and casual observers, alike.