2341: The Influence of Charlie Kirk, Housing Shortage, Not Oversupply: Kevin Erdman Debunks the 2008 Great Recession Myth

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You'Ve got the best podcast going. Jason, I love your show, man. It's good stuff. Thank you. I really appreciate it. What I wanted to share was I. My wife and I, for the first time ever, paid effectively no income tax in 2022 through doing a cost segregation study and generating about a $200,000 paper loss on our real estate. I'm a real estate professional and it really works.

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's an successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants, and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your financial independence day. You really can do it. And now, here's your host, Jason Hartman, with the complete solution for real estate investors.

You create a company that's like, like close to being a fascist. And then like, okay, how am I. Sorry, let's go through this. How am I a fascist? Dude like you? Can you name one thing I believe that's fascist? You believe that like, you are. But I'm such a bad fascist, I let the people would disagree. Open mic to talk to me for two hours uninterrupted. Okay, I'm an awful fascist. I'm more like a free speech liberal the 1970s, not a fascist. But I just want to say Turning Point USA is a evil company that was funded by thousands of fracking companies and that just. No, it's not thousands, but we do have some frackers that give us money. But yeah, and then all it is is making the rich from more rich. Fascism to fracking. That's all it is. That's all it is. Okay, again, I'm happy to have a debate. I can see you're getting kind of fired up. I'm sorry, but why? Why are we evil? Like, we're having a nice discussion. You're calling me because it seems like you just want the rich, get even more rich. Like, we haven't talked about the rich at all. I mean, so do you. You don't even know my positions on this stuff. At all the wealthiest people absent Elon Musk are all on the left. Jeff Bezos, George Soros, Mark Benioff, Mark Zuckerbergs, on the left. Yes. Can you Name1Tech CEO outside of Elon Musk that is a conservative? I personally think Peter Thiel. Yeah, that's one. That's one. Larry Page, Google on the left, worth $120 billion. Sergey Brin, Google, $130 billion on the left. Mackenzie Bezos, Jeff Bezos. If they're on the left, what has they done that was like, quote unquote, to do the left stuff? Well, okay, so Larry Page gives money to left wing NGOs all the time. Like, if you're on the left, I don't think you would ever be this rich. Well, they are. You know why? Because. Because they're not. No, because they're not. The left is a scam the left uses.

How is this?

Let me tell you why. It's a good question, actually. The left uses people like you that think that, oh, we're gonna fight the rich. Well, they protect their oligarchy while you guys have to keep on working hard and never own anything. When we conservatives are the ones that actually want to restore the American middle class and, and bring jobs back to this country. Let me finish, let me finish. The left uses people like you every day. Who is funding do. I have never seen a leftist organization come to campus spreading their propaganda because the whole university is a leftist organization. It's liberal left. There's a, there is a clear cut difference between a leftist and a liberal. You're coming after this in a good way, because every major powerful, wealthy person in the country, over $100 billion in net worth, with the exception of one person, Elon Musk, is on the cultural left and gives money to the left. And you guys give them a free pass because you think that we're fascist, when in reality we're the ones that are actually fighting to destroy the oligarchy the most.

Greetings, empowered investors, and welcome to episode 2341. Well, the news has been out for a few days now, and it is a very sad day in America. And for free speech around the world, of course, I'm referring to the assassination of Charlie Kirk, the cold blooded, absolutely ridiculous assassination. I mean, here is a reasonable person. Yes, he believed what he believed, and I happen to agree with most of his beliefs. But, you know, you just cannot have a world where you have political violence like this. It's just absolutely pathetic. And this story, of course, is unfolding and the conspiracy theories are out there, and the mainstream narrative, I think, has a lot of problems with it. It's just like the first attempted Trump assassination. I mean, it's just like we're moving back to the 60s where we had all these political assassinations, or, you know, in the early 80s with the attempted Reagan assass. It's absolutely unbelievable that we're living in a time where this goes on. But, yeah, the stories are developing, and I would really encourage you to question the mainstream narrative. For example, let's move back to Butler, Pennsylvania, with the first attempted Trump assassination. I mean, you think this kid acted all alone, Right? It's just unbelievable. Any bad guy that's planning to do such an evil thing like this would want to definitely succeed, because if they don't succeed, they probably will never get the chance again. Right? That's the way they have to be thinking about it, because of course, security will tighten. Like Ben Shapiro, for example, canceled all of his public speaking engagements right after the Charlie Kirk assassination. So the idea that these young kids are basically doing this is just ridiculous, frankly. There's just no way. So I'd really encourage you to check out some of the theories that are going around. You're not going to hear them on the mainstream news. And again, I hate to say it like, I hate to be thought of as a person wearing a tinfoil hat, but we are living in an age where almost everything has just become a lie. It's absolutely shocking the way the media is lying to us and the way the deep state is lying to us. You just can't sit back and think you're listening to, like, Walter Cronkite anymore. I mean, you know, I almost said Dan Rather, by the way, remember when he got caught in his lies. Journalism does not exist anymore. I mean, in any real way. There's hardly any investigative journalism, and the powers that be are so powerful, they have consolidated their power and the money behind them is just making truth a thing of the past. So please, keep an open mind and check out alternative media outlets and ask a lot of questions, because nothing is as it seems. It really, really isn't anymore. So today we have got Kevin Erdman, a housing analyst on the show. He has a really interesting perspective. And right after this interview that was recorded just about two weeks ago, I met with him for lunch. We spent several hours together. He lives locally here in the Phoenix metro area. We went and had coffee after lunch, discussed the housing market, and today we finally got our rate cut. It's too little. It's Too late. But things, they are a turning, I'll tell you that. I mean, there's just a lot more interest in investments and housing and everything that's going on just in the past couple of months. So the doomers have definitely been proven wrong. And with rate cuts, they will be proven supremely wrong. But we'll see how that all plays out. It seems to be a very, very slow moving thing that was not in effect, by the way, I just did that. We'll see, of course, where that doomer narrative takes us, but it just doesn't seem to pan out. And if it didn't pan out when they tripled the cost of money, it is very unlikely to pan out in any other circumstances. So we will be talking about this stuff and analyzing deals and analyzing the market in general at our upcoming event in Phoenix, Jason Hartman University. That is just what, like 10 days away? I hope you'll join us. Go to Jason hartman.com Phoenix Jason hartman.com Phoenix we will have basically a full day of education with yours truly and some other guest speakers and that will take place over two days because that'll be split up Saturday afternoon we're going to get on the bus and we're going to go tour properties. And the exciting new things at this event are and these are new things. We're going to discuss home equity investment, a really exciting way that you can get equity out of your property without any debt, without any payments and really be able to use that money to do my refi till you die plan on steroids. I mean, just to take refi till you die and put it into warp drive. Okay. And make it go faster and better and easier because again, no new payments, no new debt, nothing on your credit report. Just incredible. And I don't want to say nothing on your credit report. There is an inquiry on your credit report, but not any new debt added to your credit report. Okay? That's the distinction. So we're going to discuss that. And for the first time ever, and I have waited about five years to bring this up, you know, we will sell no wine before it's time over here at Empowered Investor, and that is co living. We're going to discuss some very, very unique co living opportunities. Properties that you can buy for around 550,000 that generate approximately $8,000 per month when they're fully occupied. I mean, phenomenal return on investment for these properties. So really exciting new stuff. And the other, I guess new thing, but it's not totally wild. New is those last two things are and by the way, let's just go back to the co living for a moment. You know, I waited, I really waited to bring this to you because I wanted to make sure they got past some of the growing pains and some of the problems. Like I we will sell no wine before its time. As Ernest and Julio Gallo used to say in those old commercials. God, I really am dating myself, huh? Hey, speaking of dating myself, we're also going to celebrate my birthday because it is right after this event and we're going to do that on Saturday evening and have some fun. We're going to have a great dinner together. So that'll be great. But back to the co Living thing. You know, when I checked this out about five years ago, I was very skeptical and I just didn't want to bring it to you. So I've been watching this and now it is ripe, it is ready and we've got the teams lined up and that's going to be a great opportunity. So co living home equity investment and what is the other thing? Well, the other thing is not as crazy new or wild, but it is very, very motivated. New builders, new home builders that are selling properties with giant incentives that we have pre negotiated for you, okay, Incentives for closing costs, upgrades packages that are just going to blow your mind and buy downs to make those mortgage payments even lower than they already are because we have the lowest mortgage rates in almost a year now. And we had another Fed cut just announced. So that's exciting. It is too little, too late, but at least we're moving in the right direction. I think we're going to see a couple more cuts, maybe one more this year and then some more into next year for sure. And good old Jerome is out. We know he's getting out. It's not that many months away before he's gone. And we're going to see a much more accommodative Fed chair now. What will that do? Of course that means upward pressure on prices as housing becomes more and more affordable. A lot of very good stuff to look forward to there. So join us for that jasonhartman.com Phoenix and one other announcement I do want to make, and that is my chatbot, the AI, the clone of yours truly. You know, a lot of you have a lot of questions about this, that and the other thing, and this is trained on 1800 of my podcast episodes. It is really quite good. In fact, I would argue that it's better than asking the question of me. Right? And it's totally free and available to all of you just go to jasonhartman.com AI and ask it anything. I mean, try and stump it. It's our fourth attempt at this. We've had this chatbot for maybe a year or so and it is good. A lot of you are using it. Now what's interesting is this, is that those of you, we look at the statistics once a week of the usage of the chatbot, okay? And by the way, this chatbot, you can text with it, but you can also talk to it. You can literally talk to it on your phone and it has like a clone of my voice and it'll answer any question you want. It's got not only my knowledge, but it's got the whole Internet behind it as well. So it's pretty incredible. It really is. Anyway, take advantage of that. Get your questions answered. Ask it about refi till you die. Ask it about the Hartman comparison index. Ask it about inflation induced debt destruction. Ask it about self management of your properties. Ask it a specific question. See if you can stump it. Ask it. You know, I have this property in such and such and it does such and such and what should I do with it? Should I keep renting it? Should I sell it, Should I refinance it? You know, you ask it those kind of questions and see how it does. And, and if you can stump my AI chat with a fair and reasonable question, you are invited on the show and you can tell us how you stumped it. And then I will answer the question. Hopefully I can and you won't stump me. But we'll see. Anyway, that's all that's available for all of you. What we're noticing. Oh, here's what I wanted to say. What we're noticing is that those of you who are using it are using it all the time. You're just using this as a tremendous resource for your financial freedom and you're coming back to it many times a week in some cases. But we're not getting a lot of new users because I just haven't really mentioned it enough. And I want you all to take advantage of this. It's a great tool. Jason hartman.comai or you can find it at the front page of our main website, which is jasonhartman.com or on the front page of propertytracker.com and inside the property tracker software, we put it there as well. Just click on that little superhero character that looks like the one on my shirt right there and the superhero will help you answer any of your questions, any question you could possibly have. Take advantage of it, totally free. And so far it's unlimited. We may have to put some limits on it if it gets too expensive, but right now it's unlimited. So you can ask it everything and anything under the sun and get your answers. Anyway, we hope to see you just real soon here in Phoenix. We're going to have a great property tour and educational program. So that's coming up. Jasonhartman.com Phoenix without further ado, let's get to Kevin Erdman. It is my pleasure to welcome maybe one of the most interesting housing analyst. This is a guy I've been wanting to interview for a while. I love his work. And it's Kevin Erdman. He's the author of two books, Building from the Ground Up, Reclaiming the American Housing Boom and Shut Out How a Housing Shortage. Yes, you heard that right. How a Housing Shortage Caused the Great Recession and Crippled Our Economy. Kevin, welcome. How are you? Yeah, great.

Thanks for having me.

It's good to have you. So, you know, most people would say, and you might change my mind on this because I probably would have said that, that the reason we went into the housing Crisis in the 2007, 2008 era is because we had an oversupply of housing. Do you differ with that?

Yeah, I think we, we had even in 2005, our biggest problem was we didn't have enough housing.

Okay, that's mind blowing. Most people, you're, you're like the, you're a lone wolf. I think I haven't heard anyone else say that. I mean, that's just huge. That's a giant statement because many have tried to compare the era we're in now, really for the past several years to 2008, saying we're going to have a crash, we have an oversupply. Of course, I completely disagree with that thesis. I think we have a housing shortage. But how would we have had a housing shortage in 2007, 2008? I mean, you look at the charts. There were a lot of houses and houses sat on the market for a long time. And you know, there was a foreclosure crisis because people couldn't sell fast enough. How do you get there?

So I'll start off with sort of a little detail and then, and then I'll give you the broader story. The little detail is that and there's a, there's a post I have at my substack on this Joseph Stiglitz, who's a Nobel Prize winning economist, just recently, in the last year or so, talking about the Nevada market and he had this whole story about how they, they built all these houses in the desert that, that were. That nobody wanted. And, and, you know, and again, you know, told that story of there being a lot of housing and that's what caused the crisis. And if you just, you can go to Fred and, and, you know, look up permits in Nevada or permits in Las Vegas.

So that's the Federal Reserve, the St. Louis Federal Reserve website. Fred, that's okay.

Yeah, yeah, I think it's what Fred.org I think is the, is the, is the address. So you can type in, you know, the number of permit, the housing permits in Vegas, you know, to make it sort of level over time, you know, divide it by population. So it's sort of permits per capita from. You can get data from probably like 1990 to the current time. There was no building boom in, in Las Vegas. The, the number of homes permitted in 2005 was no greater than it had been in any typical year for the, for the decade or whatever before that. So there was a spike of demand to get into Vegas that was mostly people moving out of California because they have a shortage of housing that I think anybody can easily imagine that even in 2005, LA and San Francisco had a shortage. Over the course of the 2000s, that shortage led to this flow of families out of those cities looking for a place with housing. They went to places like Vegas and Phoenix that Vegas didn't build any extra housing for them. Phoenix built a little bit more. And so those places look like bubble cities, but they were really not even keeping up with the demand that was coming from cities that definitely, clearly nobody can debate. They have a shortage all the time. And so that's really the story is that there was regional shortages in New York, Boston, Louisiana, San Francisco. Those created a migration event that, that from the Northeast they go to Florida, from California they go to the Mountain West. And so those cities, you know, had technically had a bubble in the sense that there was this spike of demand that probably wasn't going to continue forever and those prices in those cities were going to revert to a norm. But it was all triggered by a lack of housing, regional lack of housing, and then an inability of those other places to keep up with the demand of families moving out of those places. And, you know, even looking at any of the cities like that had a little bit of a building boom like Florida, the Florida cities, or Phoenix, by 2008, you know, starts. Housing starts, started to Decline by early 2006. By 2008, there was no city in the country that had construction trends that, that you could still say, you know, were above a sustainable level. The construct. By 2008, construction everywhere was already below a sustainable level.

Level. Okay, so it sounds like. Just correct me if I'm wrong here. I want you to say this another way maybe because this is a pretty big theory, okay? It's a pretty big statement on this. It sounds like you're saying there was a regional housing shortage in, say, the coastal markets, and that led to developers building more in the markets those people would migrate to. Yep. Okay, and then they overshot. Is that what happened?

They didn't overshoot.

So why does Phoenix have a bubble? Why did Phoenix's bubble.

So, so first, because Phoenix.

And by the way, you know, look, Kevin and I are both in the Phoenix metro, okay? First of all, and I always liken it to a wave, right? There's this wave of migration and money that leaves California because, of course, the California government is a disaster and then some. Okay. And. And so people leave for a lower cost of l. You know, I call it the water theory, right. If you, if you spill a glass of water, it goes to the lowest point. And money does that too, right? It finds the best deal. And so when you think, I could have a better quality of life in Phoenix than I can in Los Angeles, I'm going to move and so I'm going to take my money with me. And, you know, that changes the housing dynamics, obviously.

Yeah, yeah. So that, that's what happened. There was. And I would preface this by saying the last place you could possibly have a glut of housing is a market like Phoenix that's, you know, at the time was growing by 3 or 4% a year. Builders couldn't possibly build more than six months of excess inventory. Right. When you're growing at that rate, right? So you really couldn't have like years worth of inventory that the builders just like clumsily, like accumulated, Right. They stopped building when this. The houses start. Stop selling. So what happened is Phoenix was growing 3 or 4% a year. Now the first thing that happens is the Fed starts tightening the money supply specifically to kill the housing market. Like in their minutes. They say we need to raise interest rates more because we haven't killed housing construction yet. What they didn't understand, what they were really doing was killing that migration, right. Once we. When we get into recessionary conditions, people stay put. They stop escaping those. Those cities. And so Phoenix goes from 2006, you know, 3 or 4% growth every year to suddenly, by the end of 2007, that's almost dead. Like it's gone from like 3 or 4% to barely any growth at all by 2008 and 9. And you know, there's just no city that's going to, that's going to deal with that level of volatility and population growth without having problems. Now then we added TO that in 2008, the federal regulators basically killed off about a third of the mortgage market through regulatory crackdowns. So now in addition to that, now you just have all these knock on effects of new buyers, can't get mortgages, foreclosures start happening because, because there's no buyers for the existing homes. So I actually attribute, you know, there was some sort of reversal that had already happened in places like Phoenix by early 2008. Everything that happened after that was a result of the mortgage crackdown. The entire loss of $5 trillion of real estate wealth was due on net across the country was due to the mortgage crackdown.

You know, Kevin, you said something very important there just. And you made it as a very casual remark. I just want to make sure people pick up on that. Real estate is a credit based asset. 60% of the country at this point uses a mortgage, which by the way is the lowest ever well in modern history, at least in the old days. I'm sure a lot of people paid CA too, okay? But you know, 40% of the country owns their home free and clear, which is another reason we haven't had a housing crash that the doomers have been predicting. So here's the thing that a lot of people don't understand and a lot of the doomers play on this when they say, you know, or the. I call them the Crash Bros. Too, okay? The Crash Bros. And the doomers say, hey, the market's going to crash because real estate is too expensive. And you know, that's sort of like a part of it. Sure, but what they don't say. And they were predicting crashes since the beginning of time basically. But they were certainly predicting them in the early covet era, okay. And the complete opposite happened. The market boomed, it went up, you know, 50% almost in some places. But what, what. As long as people have an exit opportunity that, you know, and if you have a strong market or easy mortgage money or semi easy mortgage money, you know, even if people are in distress, they can easily exit, okay? It's when they're in distress, plus they can't exit that you have a problem. Okay? Yeah, you can have lots of people in distress that can't afford their house. But as long as they can exit and there are new people that can take their house for them, you're not having a crash.

Yeah, yeah. And you know, you can really see this. You know, the other thing about the 2000-2008 market is you can, you can really see the differences regionally. Back then, two thirds of the country didn't have. It didn't have a construction boom, didn't have a price bubble. You know, everywhere between Denver and Washington, D.C. home prices went up 3 or 4% a year. Construction rates were about the same as they had been for a decade. And then you look at it, you look at a market like Atlanta, again, no construction boom, relatively level prices. And then suddenly in 2008, for FICO, scores below 760, mortgages get cut in half permanently.

Over the course of 2008, mortgage availability gets cut.

Yeah, mortgages.

In other words, those, those subprime borrowers could no longer borrow.

Yeah, even prime borrowers. And so for Credit scores below 760, the number of mortgages approved gets cut in half immediately and permanently. And in a market like Atlanta, of course, construction collapsed at the high end of the market. That's not credit constrained. Prices didn't really go down much. They were pretty level all through that, going all the way through the next decade. The low end of a market like Atlanta where again, nothing unusual had happened before. Prices went down 60, 70, 80% in the lowest. In the most credit constrained neighborhoods, the poorest neighborhoods lost more than half their value. It wasn't a reversal of anything. Right.

Look at this is the era during the Great recession of the $30,000 house, okay, where you could literally buy houses for 25, $30,000. Heck, in Detroit, they were giving them away for a dollar in some cases. You know, these are houses that just like nobody wanted.

And well, they wanted them, they just couldn't. The bank wouldn't let them get the money.

Yeah, well, when the subprime thing blew up, there was no financing for those properties. Yeah.

Well. And so I would say there's two very distinct period. There's the subprime boom and bust with which very distinctly happened from the end of 2003 to early 2007. And you can see the effect that that had on home prices. And it had an effect. It was overstated because most of the high costs were from the shortage, from the lack of supply driving rents up. But there was some extra. I have a paper that I did for Mercatus, the Mercatus center where I attribute on average about 8 or 9% extra inflation and prices from, from the credit boom, from the subprime boom in that period. But that was over by early 2007. And then there's this very distinct separate event which was basically cracking down, you know, well into the prime area through the federal agencies on conventional loans. That happened very distinctly in 2008. And again, you can see that in a market like Atlanta where there was very little that was happening because of subprime. But you can see the collapse that very distinctly happens when prime credit was, was now in the story of the bubble and bust, that all gets conflated into, oh, we just had too much credit and then we had to reverse it. But this thing that happened in 2008 was unprecedented. It wasn't a reversal of anything that had happened before. And, and the results of that are very easy to see when you know where to look for it in that.

You know, I like packaged commodities and tangible assets when investing and that's why I'm sharing this solution. A powerful way to get PA gold. You own gold, you get paid a yield on gold. Thousands of investors are earning interest in physical gold and silver with monetary metals. It's time you do the same. Visit monetary-metals.comhartman for special offers. Well, you know the old saying, of course, those who don't learn from history are doomed to repeat it. So it's good that we cover this. But Kevin, take us to where we are today and into the future as much as you're willing to. What is the state of the housing market currently?

Yeah, you know, I just call it the long boring recovery. You know, basically what, what I would do if you take a chart of American home prices and actually compare them to say Australia and Canada that have a lot of the same background fundamentals but, but they didn't have this mortgage crackdown in 2008. So the home prices in Australia and Canada are just a straight line up from the mid-90s till today. Right. Canada's had a little bit of volatility recently, but they're basically a straight line up. The United States home prices are also a straight line up, except in 2008. It's sort of like this fissure where you, where you cut the graph in half and you moved the chart after 2008 down by 50%. And so I would say that that fissure was the mortgage crackdown. It was a one time event. We can't repeat it because I say you can't cut your leg off twice. Right. We already Amputated a third of the mortgage market. We can't take that away again. So, so really we look like Canada and Australia, but with this fissure, and that fissure can't repeat. So really, if you think about the fundamentals of housing, it is actually a straight line up over the last 30 years, driven by the lack of supply and rising rents. And so I think, you know, the boring recovery is going to continue. I think, you know, we're basically hitting capacity constraints right now in construction, as that are, that have still been sort of exacerbated by Covid, you know, disruptions. As we get past those, you know, we'll, we'll continue to sort of a traditional market where every year we're building an extra 100,000 units compared to the year before. Eventually that will get to where we're actually building a sustainable number of homes for the first time since 2005.

And I've read these studies where they say that the housing market will be in a shortage state until 2032.

Yeah, I think it'll take longer than that. So I would, I would, I would put the short, Most people put the shortage, you know, a few million units. I would say we're, we're 4 or 5 million vacant units short of a functional market. Like we need to build 4 or 5 million units that are filled and leave vacancies in the, in the existing market with no household formation at all, just to get back to normal. And we're probably somewhere north of 10 million households short of households that would, that would have formed.

So, so the, the estimates are. The lowest estimate on the shortage comes from Zonda, and that's my friend Jeff Myers Co. Known him for 30 plus years. They say we're a million units short, approximately. And the highest shortage estimates go to like 7 million short. You actually say our shortage is worse than that. It's 10 million homes now.

15. 20.

Yeah. Oh, okay. Well, hang on a second. So I always say, you know, compared to what? Right. There's about 140 million housing units in the country. There's 341 million people. There's X number of households. I don't have that off the top of my head. So you don't say we're 10 million units short. You say we're 15 or. 20 million unisort.

Yeah.

How do you arrive at that? That's a big number.

Yeah, there's a few.

But as a, as a real estate owner. Right. An investor, and everybody listening is an owner investor. I kind of hope you're Right. Because the shortage means upward pressure on prices and rents.

Yeah. I mean, there's a few different sort of back of the envelope ways to get at this, and they all sort of get at a similar number. First, you know, rent inflation has been above general inflation almost every year, you know, for the past 30 years when we're building. You know, that didn't. Back when the Case Shiller index was flat for 100 years, rent inflation was moderate. It was the same as general inflation. In fact, the real Case Shiller index is deflated with general inflation because Professor Shiller says rent inflation can't be excessive over the long term because people will build. Well, I'm sorry, Professor Shiller, but we have like 40% of cumulative excess rent inflation at this point.

Yeah, I mean, listen, I have a lot of disagreements with Shiller. When I read his. One of his. He's got a couple books called Irrational Exuberance. Yeah. And I read one of them back in, I want to say, 2005, circa 2005, and I wanted to throw the book at the wall. It's like he didn't get it. And he's a Nobel laureate. Right. I've never interviewed him. I mean, he just, like, oversimplified things so much and he had this, like, dumb comparison of the S and P to housing. And, you know, not even mentioning that most people buy housing with a mortgage and use leverage to amplify their returns. It was just an idiotic analysis. Honestly. With all due respect, I mean, I know the guy is supposed to be smarter than me, but sometimes just, you know, having, like, less academic knowledge serves you better.

Yeah.

You have more common sense, it seems like.

But yeah, well, and to me, like, that actually was the cause of the crisis, the 2008 crisis, because it got so universally sort of held that a normal market had to include home prices collapsing. And so if it took a crisis to make that happen, we were committed to that. Like that.

To make the crisis happen.

Yeah, yeah. I mean, it was the most popular public policy in my lifetime was making that crisis happen. Today, if you go out and talk to a random, the guy at the end of the bar and say, hey, we probably shouldn't have. We should have tried to avoid that crisis. They will be angry at you for suggesting that we should have let people off the hook. Right. So very briefly, in 2005, at the height of that construction cycle, rent inflation just touched down to general inflation. Like, we were almost building a sustainable number of homes nationwide. Right. When we killed that market off. So, you know, One way to do it is just, you know, add up, you know, compared to that construction trend, how how many units have we not built compared to what we were building the last time we got rent to just barely become normal. And, you know, you add up all Those years, we're 15 or 20 million units below what we would have been building if we kept building at that rate.

Yeah. And then you have to ask what happened during that time to population number one. But really more important than population is household formation growth.

So there's two other ways I would look at it. A second way to look at it is really just, you know, look at that cumulative rent inflation. Historically, families have a very strong tendency to want to spend. Spending on housing is very much income driven. On average, you know, something like 10% of GDP wants to go to rental value. And that was the case for decades before.

Before 10% of GDP, but about 33% of income. Yeah.

And, you know, there's a little bit, you know, richer households spend less than poorer households. So that, you know, that's sort of like an average and it depends on what income you're counting and that sort of thing. If you're using median versus average, you know, another way to look at it is add up all that cumulative rent inflation. Typically, demand elasticity is a, is about 2. And in fact, if you divide expenditures on housing over the last century between like, real expenditure, like, how much did the quality of our homes increase each year relative to our real incomes, and how much did rents inflate compared to general inflation? Basically, for every, you know, 2% of rent inflation, families reduce their real spending by about 1% to try to compensate. That's under a shortage condition. If we didn't have a shortage, people would just, just increase their real consumption until we got to that 10 average spending. But under a shortage, they start spending more of their income on housing.

And as a percentage.

Yeah, but they're trading down over time to try to get rid of some of that extra spending. So you could, you know.

Yeah, you said so many things there, and that's capitulation. I, I definitely, you know, that is what it's like. Every economist seems to miss the point of capitulation. Right. In other words, Kevin, people enter the market and yeah, they want more, but they can't afford more. So they take what they can get. They capitulate. Right. And, and it's like you can't, you can't measure that. But it, we know it happens because we know that as market participants, we go out there and we, we try to get the best thing we can with the money we have. Right, yeah, yeah, that's, that's true. But, but before you go on, I just want to throw this up because you mentioned it a minute ago. This is a chart of total housing inventory. And what blows my mind about a chart like this here, we start in 1980, okay. And we go to 2025 and we see that there's a housing shortage. But what we don't see, you know, I always say to my listeners, Kevin, always ask yourself, what is the chart not telling you? Where are the dogs that aren't barking in this chart? And of course that's population growth and household growth, household formation growth. And this is a giant span of time. Okay. This is a decades. And the chart is not adjusted for, for population or household formation. Doesn't that just blow your mind?

Yeah, yeah, it's, it's, and this is the thing.

Overlay that. Yeah.

Somebody that I, that I, I sort of go after him a lot as a UCLA economist which, who recently passed away. So it's crazy because, you know, every year, in fact, they just did it. The Fed has this meeting in Jackson Hole in August where they sort of talk about the most important issues. In 2007 they talked about housing. And a high profile economist from UCLA had, you know, was one of the presenters there. And he, he, it's actually a very widely cited paper and the paper itself is really important and useful. It's called Housing is the Business Cycle. And he shows that you can predict when recessions are going to happen because housing starts collapse first. And so the way to sort of avoid recessions is the Fed should watch housing starts and when they decline a certain amount, then they should start stimulating the economy to get a recovery to happen. And he's talking to them in 2007 at a point where housing starts are less than half of what they had been at the peak. And he has this beautiful paper that is very useful. And he doesn't take his own advice. He tells them, this time's different. We had a glut of housing. So this time housing starts won't recover and you shouldn't try to make them recover. And his way of analyzing it is exactly what you just showed. He shows housing starts over decades without adjusting for population growth. As if there's just this unchanging mean cyclical level of, you know, of a million and a half units a year or whatever to go around. And it's like it's such a simple mistake. And, and here's the guy that figured out how important housing is, the business cycle. He's at the most important seat in the world. He's in the room where it happens and he tells them. This time you just kind of, you know, ignore this.

He's influencing the most powerful central bankers on planet Earth. Okay?

Yeah. And he's not adjusting for population.

I know. Listen, everybody listening. Please hear this. The experts are wrong all the time. They're drinking their own Kool Aid. They don't get it. They don't do in depth thinking. They don't back test their own ideas. They just get it wrong constantly. So. So be careful trusting resumes or Nobel prizes for that matter. Okay. I mean, it's just, it's just amazing to me. We were talking about Shiller before and I just cannot believe the stuff he misses. But yeah, it is what it is.

Okay. Yeah. So there's, there's real quickly. There's two other ways that I get to that 15 to 20 million number. And again, you can shortage the shortage. Yeah, and again, you can look at, you know, basically under shortage conditions, people consume less but pay more for it and with the total adding up to more of their income than they would like. So the odd thing is, you know, total real estate, residential, real estate value has gone up maybe 50, 60% as a percentage of GDP or percentage of incomes over the last 50 years. That is the only way that could happen is because we have fewer homes because of this inelastic demand. The only way you spend more on housing is actually by having less. If we had plenty, people would just spend the comfortable amount and homes would be worth a comfortable amount. So you can really just take those two, you know, real spending on housing and, and rent and excess rent inflation and come up with your own estimates of how much it would take to get those back to normal. It tends to come to me to 15 to 20 million. The last thing is that population has.

Wait, wait, wait, wait. How many homes are we building every year? That's the question.

We're about one and a half.

Let's do the math on how long does it take to cure the shortage. So if you say the shortage is 15 to 20 million, others say it's between a million and 7 million, your number's higher. But how it's going to take 15 to 20 years to cure the shortage in your mind, right?

Yeah, we're, we're at about a million and a half units a year now. And I don't think we can grow that much more than about 100,000, 200,000 a year in terms of the pace. So I think we could spend a decade building two and a half, three million units a year if we let it happen.

And, and keep in mind there's one. What are we not telling you? What is the dog that doesn't bark in that statement we just made? The dog that doesn't bark is a lot of houses will become obsolete. So there will be this obsolescence problem where old housing stock is just no good. Okay. So it's not like the stock is stable and it just stays there forever and we just add to it, we also subtract some. Okay. So yeah.

And then the last thing is the population thing you have to be a little bit careful about. A lot of the doomers will show lower population growth and they'll say, say we have more, more homes per capita than ever. And so we, we couldn't have. But that's.

Population growth is slowing, but you have to adjust everything by 25 years. Okay.

Yeah.

We don't see the impact if people don't have babies today. We don't see that impact for 25 years. Okay, yeah, yeah.

And so one of my, the other things you can do is look at adults per house. The thing that's gone down in the last decade is children or people per house.

Yeah, yeah.

So we have fewer children in need house. But adults per house follows a very linear pattern from like 1960 to, to exactly 2008, you know, declining. I don't know what it is.

Like a little bit more people are single, but.

Exactly. So like every year maybe it goes, you know, goes down 500 of a person of an adult per house. And, and it goes like this. And then 2008 happens and it reverses. And, and the number of adults per house has been growing since exactly 2000, 2008. And once you get this, all this bigger story that I have of everything that's happened in the mortgage crackdown making so people can't buy homes, the obvious cause of that was this crevice we created in the housing market. And when you add up the number of adults per house compared to that long term trend, it's something like 11 million adults that would probably be heads of households if we hadn't engineered a shortage. And then you add in 5 million vacancies that we should have and you're up in the 15 million range.

Is so is that the failure to launch concept? Is that what you're saying there? Because I've done, I've done some research on that too. And that's the adults that are, would be, they represent shadow demand, okay? They, they're, they're living at home. They shouldn't be living at home. They should be out on their own by now, but they're just not doing it. Okay. And so there's this failure to launch problem, but eventually those people do launch. Okay?

Exactly.

Doesn't last forever.

And of course we, we tend to naturally want to talk about these things in terms of price, like the cost is keeping them from doing it or when people move out of LA or New York, we talk about the cost, but the cost in, in this context, the cost is really a mechanism like that. Literally there's room for X number of households in LA next year. And the rent, the average rent on a house in LA is the rent it would take to make a hundred thousand people move so that the number that's left is the number they have room for. The easiest way to think about it, you know, is in some ways is it so much thinking about the cost and what needs to happen with the cost. It's a household's not going to form unless there's a house.

Right.

Once the house gets built, somebody's going to claim it. Now eventually that has knock on effects on the cost. But you know, you can't, you can't form households without houses.

Yeah, right. Obviously, yes, A lot of people forgot about that. So Very, very good point, Very good point. The last thing I want to ask you about, we got to wrap it up. I want to have you back a lot more often. But fertility and the economy and construction and homeownership rates, I mean, fertility rates are way down for the European American population. They're way, way down, which is tragic if you ask me. That's true in Europe, Russia, I mean, like white people are going extinct. Okay. My race is going extinct, sadly. But tell us about your thoughts. You recently did a newsletter article on that.

Yeah, I mean, I think that's going to have over the long term some depressive effects on the number of homes that we need, you know, to be sustainable. As you said, the fertility, you know, fertility turned down in 2008, you know, that doesn't really affect the housing market until 2038. Right. So. So we're quite a ways away from really, you know, people will make the argument that we don't need to build homes because of this. Well, for the next decade people need homes and the housing market be defined by what you think is going to happen in 2050.

Now I completely agree with you. You know, look, all of this changes, in my opinion, in the late 2000-40s, I will be singing a very different tune then. Okay.

Yeah.

Because the housing shortage will be resolved by then, most likely. You know, this all changes, but it's going to be a very long time before that happens. And that's the important thing to consider.

Yeah. And you know, the other thing is like so many things that trend, there's a sharp trend shift in 2008. That trend shift is caused by the housing problem. So once we don't have a shortage, I will probably get some recovery in fertility. Now we have this divot in fertility, you know, that'll sort of work its way through. But probably if we keep building more housing, probably by 2050, 2060, the number of new home buyers were actually be probably recovering a bit because families aren't having as many children as they would like to because of the housing crisis.

Right. And interestingly, those, those dinks, those dual income, no kids, people have a lot more to spend on housing. So, you know, because children are expensive. So. Yeah, there's so many, there are so many factors and layers to all of this stuff. Kevin, give out your website. People can find the books on Amazon, of course, but give out your website.

Yeah, it's the Erdman Housing Tracker. Erdman with two N's. Heavenurdman.substack.com and yeah, give it a look and that's where you can find me.

Good stuff. Kevin Erdman, thank you so much for joining us.

Great, thanks.

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