In this YouTube explainer, Michael Girdley walks viewers through the origins and consequences of the United States housing affordability crisis. He begins by noting the recent plunge in housing sales and frames the market as a cornerstone of the U.S. economy. Girdley traces the post‑World War II government push that created the modern single‑family home, the rise of suburbs like Levittown, and the cultural and political motives (car culture, anti‑communism, social control) that made homeownership a civic stabilizer. He cites research showing that owners are more civically engaged and compares the U.S. strategy to China’s post‑Tiananmen home‑ownership reforms. The narrative then shifts to the 1980s financialization of housing: deregulation, the emergence of institutional investors (e.g., BlackRock), mortgage pooling, and ultra‑high leverage that turned homes into investment vehicles. Girdley highlights the massive equity gains for earlier generations (average household equity rising from $60 k in 1989 to $323 k in 2022) and explains how cheap credit and tax deductions amplified wealth creation for homeowners. However, he argues that supply has not kept pace—annual construction falls far short of the 4‑5 million homes needed—largely because zoning and local opposition restrict new builds, driving prices sky‑high. The result is a generational affordability gap: boomers and Gen X enjoy soaring home values, while millennials and Gen Z face median prices over $408 k and the least affordable market in four decades. Girdley links this unaffordability to a declining birth rate, noting that high housing costs are the top reason young couples delay or forego children. He concludes with a policy prescription: rapidly increase the construction of affordable starter homes to restore the American dream and mitigate both the housing and demographic crises.
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So pretty depressing news out today. It was pretty widely shared, which is that housing sales fell to their lowest rate in over 30 years. And with millions of people either struggling to get into a good house or feeling like housing is out of reach and they can't even buy one, this is pretty depressing news. It's also depressing news because so much of our economy here in the United States determined— is determined by what goes on in the housing market. It is a huge asset class and a huge source of everything from, you know, how construction works to the service providers to everybody in between. So what's going on? Why is this so bad? And how did we get here? And, uh, I'll talk about all of that in this video. Uh, and it's a big complex topic, so I won't be able to hit on anything, or I won't be able to hit on everything, but there's two things that maybe you haven't heard about before, and I'll cover up to this video. So let's dig in. Hey, my name is Michael. If you're new here, my hobby is to go walk and talk about things that are going on in business or the economy and explain them. If you like that sort of stuff, please subscribe. And also I send a twice-weekly email newsletter for free to people who want to learn about business and are entrepreneurially minded. So Check that out on my profile page. So before World War II, uh, the housing market was very different than it was today. If you wanted a loan, uh, for to buy a house, um, you were gonna be tough to find one. Uh, there were banks, but they were here and there that were lending it. It wasn't as easy to get a mortgage as it is today. Uh, the idea of the single family home back then, right after World War II, wasn't even really a thing. The suburbs, frankly, just hadn't even been invented. Until the first Levittown, which was named the kind of the first suburb here in the U.S., was created shortly after World War II. And we also, after World War II, went and changed things around the idea of the American dream. Before World War II, housing and owning your own home and a picket fence and all that stuff, it wasn't even part of the picture. And what changed was the government made a real push for people to own their own homes, and it worked. Over the course of the 10 or so years after World War II, the homeownership percentage before World War II was around 42%. And by, you know, just 10 years later, it was well into the '60s. Turns out government policies, they can work. And there have been all kinds of reasons kind of publicly stated for why this push for single-family homeownership became such a focus of American life. I mean, there's everything from the car culture to things like racism, like all these things played into the ideas of a single-family home being part of the deal. I mean, just go back and watch the Mad Men show, uh, if you're familiar with that show from AMC. Like, it was real. But there's one thing that wasn't really talked about and isn't talked about much as to why the single-family home has become, well, just as much of an integral part of our society as it is. So here's a fun fact about all of this, which is single-family home ownership is a very good tool if you want to reduce and prevent civic unrest. In other words, people protesting or eventually pushing it even further to have revolutions. And you see, back post-World War II, we had several things going on. One of those was the Red Scare, and people were deathly scared of communism being a threat to American democracy and capitalism. And then later on, you had the hippies and the counterculture people tuning in and checking out in the '60s. These were all threats to, as people saw it, the American way of life. Well, if you start to put people in suburbs in single-family homes, their behavior changes, and they're much less likely to get together with their neighbors in coffee shops and start organizing marches and protesting and that sort of thing. And look, if you live in the suburbs, uh, and you've ever tried to protest something, it is not fun to stand outside a Starbucks, uh, while people whiz by on the freeway at 75 miles an hour. And if you put people in their own home, separate them from other people, uh, and put a TV in front of 'em, they're much less likely to cause trouble. And I know what you're saying, this must be the tinfoil hat part of this video. Uh, here's some guy in a jacket and a baseball cap gives me crazy talk about this sort of thing. But there's actual very interesting studies done that show people who are living and owning their own home are much more likely to be civically engaged. In other words, participate in the governmental process and be part of their local community, volunteering, all that kind of stuff. And it all makes sense, right? If you as a person have worked hard to save for a home, get signed up for a mortgage, make it really nice, mow your lawn every weekend, make sure the picket fence is painted white on the regular, like, why are you going to throw all that away? Suddenly you have something to work for. And there's a big psychological component to homeownership that, well, keeps people from causing trouble. So there's an interesting parallel here. You're like, well, they did that in the United States. Well, do you know who else did the same thing? The Chinese. It's a super interesting data point. They created private homeownership in China immediately after the Tiananmen Square massacre. And that happened in the late '80s. And in the early '90s, Deng Xiaoping and those guys rolled out a bunch of reforms. Well, one of them was home ownership. And today, I mean, the Chinese government's not really going anywhere because there are a lot of folks who own their own homes and second and third homes across the Chinese, you know, heartland and across the Chinese land. So this process of single-family home ownership, it went well for a while. And then we started to head into the '80s. And because this is America and because we love to chase the dollars and maximize the outcome, and if there's a way to take a dollar and buy something and sell it for two, we're going to figure out how to do it. And in the 1980s, that's where we started to figure out how to turn housing not just as a place to live, but as an investment vehicle. And gone were the days of just mom and pop borrowing money and using that to buy a mortgage and all that kind of stuff. What we started to see was the financialization in the '80s of housing. Famously, BlackRock, amongst other asset managers, started to put together these big institutional pools of capital after the savings and loan crisis— Google it if you haven't, if you're not familiar with it— and buy stuff on the super cheap. I mean, people have to buy houses, right? Well, there's always going to be demand, which is a good thing. So famously, folks like BlackRock and others started to put together funds to go buy up housing stock and sell bonds and all the different stuff that happens around basically turning what has historically and before that historically was an asset class that people lived in and used as a place to raise their families and that sort of thing and turned it into an institutional investment vehicle. And famously in the '80s was when we started to see the deregulation of housing stock and housing finance. You could suddenly go and pool mortgages together and sell those on the open market. And all that kind of stuff. Financialization. It's what America is good at. And look, this financialization worked for a lot of people. The combination of super high leverage via 30-year mortgages where you could put down zero or 5 or, well, 15 or even 20% of the house purchase down meant that your leverage on owning one of these houses as a homeowner was enormous. Right. And if you do the math, let's say you buy a $100,000 home, you put down $20,000 on it. If that house goes up to $120,000, so 20% appreciation. Like, you basically just doubled your money in terms of what you put down on that particular home to buy it. And this is a bit of an oversimplification in terms of how the government kept to promote all this stuff. But the era of cheap interest rates had begun there, starting in the late '80s, going into the '90s. You had the mortgage interest rate— mortgage interest deduction as well, where you as a homeowner could deduct the interest from your taxes that you were paying to buy a home. And this all worked, right? The housing stock started to get bought up by big investors, but also by mom and pop. And suddenly the mom and pop started to realize that they could generate a ton of wealth by owning their home and paying it off over the years. And the numbers started to go nuts. And the numbers are pretty crazy. In 1989, the average household had $60,000 in equity in their home. And by 2022, that same number was $323,000. So take our example from before. If you put down $20,000 on your home, you'd 15x your— you'd 15x your gain in just about 30 years. Not a bad return. And so you see over that period of time what impacted so much of what happened to today where people can't afford houses is because we're not building enough houses. The shortage in terms of annual houses has varied between 4.5 to 4.1, 4.8 million a year. Of houses that we need to just keep up with demand. And even though the population is growing like crazy, well, we're not building enough houses. So in response to these incentives, voters, city council people, consultants, everybody, they've all figured out, hey, let's restrict supply and make it very difficult to build new stuff. And that way prices keep going up and we keep making more and more money on our homes. And so that's where we are today, like in neighborhoods across the country. L.A., Palm Springs, you go to these places and tons of people are moving there and there's no houses being built at all. I mean, heck, even here in my semi-bougie neighborhood in Texas, like you drive around and there's no new houses being built. It's like, yeah, we've basically made it impossible to increase supply. So it's unsurprising that the house of the price of houses has basically gone through the roof where nobody can afford one anymore. What's so wrong about this? I mean, Baby boomers grew up post-World War II. Gen X grew up after them. I'm a Gen Xer, thank you very little. And we're all making a lot of money on housing. Like, what could go wrong? Like, seems like a great deal for us. Well, you know, just like anything else, when one party wins, another party loses. And it turns out actually everybody's losing. So I'll explain that here. But it turns out that the millennials are coming up And as of 2023, millennials and Gen Z, like, by and large, are finding it almost impossible to afford houses. The median home price in 2023 was over $408,000 nationally. Just an astronomical sum for anybody that's just working like a normal job. So while the people who got there first and own their homes and got cheap mortgages were able to slip in, the people who have come after them when supply is limited and demand is through the roof, are unable to afford homes. And those millennials and Gen Z, well, they can't find places to live. So 2023 had a terrible number, which was it was the least affordable year for housing since 1985. In nearly 40 years, it was the least affordable year. And we're kind of surprised that young people are grumpy about the state of the housing market right now. Heck, I'm old and I'm grumpy about it. It sucks. Well, except for my house, which is— the price keeps going up, which is cool. And tied to this housing affordability crisis is another crisis that is directly, well, basically caused by it, which is we're in a birth rate crisis here in the US. Too few people are having kids. And the reason when you go ask people why they're not having children, there's lots of reasons. But number one reason, It's too damn expensive. They go out and they say, "Hey, like, how can I afford to have kids? Like, I can't even afford a basic starter house when it costs $450,000 to get a 3-bedroom house somewhere." Like, they're too expensive. So ironically, the same thing everybody wanted, which was, well, how do we create wealth through the housing market, is actually the same thing causing our population to shrink. And if you're a baby boomer or Gen X, in my case, and you're looking forward to the day of having grandkids, you kind of paid for them already by getting a ton of appreciation in the price of your home. And if you create this huge nest and all this kind of stuff where you're expecting your grandkids to come over and hang out and support you and be part of your life as you're in your old age, well, there's kind of a problem because of that whole housing setup. You may not have any grandkids hanging around because your kids won't be having any kids. So like many things I talk about on this channel, Sometimes you end up asking for something and then you get it and you realize, man, maybe that's not what I wanted after all. But it's just a crazy thing in terms of where this has all ended up. And look, I'm in this— definitely in the camp of we need to build a lot more houses in this country and we do it really quickly because our kids and my kids and hopefully my future grandkids deserve great places to live in and grow up and it needs to be affordable. And the best way to do that build more housing as quickly as possible and as easy as possible. So bring back the American starter home. That's the American dream as far as I'm concerned. Let's do it.
