If Housing Is Out of Reach, Then We Need More Wall Street

Who cares what economists think? The question rates asking after a recent report in the Wall Street Journal noted how “economists increasingly believe that higher U.S. interest rates will define the rest of the decade.”

Again, who cares what economists think? Lest readers forget, one year ago they thought precisely the opposite of what they think now.

Former BB&T Bank CEO John Allison once quipped that he couldn’t point to even one forecast that the economists at the Fed got right. Which isn’t a surprise. If economists could see into the future, they wouldn’t be economists.

Still, let’s assume for fun that economists are right – almost certainly for the wrong reasons - about interest rates for the rest of the decade. If so, according to the report referenced in the Journal, “higher mortgage rates” will supposedly result to the alleged detriment of would-be homeowners. Alleged is included here simply because if housing becomes more difficult to buy, won’t it by extension become more difficult to sell?

Which calls for a different look at things. The same economists who think rates are heading higher would almost certainly say housing in the U.S. is presently out of reach. What does that mean?

The view here is that it’s utterly meaningless. Housing isn’t scarce so much as would-be buyers generally desire the same locations. Take away the latter, and housing is far more affordable.

Still, someone who knows a lot about markets (Jeff Bezos) thinks nosebleed housing costs are not just a problem, but an instigator of socialist tendencies. Bezos recently told Fox’s Bret Baier that socialism gains traction due to “real affordability problems,” and that “If you put in place government programs that subsidize demand and constrain supply, you are going to get high prices.”

There’s no arguing with Bezos about getting government out of housing, but the latter remains unlikely to solve either the location “problem” with housing, or socialism. Think about it. As Jack Ryan and I note in our 2024 book, Bringing Adam Smith Into the American Home, housing in France is described as “immobilier.”

Politicians love it when their voters choose to own housing. They’re less mobile, and thus more easily taxed.

Which is just a way of saying that one way to keep precious wealth out of the hands of redistributionist politicians is to not own housing. Better yet, by not owning housing Americans could direct gargantuan sums formerly spent on consumption of housing and consumption of upkeep into equities that neither require maintenance nor immobility, but that reward the prudent saver exponentially more than the often prodigal consumer of housing.

Thankfully, Wall Street is presently trying to enable just this pivot away from wealth consumption on housing. Too bad about The 21st Century ROAD to Housing Act, co-authored by Sens. Tim Scott and Elizabeth Warren. Set to go into effect in 2027, the misguided law deters large institutional investors (think Wall Street) from purchasing single-family homes.

Except that by scaling up ownership of housing and expensive maintenance of same, institutional investors are best positioned to not only push housing costs down through rental profits born of enormous volume, they’re also best positioned by the latter to solve the location problem for renters. All that, plus let’s not forget that if suddenly mobile thanks to renting, the renters would find it easier to save and invest while more difficult for politicians to tax.

While economists are always wrong, Wall Street has routinely been provent right in its ability to turn scarcity into low-cost abundance. It’s a truth worth considering as high rates supposedly put housing out of reach.

Originally published on Real Clear Markets.