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INCREASINGLY UNOBTAINABLE. ALL WHY? WELL, THE COST OF A HOUSE HAS RISEN MORE QUICKLY THAN PEOPLE’S SALARIES. FOR EXAMPLE, 1972, THE MEDIAN HOUSEHOLD INCOME WAS AROUND $11,000. THE MEDIAN PRICE OF A HOME WAS ABOUT $27,000. 2022 MEDIAN INCOME IS ABOUT $74,500, AND A HOME COSTS ABOUT $479,000. MORE THAN SIX TIMES THE MEDIAN INCOME. SO HOW DO WE GET HERE? AND WHAT DOES THAT MEAN FOR PEOPLE’S WEALTH? CHRISTOPHER MAYER IS A PROFESSOR OF REAL ESTATE AT COLUMBIA BUSINESS SCHOOL. IT’S SO NICE TO HAVE YOU. THANKS FOR JOINING ME. GREAT TO BE HERE. SOLEDAD. SO I WANT TO START WITH WHAT I SAW ONLINE THIS MORNING. THIS. 384 SQUARE FOOT BAY AREA HOME JUST SOLD FOR CONSIDERABLY OVER ITS $1.7 MILLION, ASKING PRICE. THIS IS INSANE. WHAT EXACTLY IS HAPPENING? WELL, YOU KNOW, WE DON’T BUILD ENOUGH OF IT. AND THE PROBLEM IS THERE ARE A LOT OF PEOPLE WHO WANT TO HAVE HOUSES AND WE DON’T HAVE ENOUGH HOUSES. AND YOU KNOW, THE STOCK MARKET IS DOING WELL. THAT’S PUSHING. UP PRICES. AND IT’S MADE IT REALLY DIFFICULT FOR, YOU KNOW, ORDINARY AMERICANS TO BE ABLE TO AFFORD TO BUY A HOME. SO TO WHAT DEGREE ARE MORTGAGE RATES RESPONSIBLE? SO THE FIRST THING IS MORTGAGE RATES ARE A HEADWIND, NOT A TAILWIND. SO SO YOU KNOW, THAT’S VERY BUSINESS SCHOOL SPEAK. BUT WHAT DOES THAT MEAN. IT MEANS THAT HOME PRICES ARE RISING DESPITE HIGH INTEREST RATES NOT BECAUSE OF HIGH INTEREST RATES. A BIG PART OF WHY INFLATION CONTINUES TO BE HIGH IS THE HOUSING MARKET AND RENTS, YOU KNOW, WHICH HAVE CONTINUED TO BE STRONG. SO THAT’S WHAT’S KEEPING INFLATION HIGH. AND THAT’S WHAT’S MAKING IT TOUGH FOR PEOPLE WHO ARE LOOKING TO BUY. AND SO THERE ARE A LOT OF PEOPLE WHO ARE HAVING A HARD TIME BUYING BECAUSE OF THE HIGH INTEREST RATES. AND THOSE PEOPLE ARE HAVING A HARD TIME SAVING FOR A DOWN PAYMENT. AND AND AS A RESULT, THERE’S A LOT OF DEMAND FOR RENTALS AS THE PANDEMIC SEEMS TO HAVE HAD A BIG IMPACT ON THIS. IT IS, UM, AS PEOPLE ARE WORKING FROM HOME, WHAT THAT’S MEANT IS PEOPLE WANT MORE SPACE. AND BECAUSE OF THE DESIRE FOR MORE SPACE, THAT’S MADE IT EVEN HARDER BECAUSE YOU’VE CONSTRUCTION COSTS HAVE GONE UP AND AND IT’S JUST KIND OF EXACERBATED THIS WHOLE CYCLE. IN MANY URBAN ENVIRONS. THAT’S ONE OF THE BIG CHALLENGES IS COMMERCIAL REAL ESTATE. YOU HAVE MILLIONS OF SQUARE FEET OF NON-USED COMMERCIAL SPACE, LOTS OF PEOPLE WHO’D LIKE SOMETHING AFFORDABLE. WELL, IS THERE A WAY TO CONNECT THOSE TWO IDEAS? IT WOULD BE REALLY WONDERFUL TO BE ABLE TO DO THAT, BUT IT’S JUST JUST INCREDIBLY EXPENSIVE. THERE ARE ENORMOUS NUMBERS OF RULES THAT THEY HAVE TO FOLLOW. BUT, YOU KNOW, YOU LOOK AT PLACES IN THE SOUTH AND THE MIDWEST THAT DON’T HAVE THE SAME SET OF RULES AND DON’T HAVE THE SAME SET OF RESTRICTIONS. THEY ALSO DON’T HAVE AS MUCH OF A AFFORDABILITY PROBLEM AS WE HAVE IN THE COAST. AND SO THIS IS A PLACE WHERE, YOU KNOW, JUST SOMETIMES GOVERNMENT JUST GETTING OUT OF THE WAY IS HELPFUL. IF WE THINK ABOUT YOUR HOME AS ONE OF YOUR BIGGEST ASSETS. YES. AND WE’RE SEEING MORE AND MORE PEOPLE AND CERTAINLY LOTS OF YOUNG PEOPLE JUST UNABLE BE PRICED OUT OF THE MARKET ALTOGETHER. WHAT DOES THAT MEAN FOR HOW WE THINK ABOUT WEALTH IN AMERICA? I THINK IT’S SOMETHING THAT, YOU KNOW, MANY PEOPLE WORRY ABOUT. ONE OF THE PROBLEMS THIS COUNTRY HAS HAD IS FOR A LONG TIME WE HAD OVERT DISCRIMINATION THAT KEPT BLACK HOUSEHOLDS OUT OF THE HOUSING MARKET AND WHICH KEEPS THEM THEIR WEALTH SIGNIFICANTLY LOWER. THEY DIDN’T HAVE THE WEALTH AND INTERESTING EARLY. IT GOES THROUGH GENERATIONS. SO IF YOU ASK MANY PEOPLE HOW THEY GET THE MONEY FOR THEIR DOWN PAYMENT COMES FROM THEIR PARENTS, WELL, IF THEIR PARENTS DON’T HAVE THE WEALTH THAT THEY ACCUMULATED IN THEIR HOME, THEY DON’T HAVE THE ABILITY TO POTENTIALLY HELP THEIR KIDS. IT REINFORCES THE CHALLENGES AND IT’S JUST IT’S PUSHED OFF HOMEOWNERSHIP FURTHER. AND UNFORTUNATELY, AND I SAY THIS WITH, YOU KNOW, REAL SADNESS, WHAT WE’VE STARTED TO SEE IN THE LAST FEW YEARS IS HOUSING HAS BECOME SOMEWHAT OF A LUXURY. GOOD. HOW DOES THAT IMPACT SOMEBODY WHO’S, LET’S SAY, 65, 70 AND THEIR ABILITY TO ACTUALLY RETIRE? SO HOMEOWNERSHIP IS PLAYS AN INCREDIBLY IMPORTANT ROLE IN PEOPLE’S ABILITY TO TO RETIRE. AND IF YOU LOOK AT PEOPLE WHO ARE RENTING, HALF OF RENTERS ARE COST BURDENED. THEY PAY, UM, YOU KNOW, MORE THAN 30% OF THEIR INCOME IN RETIREMENT. AND SIGNIFICANT NUMBERS OF RENTERS PAY MORE THAN 50% OF THEIR INCOME IN RETIREMENT. SO OWNING A HOME CAN BE A WAY OF GETTING INTO RETIREMENT. AND AND, YOU KNOW, HAVING THE AFFORDABILITY TO LIVE. CHRISTOPHER MAYER IS A PROFESSOR AT COLUMBI