From: allin
The housing market is identified as a critical area for potential change, with discussions around its affordability and stability [0:36:38].
Current State and Challenges
There is a significant demand for housing, with an estimated need to build 7 million more homes to service current demand [0:36:45]. The U.S. housing market is currently seen as being “unwittingly propped up” by American taxpayer dollars [0:37:37]. This artificial support leads to inflated prices across the country [0:38:00]. This situation makes it difficult for many people, particularly the middle class, to take the critical first step of homeownership, thereby hindering their sense of achieving their dreams [0:37:48].
Role of Government Agencies
Government-related agencies like Fannie Mae and Freddy Mac are responsible for providing guarantees around mortgages [0:37:23]. A program under the Biden Administration that propped up these mortgages has gotten “out of control” [0:37:05]. Removing these agencies from “conservatorship” is seen as a necessary step to address market issues [0:37:17].
Proposed Solutions and Potential Impacts
Rationalizing equity values and the cost of homes could allow more people to enter the housing market at a reasonable price [0:38:41]. If home prices were reduced by 30% or 40%, it would enable people to afford purchases [0:39:07]. A proposal suggests building five new cities with 3 million homes each, specifically for those making under a certain income, to make housing more accessible and affordable without creating subsidized housing or “projects” [0:52:00].
Economic and Social Effects
Lowering asset prices, including home prices, could allow more people to enter the housing market and engage in other investments like 401ks [0:38:51]. When the U.S. government’s borrowing rate decreases, mortgage rates also fall, further facilitating homeownership [0:39:15]. This shift is believed to be “deeply beneficial to the middle class” [0:38:09], potentially giving 50-60 million people a chance they haven’t had since the Great Financial Crisis [0:39:26].
Increased homeownership and investment opportunities are seen as ways to foster greater American success and excellence [0:39:35]. Currently, a significant disconnect exists where people feel left behind when others are getting rich [0:40:01]. Enabling wider participation in the economy through asset ownership would reduce disillusionment and increase patriotism [0:39:50] [0:40:03] [1:09:09].
Policy and Investment Implications
Historically, a large portion of middle-class households’ net worth, about 60%, is in their home, while only 10% is in index funds or retirement accounts [0:53:23]. Policies that provide federal government loans on housing have inadvertently increased housing costs and contributed to a “destructive housing bubble” [0:53:40]. This has reduced people’s exposure to productive value creation through business ownership [0:53:49]. To maintain economic and social stability, policies have been created to continue the growth in house values, leading to a situation where homes become unaffordable [0:53:57].
Case Study: California Real Estate Law
Warren Buffett’s “most public failure” involved advising Arnold Schwarzenegger on California’s real estate laws [0:54:16]. A particular law allows homeowners to pass on their property to their children while retaining the original, lower real estate tax assessment [0:54:34]. This law has had an “enormously negative effect in unlocking turnover of homes” and is a major reason why homes in California are so expensive [0:54:45]. Buffett suggested repealing this law, but he was gone two days later due to its unpopularity [0:55:02].
Ideally, an investor should have about 20% of their net worth in U.S. real estate, not 60% [0:55:17]. Policies need to be reevaluated to incentivize people to diversify their net worth beyond a single asset (their home) [0:55:23].