These processes are intentionally labyrinthine
> anyone pushing such reform would be obliterating the average Joe's net worth.
The "crisis" is specifically the high cost of housing. So if whatever you do doesn't lower the price then by definition you've failed to solve the problem.
It's certainly a dichotomy but I don't see how it's false?
> We can easily build twice as much in high cost areas (with the strongest job markets) with little impact on existing home owners.
It's certainly possible to encounter nonlinear behavior. If some aspect has saturated then we might build quite a bit without seeing any substantial price movement. But eventually prices would start to decline.
I'm not sure if "obliterated" is the right word to use, but if making housing affordable means a 20% drop in home prices (which is perhaps not even enough in some places), average Joe existing homeowner is going to run into financial trouble once that happens.
> We can easily build twice as much in high cost areas (with the strongest job markets) with little impact on existing home owners.
If that's the case, then all that new housing will also cost more or less exactly the same as the existing housing stock costs, and the problem will not have been solved yet.
Many people have been sold on the former and will (fairly understandably) act to protect the value of their single largest purchase which often has a large mortgage attached to it.
Sure, if they need to move and sell, the price difference might be less favorable to them, but having to weigh cost vs benefit of moving is a fact of life one way or another.
It's a strange expectation to have that home values should act as an investment that can only ever go up.
Letting that expectation influence policy on making space for living available is one of the root causes of this crisis.
Agreed. They will generally build as tall and as dense as they are permitted to because (within reason) it reduces unit cost. Obviously there are limits to that. No one wants to build a high rise in the middle of nowhere.
But within high CoL areas they are generally severely limited on both of those aspects. That's due to zoning laws.
Of course that's not the whole story. Infrastructure has to be upgraded to keep pace with growth. But that's on the local government to plan and execute properly. Right now they largely just say "no".
Right, and that bureaucratic red tape is one of the things that makes the cost of building higher. If the builder expects they won't be able to break ground for two or three years because dealing with the planning commission takes forever, or because they'll have to deal with environmental lawsuits before they can build, then they will need to target higher-end buyers (by building a higher-end property) in order to make a profit. And if they can't do that... right, they simply won't.
https://bendbulletin.com/2025/12/13/middle-housing-slowly-de...
Or this:
https://bendyimby.com/2025/06/12/detached-townhomes-come-to-...
And it continues:
https://www.sightline.org/2025/06/04/oregons-zoning-reforms-...
It generally does not drop values, just allows for cheaper options.
That can only be true if you suppose that the current values aren't driven by supply and demand. How do you propose to explain that?
Cost of living is high because local incomes are high which increases the price of land and labor which increases the price of building.
Restrictive zoning is bad for lots of reasons, but solving it does not solve affordability.
Only in a purely illusory sense. Suppose you have all your net worth tied up in a house. If your house magically vanished, you'd have nothing but your job.
The price of houses falls to $500 and you potentially go bankrupt. Then, you buy a house for $500.
You, personally, are now better off than you were before. Some examples:
---
1. You have $200,000 of equity in a $700,000 house. After the price drop, your net worth in dollars has improved by $300,000. Your net worth in "stuff" has risen dramatically; you kept your job, and now you have 100% of a house instead of having 30% of a house.
2. You have $700,000 of equity in a $700,000 house. After the price drop, your net worth in dollars is down by $699,500. Your net worth in stuff is unchanged. Assuming you always need to live in a house, this will never have any negative impact on you. You retain the option to live in the house you have (which leaves your life unchanged), and you also retain the option to sell your house and use the proceeds to buy another house (and this option looks a lot better than it used to; given the crash in prices, you can probably afford a much nicer house).
3. You have $200,000 of equity in a $700,000 house. You also have $15,000 of "equity" (resale value) in a car that you owe no money on and bought for $50,000. After the price crash, you lose your house and your car, and then you buy another house for $500.
Replacing your car will cost you $50,000. You are in a similar position to the guy in example (1), but $50,000 poorer. So now we ask: was it better to be $500,000 in the hole on your house before, or to be $50,000 in the hole on your car now?
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There isn't a way for the average Joe not to come out ahead. There is a way for someone else to lose out on the price crash: if you had more than one house before, you lost everything on the houses you weren't living in. But that's got nothing to do with the average Joe.
Also in the case of mass bankruptcy and mortgage failure of the lower middle class I guess there would be risk of bank failure as in 08? That said, I still think the hypothetical illustrates the overall situation quite well.
How?
A drop in the price of houses means it becomes more difficult to exchange houses for non-houses.
If you borrow against your house to obtain something else, and then the price of houses falls, you successfully timed the market. That's all upside for you.
What do you think is the difference between example 3, the guy with a $500,000 mortgage on a $700,000 house, plus a $50,000 car, and example 3', the guy with a $450,000 mortgage and a $50,000 car loan on his house, plus a $50,000 car?
Say I inherit a $700,000 house and, being the kind of guy I am, immediately mortgage it for $500,000. But I stop renting and move in to my new house. Also, I hire a bunch of call girls to live with me in my house. One year later, the price of my house drops to $100,000, and I turn it over to the bank.
I started (the crash) with a $500,000 loan and no way to pay it back other than selling my house. At this point, the faster I realize what's happened and sell my house, the more money I'll be left with. (If I sell immediately, I'll get $200,000!) The longer I postpone selling, the worse off I'll become. (Though since I can live in the house, this trades off against what I would spend on rent.)
I've also spent $500,000 on entertainment and one year's rent. Mostly entertainment. Is this a harm that was dealt to me by the fall in the price of my house?
When the price falls, this forces me to sell the house, locking in a profit of... $500,000. (Which I've already spent.) It could have been $700,000, in theory. This $200k difference in profit vs potential profit can be seen as an effect of the price crash. But that's pretty good for an event that notionally took $600,000 out of the value of my house. Borrowing against the house helped me.
If you want to talk about a negative effect on someone, walk me through the accounting.
+-------------+-----------+---------+---------+-------------+-----------+----------------+---------+
| event | my equity | my cash | my debt | bank equity | bank cash | bank held debt | hookers |
+-------------+-----------+---------+---------+-------------+-----------+----------------+---------+
| baseline | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
+-------------+-----------+---------+---------+-------------+-----------+----------------+---------+
| inherit | 700k | 0 | 0 | 0 | 0 | 0 | 0 |
+-------------+-----------+---------+---------+-------------+-----------+----------------+---------+
| mortgage | 700k | 500k | -500k | 0 | -500k | 500k | 0 |
+-------------+-----------+---------+---------+-------------+-----------+----------------+---------+
| party | 700k | 0 | -500k | 0 | -500k | 500k | 500k |
+-------------+-----------+---------+---------+-------------+-----------+----------------+---------+
| price crash | 100k | 0 | -500k | 0 | -500k | 500k | 500k |
+-------------+-----------+---------+---------+-------------+-----------+----------------+---------+
| bankruptcy | 0 | 0 | 0 | 100k | -500k | 0 | 500k |
+-------------+-----------+---------+---------+-------------+-----------+----------------+---------+
Before the price crash, I had "200k equity"† in that very house, leaving me $500,000 short of a house.
After the price crash, I was deeply underwater on the house. Without bankruptcy, I was still $500,000 short of my house, but only $100,000 short of some other house.
And then, after the bankruptcy, I was $100,000 short of a house.
1. What is the harm that I suffered from the price crash?
2. If the "hookers" column had some other label, would that change the harm that I suffered from the price crash?
† You might note that this is accounted as 700k equity in the table. The table is correct, but that's not how we talk about it. There is probably an error in my earlier comment related to this.
Well I suppose that guy might come out unscathed since many US states protect your primary vehicle in a bankruptcy. But to an approximation declaring bankruptcy involves losing all of your remaining assets. So in that scenario the borrower is on the hook for the cost of replacing those assets (limited by how far underwater they were on the mortgage naturally).
Your other example involved blowing the borrowed money on entertainment in which case I agree that you come out ahead. But that is precisely why I used the term "assets" in GP.
Also I don't think everyone just gets let off scot free after a bankruptcy? Don't you sometimes get stuck with some amount of repayment depending on the nature and volume of your income?
My question about bank failure also still stands. While the impacts of this hypothetical on personal finances are certainly interesting to consider, I'm thinking we really don't want to do the whole widespread mortgage default thing again.
> But to an approximation declaring bankruptcy involves losing all of your remaining assets. So in that scenario the borrower is on the hook for the cost of replacing those assets (limited by how far underwater they were on the mortgage naturally).
If you financed something by borrowing against your house, then it cost less than your house, and when you have to replace it, the cost will be less than the cost of buying a house at the original prices. This is the "you lose your house and your car" example. Losing your mortgaged house and your owned-free-and-clear car is good when buying a replacement house+car costs less than the mortgage on your house.
What if house prices fall into the sweet spot where (1) your mortgage is underwater; and (2) a new house + new "assets" exceed the value of your mortgage? (But don't exceed the original value of your house.)
It could be that those assets don't generate income. In this case, they are isomorphic to the hookers in the example.
If they do generate income, then you might save money by keeping your house at its inflated pre-crash price, and you'll make those pre-crash loan payments using the income stream generated by the assets. Here you have a loan that is nominally against your house but actually against your business. It's underwater when considered as a mortgage, but it's not underwater when considered as a business loan, so you'll keep paying it. Your bank will be fine with this. (Both in the sense that they won't object, and also in the sense that they won't suffer financial hardship.) You'll probably have to recollateralize the loan.
(Or your assets might generate income, but not enough income that you'd save money by keeping your original mortgage. In this case it's straightforward that you're better off losing the original house, losing the original assets, buying a new house, and then not buying new assets.)
In the past tense it should be easy to do. Since he is better off, and he has a good view of how he's doing personally, you don't really need to do much. The difficulty is in convincing him that it will be good for him, not that it was good for him.
Compare congestion pricing in NYC, or self-service gas in Oregon.
Assuming you're referring to the typical high CoL areas, the shortage has very little to do with the expense of building. The zoning laws don't permit sufficient supply in those areas. And that's quite unlikely to change (at least quickly) because anyone pushing such reform would be obliterating the average Joe's net worth.