How Communities Are Breaking Out of the Housing Trap

Thank you. Thank you, everybody. It's very nice to be back in Pennsylvania. There's so much enthusiasm here. There's so much passion here. And especially with this group of people who care deeply about what is really in many ways like the issue of our moment, right? The issue of our time. it's very nice to be with you in the room there's a lot of friends that I have here and a lot of acquaintances and a lot of Strong Towns members that I haven't met so if that's you please introduce yourself afterwards just nice to see friendly faces there's two conversations right now in our country around housing and I think in many ways this group represents the first one the housing as shelter I went to the homelessness breakout session ahead of this one. It's a very interesting conversation and speakers. We're talking about how do we get people into shelter, how people who don't have homes can get homes, how people who can't afford their home can get into a home that they can afford. That is one conversation. And if you're in that conversation, that tends to dominate. And often you're not aware of the other conversation going around. The other conversation is about housing as a financial product. Housing as this instrument that gets derivatives of a mortgage bundled up together, sold off, become the foundation of our economic system. This conversation goes on all the time. You can turn on CNBC and they're just chatting about the housing market continuously in a very, very different way than the conversation that I was in earlier today about homelessness. In one of these conversations, housing prices must come down. In order for housing to become broadly more affordable, we need prices relative to incomes to come down substantially. In the other conversation, housing prices cannot be allowed to fall. Falling would be disaster. It would wreck the economy, it would undermine banks, it would undermine our financial system, and it would destroy our economy. This is the essence of the housing trap. We have created for ourselves a situation where housing is broadly unaffordable. No matter what price point you're looking at, people struggle to get into housing. Even the professional class, two married professionals today, struggle to get into housing, which is a bizarre thing that we see. But housing is also the kind of underlying financial product in our economy. And that dichotomy creates this trap where housing prices must fall, but housing prices cannot fall. To understand this and to see our way out of this trap, I want to take us back to before the Great Depression, to understand how housing was financed really throughout all of human history up until modern times. If you were going to buy a home, say in the 1920s, you were going to do that and you were going to borrow money. You were going to do that through a local bank. The local bank was going to require you to have a 50% down payment. They were going to issue you a short-term loan, a loan that would be three years, four years, five years. It would be an interest-only loan. And the idea would be that when you got to the end of that period, you would either roll it over or you would pay off some portion or all of it as part of that transaction. Now, understand, local banks were very conservative, not politically risk-adverse, right? They were risk adverse. And why were they risk adverse? Because a local bank was a collection of all of your money. We all put money into a local bank and the local bank would lend it out. They were literally like lending your money in the neighborhood. And so they wanted to make sure that they didn't lose money. And so they had a big, big financial buffer that they would require. When we got to the Great Depression, the huge amount of growth that we had had in the 1920s and all of the kind of expansion of local banking that had happened during that time created this rift that manifested itself in ways that we talk about today, but maybe don't really understand the mechanisms as well. If you went into a local bank and you got a loan, they would give you a mortgage that was half your value. But during the Great Depression, what happened to home values? They dropped. and let's say your three-year, four-year, five-year balloon payment came due and you went back to the local bank to refinance that loan. The local bank would say, oh, okay, here's what your house is worth today. We'll lend you 50% of that. The problem is there's a gap now between what you owe and what the bank will lend you. And that's a gap that you have to make up in cash today in the middle of the Great Depression with 25% unemployment, massive industrial dislocation, right? Many, many, many people could not do this. They could continue to make their payments. They could continue to pay that interest-only loan. They were not defaulting. They were in good standing. They were making things meet. But they couldn't do this. And so a lot of people, for no fault of their own, lost their homes. What happens when you lose your house to a bank? What does a bank do with it? Do they sit on it and have a party? No, what do they do? They sell it. What happens when you sell a house into a declining market? You lower housing prices more. What happens when the next person then comes in to refinance? Their gap is bigger. They get foreclosed on. That home gets sold into the market and on and on and on. You had going into the FDR administration, you had in the housing market what we would call a deflationary spiral. Housing prices were just dropping and as dropped, more people got caught in foreclosure. More foreclosures meant more houses on the market, which meant lower prices, and on and on and on. One of the things that was done in the early New Deal, the early part of the FDR administration, was to stop this deflationary spiral. They went to the local banks and they said, hey, don't foreclose. If you've got a place you're going to foreclose on, we, the federal government, will buy that loan from you. Then they would go to the homeowners and say, hey, would you like to stay in your house? We'll refinance that loan for you over a longer period of time. And how about instead of just interest, we'll do interest and principal. We'll do it at a lower interest rate. We'll try to keep you in your house. The federal government ultimately wanted local banks to write more mortgage loans. So they created a system whereby if the bank wrote a loan and it qualified, it met the requirements of, again, a very conservative federal government lending system. You could, as a local bank, if you needed cash, sell that loan to the federal government. The federal government promised to buy it back from you. This got rid of the liquidity problem. It allowed people to stay in their homes. We eventually did things like going to local banks and saying, hey, instead of a 50% down payment, how about a 40% down payment? How about a 30% down payment? With the government providing, in a sense, a security, an insurance policy against default. We did things like this to keep people in their homes. And in many ways, stopped that deflationary spiral. And I'm going to use a word that I used in the book. I think that this was a very moral thing to do in a financial emergency. I want to demonstrate something to you all right now about our culture. I'm going to ask you a question. I want you to answer it. What is the thing that got us out of the Great Depression? Okay. Understand that we live in a culture dominated by economists and economic thinking, right? Because we have this narrative about, oh, times were so hard, and then times got good again when we had a global war with tens of millions of people who died, right? Young people getting conscripted, sent overseas to kill and to die. When we turned our industry away from making things that we could use into making things that we would blow up and destroy. But if you're a bean counter in Washington, D.C., if you're an economist, the thing that got our mojo back was when we joined a global war, when there was a global war that we could produce things for. As the war went on, there was a panic amongst the economists near the president. There was a panic that if the war ended and we stopped, you know, we demobilized all these troops, we shut down all these industries, we went back to normal, that we would just slide economically right back into the depths of the Great Depression. This is a memo written by probably premier U.S. economist of the last hundred years, Paul Samuelson, describing this effect to the president. Is that what happened at the end of the war? Of course not, right? We all know what happened. What we did, and we did this on many different fronts. We did this with infrastructure and highways. We did this with commercial finance. But when it came to housing, what we did is we took those tools that stopped the deflationary spiral and we reconfigured them to have the housing market go in the other direction. We made it easier for more people to borrow more money and ultimately to pay more for housing. You thought a 12-year mortgage was good? How about a 15-year? How about a 20-year? How about a 30-year mortgage? You thought 50% down payment was tough? How about 40? How about 30? How about 20? How about 10? How about 5? How about zero down payment? How about down payment assistance? Interest rates at 8%? How about 6%? How about 4%? All of these things allow, in a sense, the same person with the same capacity to pay more for a house. And this became our national policy at the end of World War II. Let's be very clear. This was insanely successful. This is a chart of the two and a half decades after World War II. What you see is that GDP, the size of our economy, grew immensely. This was kind of the most robust period of growth that we've ever experienced. We nostalgize today this level of growth, right? And at the same time, the public debt rose, but by nominal amounts in comparison. And what this meant is that the huge debt to GDP ratio we had at the end of World War II, this thing that economists said were crippling our economy and limiting the capacity of federal government to act and what have you, that dropped throughout this entire period of time. This, again, getting back to the culture of economists, is one of the biggest success stories of the last hundred years. When you take economics, when you listen to economists talk, they will talk about growing your way out of debt, growing your way out of difficulties, growing your way out of problems. They're talking about this, because that's what we did here. We nostalgize this. And in fact, if you listen to, I mean, any president in my lifetime, right, any Congress in my lifetime, When we have any kind of a downturn, what do we do? We lower interest rates. We create stimulus. We try to grow our way out of that problem. In the last budget cycle, we even talked about this. We've got these massive budget deficits. How are we going to solve this? Well, we're going to solve it by running bigger deficits today because we'll have all this growth in the future. That all comes from this. What often isn't told as part of this story is what was happening in the private market. Because in the private market, what you saw was a massive explosion of private debt. It wasn't that debt went away. It was that public debt spending went away. And what happened was individuals and families started to take on massive amounts of debt to finance housing and to create this growth economy, this growth boom that we experienced at the end of World War II. I know there are people who don't like charts. I'm an engineer. so I'm like required to show you a few charts. This is the Case-Shiller Index. This is an index of housing prices over time. The Case-Shiller Index starts in 1890 and goes to the present day. It adjusts those prices based on income. So if you think of incomes rising, if everybody's salary was doubled next year, it wouldn't make housing affordable. It would just make housing twice as expensive, right? So this tries to even that out over time. I truncated it from 1945, and this ends in 2008. This is what we see with housing prices over that period of time. I want to tell a little story here about this. You'll see immediately at the end of World War II, there's a little bit of volatility as we try to kind of get the system established and create these systems of growth that would drive the expansion of our cities post-World War II. But then you have this long period of time, and I'm sorry you guys over here can't see. There's a long period of time where housing prices just relative to incomes just slowly decline. The best way to think about that is the reason that computers and big screen TVs and cell phones have declined in price over time. What is going on there is we're figuring out the efficiency of an economy. We're figuring out supply chains and distribution networks and all that so that we can deliver materials and employees and processes quicker to a job site. We talk about Levittown as being kind of like manufactured suburbia. This is us figuring that out as a nation. But then we get to the end of the 1960s, and we have the first real inflationary episode where we see housing prices start to spike, not as a reaction to supply and demand, but really as a reaction to financial dysfunction in our economy. Let me explain one thing about 30-year mortgages, which are like the dumbest financial product ever. They would not exist without federal government backing. Remember when I said local banks would do three-year, four-year, five-year loans with a rollover? Banking, pre-Great Depression, operated on what is known as the 363 principle. You borrow at 3%, you lend at 6%, and then you get out on the golf course by 3 p.m. It's a very simple business, right? And your income was that spread. Who are you borrowing from as a local bank? Depositors in your city. So you're paying them 3% and you're lending out to people at 6% and you make the difference, right? But what happens when you have an inflationary episode? What happens when inflation goes up? Interest rates also go up. Okay, let's say that now interest rates are at 7%. You've got to pay depositors 7% to keep them at your bank. But you're only making 6% on your loan. You're losing money every month. Okay, if you're a local bank and you've got a three-year, four-year, five-year window, there's an end to the bleeding. That will eventually stop because you'll roll over your portfolio, you take your licks and you move on and you figure it out But if you have a 30 mortgage there no end to the bleeding The bleeding will go on decade after decade after decade Unless interest rates go down, you will go bankrupt. You will go insolvent. Your bank will go bust. And so banks don't write long-term loans. Who's dumb enough to write a long-term loan? The federal government, right. So what happened here, when interest rates went up during that inflationary period, housing prices went up, but then banks started to go broke. And we basically had our first bank bailout of the post-war era. We created an entity called Freddie Mac to Mir Fannie Mae that we did during the Great Depression. We created an entity called Ginnie Mae, and these were designed to buy mortgages from banks so banks could lend again. Banks were broke and insolvent, and we bailed them out by taking their bad loans off their books and giving them the ability to write good loans. This happened again at the end of the 1970s, early 1980s. We got to the early 1980s, and the FDIC, It wasn't the FDIC. It was the savings and loan version of that. FSLIC, thank you. There's a great book, and I can't remember the name of it right now, but it said in the book that that insurance program had $10 billion in the bank, and the banks, the savings and loans were insolvent by $140 billion. So if they had cracked down on the banks, said you're insolvent, we're going to close you and make your depositors whole, They could have done that to like one fourteenth of the banks. The idea then, and again, this is the early 1980s, was to deregulate and going back to the lessons of post-World War II, grow our way out of the problem. That created the SNL bubble and ultimately the SNL crisis, which wasn't $140 billion bailout of banks. It wound up to be like a $350 billion bailout of banks. We retooled and, in a sense, switched from deregulation to the concept of decentralization. In the 1990s, there were a bunch of housing studies commissioned by the Clinton administration that looked at things like unfair lending practices. If you applied for a loan and your last name was one way, you would get it. And if your last name was another way, you wouldn't get it. And it was the same loan on the same property with the same income. And so things like the credit score, which was supposed to be a more like blind, you know, way of evaluating worthiness, but of course was quickly gamed. And we had the whole kind of run up in 2008 to what we now call colloquially the subprime bubble or the great financial crisis. Here's what I want you to take away from the Case-Shiller Index. I want you to see that the amplitude of each of these crises becomes greater every time. And what you're seeing is an increased financialization of the housing market over time. The first mortgage-backed securities were issued by the government in the 1970s. They were extremely conservative products. Extremely conservative products. By the time you get to 2008, and many of you have probably seen the movie The Big Short, read the book. It is even better. But the idea that we would create mortgages from people who had bad credit scores, who really couldn't afford a home, we would sell those mortgages onto a secondary market. They would be bundled with other similar mortgages, put through this financial alchemy so they could be highly rated, cut up into securities. Those securities could be bundled then together. You could actually have, we needed mortgages so bad that we actually created what were called hypothecated mortgages, which was just like not a real mortgage, but like a mimic of an existing one, just so we could create enough financial instruments to sell and to trade and to speculate. Here's what's important to take from this. The financialization of housing has meant housing has shifted from being a local product based on local supply and demand to something where the prices are being driven by macroeconomic conditions that we don't control. And in the 1980s, the federal government, in order to, again, juice this market, grow our way out, told local banks that for your reserve funds, instead of requiring them to hold cash, you could hold instead mortgage-backed securities. And so every bank in the U.S. has as its reserves a substantial portion of home loans, which if they go bad, will undermine the bank's reserve funds. Here's what this means for us. When we look at these products, we think of them often as shelter, but that's not their primary purpose in our economy today. The primary purpose of these in our economy is as financial products. Single family homes, duplexes, are fantastic financial products. They're standardized. They can be put into check boxes. We can bundle them up together and bring ones from California, ends with one from New York and Minnesota and Texas, and we can combine them all together, and we can cut them up and we can sell them off. And in a sense, there's an unlimited market for buying these. Every bank in the country wants to own them, all the pension funds, all the insurance companies. This is a great financial product. If you are in the home building business, if you can build a home, there's unlimited amounts of financing to do it at this scale. The five over one, the apartment building, the condo building, these come in many different flavors, but they're essentially like the same. And because they're very similar, they also are a great financial product. There's about 28 companies that do 80% of the five over ones in the country. They can do them at low price points. They can do them at luxury price points. They can do them at anything between. and then those again will get bundled and sold off and securitized and bought up by pension funds and insurance companies and what have you. These are great, great, great financial products. What this means for us is that when you buy a home, the product is really not the home and you're the consumer. The product is really the mortgage and you become the product. Your pledge of 30 years of making payments becomes the thing that leverages all the value in the economy as we have created it today. We are working downstream of that important transaction. And so when we look at the Case-Shiller Index, we have to recognize that we're just in the next amplitude up. all of the things that we talk about with pricing being out of control and housing is unaffordable. Yes, it is. It's insane. It's absolutely nuts. And I'm going to say, if we stick with the current iterative approach that we've been giving, there's really not anything that we're going to do that's ever going to change that. Because we're not controlling what is affecting prices. making it easier for more people to borrow more money, to pay more for housing, felt like a moral answer during the Great Depression. And I think we can make the case that it is, or it was. It maybe felt like the right thing to do for a generation that suffered through the Great Depression, fought World War II, came back and had this kind of boundless optimism about what the country could be. I understand that story. I get it. But it has increasingly not become the right thing to do. At this point in the talk, I usually pause and ask forgiveness for people because I am going to talk a tiny bit about politics. Strong Downs does not do partisan national politics in any way. And I like to point out that in the last presidential election, We had two candidates who were talking about what they wanted to do. One candidate was talking about down payment assistance for homeowners and helping them, in a sense, pay more, borrow more for the existing housing stock. The other candidate was talking about things like privatizing Fannie Freddie, writing longer term mortgages in order to, again, allow people to borrow more and pay more for housing. The weird thing is that this week, we actually had this announcement out of the White House. On page 70 of Escaping the Housing Trap, I said the next thing, the next innovation we're going to see out of the housing market, continuing this trend is going to be the 50-year mortgage. Taking the same amount of payment and just allowing you to pay more by spreading it out over a longer period of time. This is where our market is bringing us. and it's gone from a hypothetical prediction to now something that is being spoken of openly. Let me just say, a lot of people on social media this week have been saying, wow, Chuck, you really called that. I listen to financial news and there have been people in financial news markets talking about this for a decade or more. This is how we solve this problem. How did they solve Greece's insolvency in 2008? They took Greece's loan and spread it out over 50 years. How did Argentina resolve their debt crisis, their past debt crisis? They issued 100-year bonds. This is not the way any of us want to live. It's certainly not the way any of us want our kids to live. It's certainly not the way you build a strong, healthy society. And so I'm patently against these demand-side things. But understand, and let's cut the president a little bit of slack here, because I want us to understand, not just reject, I want us to understand the paradigm that this is coming from because it's the same paradigm that the Harris campaign had when they were talking down payment assistance and the like. They are responding to the fact that we are trapped. I almost said they are trapped. We are trapped. We are all trapped. If housing prices go down, banks fail, the economy sputters, like everything goes bad. If housing prices stay elevated, people can't afford it. How do you fix that? If you're the President of the United States, how do you fix that? There is no way to fix that. That's what it means to be tracked. All right. Let's talk about how we deal with this. Because there are things that we can do at the local level. There are things that we can do. And it starts with recognizing that, yes, these are shelter. People live here. These are important things for us to have. But these are, at the beginning of the day, here in the United States in 2025, financial products. If we recognize this, we can look at the distribution of capital in our system and in our economy, and we see that almost all capital in the housing market today goes to build these products. You can get almost unlimited sums of money to build single-family homes and duplexes. you can get almost unlimited amounts of money to build apartment buildings and five over ones. If you are in those businesses, particularly if you've got to be a big player, if you're a small player, good luck. If you're a big player, you can get tons and tons of money to do this stuff. If you go to the far right side on this chart of the spectrum and you look at wealthy people's housing, housing for wealthy people, no one frets over their ability to finance their homes. This happens naturally and easily. We don't worry about it. Wealthy people have no problem building houses and occupying them. Where there is tremendous demand and there is absolutely no capital at all is at the entry level end of the market. You can't get, and I'll use numbers that I saw in Detroit a while back, you can't get a mortgage on a $20,000 home. You just can't get it. There's just not a product out there. You can't finance the stuff at this entry level end of the spectrum. And so nothing exists there, despite there being massive, overwhelming demand. We have the capacity to fill that demand, to catalyze meeting that demand. I want to talk about what these units here would look like. this is a single family home. In our country today, more than two out of three families, households, are one in two person households. That means a person living alone or a couple. That is more than two thirds of our families. More than two thirds of our housing stock are single family homes. That means homes with multiple bedrooms. There's a sizable population in this country of people who are housing rich and cash poor. And when we look at their homes that they occupy, what our market would say to them today is, well, you should do a reverse mortgage or you should move somewhere else and get out of that home. You should downsize. And for a variety of reasons, many of which are very human, people don't want to do that. My husband and I lived here. We paid off the mortgage. I had Christmas here for years. My kids are going to come home. I've got friends up the street. I go to the church down the block. There's very human reasons why people are in this situation. But they also step back and say, I can't maintain the roof. My heater is on the fritz. I had to put $400 of repairs into my hot water heater. My taxes are going up. I don't have the cash flow to stay here. I can't shovel the sidewalk. I can't mow the yard. In prior times, this was an easy problem to solve. And I'm not saying a frictionless problem to solve, but I'm saying it's a very easy problem to solve, right? What you would do is you would take one of these spare bedrooms, you would put a kitchenette in it, you'd put an exterior door with a little staircase up, and you would rent it out to somebody who needed a place to live. You might do it as a day rental where someone shows up and they going to read it or you might find a college kid or someone who going through a divorce or what have you And you would rent out that space and you would collect the cash and you would use that to make ends meet because you have an asset, a home. Can you do that today? Not in most markets, you can't. Most places we would call that a duplex conversion. We would put you through tons and tons of paperwork, lots and lots of regulations to make what is really like a simple use of a room, something that you could do if like your kid did it, right? And they came through the front door. If they come through a side door, no, can't, can no longer do it. This is a backyard cottage. I've heard the word, the term ADU used like 20 times already today in the hallway. Stop, let's stop using that term. ADU sounds like a disease you catch. We have to have this conversation grow beyond this room. ADU really is, what is it? It's an accessory dwelling unit. No one in the world outside of planner jargony world understands that an accessory to the principal dwelling becomes an accessory dwelling unit. It's a backyard cottage. And do you know why it's a backyard cottage? Because my mother-in-law would live there, or a college kid would live there or a starter family would live there. When we start talking about these things in a different way, we start to communicate it. And when I advise cities and places on how to have these conversations, the conversations are always around how do you make them very human to people? And ADU sounds like a disease I don't want in my neighborhood. But when I talk about to my neighbor, you know, my mother-in-law, and this has not happened, I'm giving you a theoretical. My mother-in-law is doing fine. But my mother, you know, if I talk to my neighbor and say, my father-in-law just passed away, my mother-in-law is living on her own, she could really use some help and assistance. We don't want to put her in a home. We would love to have her come and live with us. She would like some privacy and some independence, which is reasonable. Would you mind if we built a little small cottage in our backyard where this wonderful old woman who you've seen here a lot because she comes over and helps with the kids and whatever, would just live here? Of course, no one's got a problem with that. Of course they don't. When we say we need an ADU ordinance so that we can build these, we need to make these the story of us because that's what this is. It's the story of us. This is the story of us, right? We all know someone who's struggling to make ends meet who could use this situation to their advantage, right? And we probably also know someone who's going through a divorce or recovering from alcoholism or what have you that could use a place to stay. These are very human things. This is a starter house. Do you not call these tiny houses again? A tiny house sounds like a cute little fetish, right? We're not. How many people in this room would like to live in a 400 square foot house? How many of you have at some point in your life lived in a 400 square foot unit? Okay. Do you see what I'm saying? We have planning commissions and governing boards and what have you that are dominated by people who have reached a certain place in life and they struggle to understand what starter means. Let's be clear. Americans, for our entire life's history, up until the end of the Great Depression, built starter homes all over the place. And a starter home is just that. It's a 400, 500, 600 square foot home. Did it stay that way? No. You can go to the neighborhoods around here and you can see starter homes, but they will not be 600 square feet anymore. They will be 1,200 square feet or 1,500 square feet because what happens is that you start with something and then you save up a little bit of money and you put an addition on the back and then you have a kid and you put on a second story and your neighbor comes over and helps and you go over and help your neighbor and we build neighborhoods, communities like this. A starter house is where you start. It's not where you end. And sometimes that end means you move out and move up to something else. But a lot of times it means you just add on. You just keep building. You expand it out. This is a very normal, very natural thing. And we've made it illegal in most places. Like I said, you can't get a mortgage on a 400 square foot home. You can't do it. There's no checkbox. It can't be bundled with other similar products. It doesn't work. If we identify this kind of housing as housing that is desperately needed in our community, because not only does it fill a demand for entry-level housing, but it also solves so many other problems for real people who live here. We recognize that there's three things that we can do to help bring this about. The first is we need regulatory reform to allow these things to be built. The second is that we need the incremental developers and ecosystem of people who actually know how to build this and deliver it. And the third is that we need to finance these things locally so that people can build them at scale. I know a lot of you are writing and taking pictures. I'm going to go through each of these now. I have 24 minutes left. I'm going to go through each of these in some depth so that we're on the same page. And at Strong Towns, I wrote this book, Escaping the Housing Trap. And then we scheduled and I went on a big book tour and went to cities all over North America. And when you write a book, you feel like you've described things adequately, right? When you do a column or a podcast or an interview, you're like, there's a lot of things left unsaid. But when you write 65,000 words, if you've got more to say, you've got a problem, right? So when I wrote the book, I thought, well, this is very clear. And I would go to city after city after city. And what I would hear from mayors was, where do I start? Like, I want to do this. I'm with you. Where do I start? And I realized, because it got drilled into my thick skull, that the book was a very good understanding. And I did describe what we need to do and how we need to do it, but not in a step one, step two, step three kind of way. So what we've created at Strong Towns are toolkits for implementation. We've got two of them that are out. The third one we're working on. The first one is this toolkit on Housing Ready City. The website, strongtowns.org slash housing ready. I will have this as my last slide, too, so you don't have to write it down right now. But the idea is we wanted to say, what are the six code reforms that every city in North America needs to make to allow this style of entry level housing to be built? Let me say, because I always get the question at the end from the person who's obsessed over single staircases or like some other like code nuance. Yes, there are tons of building code issues. There are tons of other issues. Every place has nuance. What we're trying to do is get people started taking down barriers. These are the six big barriers to building. The first one, we need to allow single families to be converted to duplexes and triplexes by right. And when I say by right, that means you don't have to go to a planning commission, beg permission from your neighbors, genuflect in front of a board. You don't have to do any of that. You show up at 9 a.m. with a completed permit application. You walk out by noon with a permit and you start building. That's what by right means. We need to permit backyard cottages in all residential zones. There should be no place where we have a home where you cannot build another home, particularly if that home is going to be owned and managed and taken care of by the people who own the principal structure. This should be allowed simple, very easy everywhere. We need to legalize starter homes in every residential zone. The idea that someone would build a 400, 500, 600 square foot home is something that we sometimes allow as like this side project over here in like Weirdville. That's like the worst possible thing we can do for the viability of our community. What we need to do is allow people to tuck them into spaces where they can get started and then grow over time. Along with that, we need to eliminate the minimum lot size requirements in our existing neighborhoods. Sometimes planners get caught up with this because they think I'm talking about the new greenfield development out on the edge. If you read my first book, you shouldn't be doing the greenfield development out on the edge. But what I'm talking about is in an existing neighborhood where you already have a public street, a public sidewalk, sewer, water, all this infrastructure that you've invested, and then you've got these large gaps or you've got gaps in between homes. People, if we're obsessed about housing, people will go in and figure out how to make it work, how to provide access, how to get people in. We don't need to regulate minimum lot size. We can regulate setbacks. And, you know, I know that there are fire code issues. I've seen places that don't want to deal with properties getting too close and having to do the firewall requirements of all that. So they just say every new structure has to be 10 feet away from every other structure. So you've got to have a five-foot side yard setback. If your city is at that point, that's an easy way to do this. We don't have to regulate lot sizes in existing neighborhoods. We can regulate access and we can regulate setback, but we don't have to do lot size. And then the final one is to repeal our parking mandates in all housing areas. Someone said amen. Thank you. I'm with you. Let me lay this out in the terms that I think we should be thinking of this in, because I know that in a room like this, we're all like, yeah, we should do this. But then you get out there and everybody shows up and they're like, but where will I park? I know how this gets hard when we get to a regulatory body actually doing this. Let me set this up. When we're having a discussion about parking minimums and people show up and say, where will I park? There will be too many cars parked. Where will I find a place to park? I want to acknowledge that that is going to be a problem that we're going to have to figure out. That would be a stress we will have to deal with. But what we are doing by getting rid of this is saying we will deal with that stress and earnestly try to deal with it and address it. Because right now what we have done is we've said we are more sensitive to the stress about finding a place to park than we are about finding a place to live. And what we need to do is say we're going to prioritize finding a place to live and then we will deal with the stress of finding a place to park. Cities are not ever going to be stress-free. There's no set of policies here that you can adopt that will make your place a utopia where no one has stress or conflict or anything else. What we're doing is we're choosing the grounds on which we have stress. Right now in every city in America, with tiny maybe practical exceptions in a couple places that I would even argue no, but we have ample, ample parking and not enough housing. We have an overabundance of parking and not enough housing. If we skew that in the other direction for the next two decades, we are almost certainly going to have an overabundance of parking still. But hopefully we will have a bit more housing. All right. The last policy then, we need to streamline the approval process. This is something I actually have been pushed to write a little bit more about because we write in the toolkit, we should have a 24-hour approval for these entry-level units. And then I had one government official in Texas actually like curse at me. You know, you've never worked in a city hall. I did permitting for 10 years. I am not suggesting that the apartment complex or the new Costco or the housing subdivision or the multi-part variants should get approved within 24 hours. I am saying that you can create an approval process where you can say, here's the things we need to review on your backyard cottage. Here's the things we need to review on your single-family home to building the accessory apartment out of your spare bedroom. Here's the things we need to review on this new house in the existing neighborhood. And you can have those, and when the developer comes in, the builder comes in and has those things done, you can actually set up a process to get that approved in 24 hours. That's not an insane thing. So, before I go down to the second toolkit, I talked about the language we use no tiny homes no ADUs we want to make these six reforms the most boring revolution that ever occurred right there's a city in Colorado Littleton that I got to spend some time with this fall and I got to spend some time with them because they did the revolutionary thing of changing their code and doing all this and da da da and I'm going to say this and I love them. They're very nice. They've done a lot of hard work. I think what they did is they went too fast and too broad. We're going to have ADUs everywhere, out on the edge in the cul-de-sac. Yes, everywhere. Everyone's going to have them. And what happened is they got a big backlash and they did a voter referendum, which they're allowed to do in Colorado, and the voters rescinded all of the advancements. When I talk about this as a boring revolution, what I mean is that the avatar of this revolution should be the grandmother who wanted to stay in the backyard cottage. It should be the college student that we're trying to help get started. We need to make this not about rules and regulations and process. We need to make this about humans and their story. So every time we talk about this, we need to talk about it in human terms of human desires. I want to be able to fix my roof. I want to be able to maintain my heater. I want to be able to look after my mother-in-law. I want my kid to have some independence. We need to talk about these things in human terms, which will emotively connect with people and make the radical things we want to do seem very boring. You're never going to get full agreement, but what you want is for the people who are going to disagree with you to not bother showing up because you've bored them. All right. The second toolkit is about this idea of who's going to build the housing ready city. Because let me let me be clear. There's a lot of really great builders working in our cities. There's a lot of great developers out there doing stuff. They're working in that financialized market. If you talk to them, they will tell you all kinds of things that are going on. We're trying to get this grant and this loan and this thing and move this around. And they're doing like heroic work. I'm not criticizing them. I'm not saying that's not important work. I'm just saying that's not where I would put my time and energy. What I would say is that we need a different group of builders to show up and come forth and build this revolution The first question I always get is, well, who the heck is that? I'm going to say, these builders already live in your city. They're already there. They are people who see the rundown house and want to fix it up. They're the people who have a little bit of spare time. and have a desire to do a project. There's someone who's already pounding nails for some other developer and wishes they could go out on their own. There's lots and lots and lots of people. There's an unfathomable amount of people in every community that would like to do these. We can think of it pejoratively as a side hustle. They're everywhere. They're everywhere. When we talk to them and ask them what is holding them back, we get very interesting response. because what they say to us is, I never hit a wall. I never had someone tell me no. I never got to the point where I couldn't go forward. But what I ended up with is an unlimited number of questions, an unlimited number of things that were scary and kind of, you know, you've seen the old maps where it's like there's dragons here or like the end of the earth. They have that feeling because development is about doing a whole bunch of complicated things. Think of what a builder has to know, right? A builder has to know enough about actual building to not get ripped off. They have to know a little bit about contracting and framing. They've got to know a little bit about roofing. They've got to know a little bit about plumbing and electricity. They've got to know a little bit about masonry. They've got to know how to talk to an HVAC person to write a contract. They've got to know a whole bunch of stuff that normal people just don't naturally know. Then they've got to understand how to navigate city regulations and be able to work with people at City Hall and be able to get through all this red tape. Then they've got to understand banks and pro formas and financing and the time value of money and what compounding interest is going to do to them if they don't move their project along. There's a lot of scary things. And the idea that someone would just know all that is really, really difficult. And so what happens is they get worn down and they give up. They would like to do it, but they don't. So, what we can do is build the support structure that allows them to stand up and actually pursue this. And building that support structure is not hard. It's not hard. It's not expensive. It won't take new staff. It won't take new... It is not going to be difficult. What it is, is it's a culture shift. It's a change in mentality. the first thing we need to do is show people where to start. Give people clarity. And the toolkit goes through a whole bunch of different examples. We tell the story of different incremental developers, where they got stuck. We talk about what they're bringing when they come to the table. The one thing that we found when we were interviewing cities and we were interviewing developers and we were interviewing people who do this work is that the places that have been most successful just have like plain language start here kind of guides. Hey, if you want to build a backyard cottage, here's where you start. Here's the first three steps. Let's get you going on some momentum. The second thing then is proportionality. We want to match the process to the project. I talked earlier about the difference between an application for a backyard cottage and the application for a Costco. If the Costco takes you six months, I don't care. The backyard cottage should take you 24 hours. And that means that we're having a different process for different intensity of applications. If you think about your own life, I'm trying to come up with an analogy on the fly, and it's probably not a good idea. If you think of your own life, there's always times where we're like, this should be more simple. I'm not doing something that complicated. This should be very simple. This is what incremental developers trying to do, these entry-level units, run into all the time. I'm just trying to do something small. When you're just trying to do something small, we can actually have a process to front load a lot of the things that we need to get from them, and we can make that process much, much, much easier. The third thing that we need to do to create this environment where these people will step up is connections. We profile in the book South Bend, Indiana. South Bend, Indiana ran these developer workshops, And I'm telling you, it was like this room here. They would have a bunch of pop and some pizza, and they would say, anybody who's interested in doing development, come in. They would have a speaker talk for 10 minutes about, here's a banker who's just going to talk about, really, with a bank. Here's the next meeting. We'll have a city zoner talk about the zoning process. It would just be someone every time. But you would get these people in the room, and a lot of them were people who had never done a development. They were just thinking about it. some of them would be people who had done a few homes here's what happens when you get them in a room and you get them talking they're not competitors they're really not competitors what they are is they're building an ecosystem that helps them all you'll be in a room I went to one of these once and there's, oh I'm having trouble with a plumbing issue oh really? you should call this guy, this guy's a great plumber don't use them anymore, use this person Oh, I had trouble getting financing. What bank did you go to? Oh, yeah, don't go to that bank. Go to this bank over here. And what happens is that they start to create their own ecosystem, not just of the builders, but of all the support structures. Because if you've got a guy who would do a plumbing project on the side for someone else, and then they can do it for two people, and then they can do it for four, all of a sudden they can leave and become a plumber, and now they're working for incremental developers all over the place. And that happens in industry after industry after industry after industry. And so in South Bend, you can go there today, and not only do they have a lot of great incremental developers, but they have this entire support structure for them that has grown organically just by getting them together regularly and juicing the conversation with a little bit of pizza and beverage. Internally at City Hall, we need to shift our culture from gatekeeping to guidance. And I'll give you the one story that came out of this that I really was impressed with. there was a particular city in Florida where they had just a small developer day once a week for four hours in the afternoon if you were an incremental developer you would come and they would have all the people in the room that you needed to talk to to get your permit to get your thing answered and you could come there and it was like a concierge service they would just like focus on you and get your stuff done and of course you know the city staff would come and they'd bring their own computer and they'd be doing their own work because sometimes two people would show up, sometimes 20 people would show up, but they were there, and if you went that period of time, they could get you through and get you done and get you out. Did that cost the city anything? No. It just required them to deploy their resources a little bit differently. And if you were sitting there and no one needed to talk to you that day, you had your computer and you could continue to work, continue to do your stuff. So it didn't even take out of anyone's time. It just made them go sit in a room for a little while. These are things that we can do if we're really serious about this style, incremental development, to really juice it. The last thing then is make it easier to finance. And I'm going to skip ahead because the third toolkit is not out yet, but it's coming out next spring. And this is the one that everybody always asks all the questions about. So, of course, I've given myself five minutes to talk about it. Let me, before I talk about Oswego, In order to build these units, we need to be able to finance them locally. And when you look at the way we finance housing today in our current market, what we ask local governments to do is to be the dumb money at the card table. You're either supposed to lose money on every transaction, take huge amounts of risk from the private sector, or both. What we have said is in order for us to do this at scale, in other words, to build as many entry-level units as people will demand, we as local governments have to be able to do this in perpetuity, meaning we can't lose money and we can't take risk. If we can set this up where we don't lose money and we don't take risk, we can build as many of these units as the market will ask for. in Oswego they came up with a small grant program tiny tiny grant program they were giving people 50 bucks 100 bucks at a crack to fix you had to do something that was visible from the street they had neighborhoods that were struggling much like many of your neighborhoods and they wanted people to take their own money off the sidelines and fix up their own places but people lacked confidence in their neighborhoods. And so what they came up with is a grant program. And they said, if you do an improvement to the outside of your house that's visible from the street, we will reimburse you up to 50%. And they had dollar limits and all this stuff. The catch is, you could not apply as an individual. You could only apply as a block. And you had to have at least 70% of the homeowners on the block included in your project. And so what happened was struggling neighborhoods around the city, neighbors had to go, I want to paint my house. It would be really nice to get some money for doing that. I want to fix the windows or fix my porch. It would be really nice to do that. You can't get money for something in the backyard. You can't get money for your heater. But if it's visible from the street, they'll give you a rent. So people were out having to talk to their neighbors about what their vision was for making their place nicer. And that spread. Because now all of a sudden it's like, are you interested in doing something too? because we've got to have seven of us on this block. Do it. We've got 70% of us on this block. Do it. Would you be interested? Oh, no. Well, could you just like plant some trees or something? So they're talking. Here's the other thing it did. If you're a resident of these neighborhoods, all of a sudden you wake up one morning and bam, this whole block looks better. And then bam, this block over here looks better. And what that does, instead of like a one-off here, one-off there, it communicates to everyone progress. And what happens is that when people lack confidence in the trajectory of their neighborhood, if you give them confidence, they will want to invest. They'll want to take their weekend and plant flowers. They'll want to take their week and paint the house. They'll want to do things that don't cost a lot of money, but add a ton of value. And when you start to build wealth in a neighborhood, it snowballs on itself. And that wealth doesn't accrue to outside investors coming in. It accrues to the people in the neighborhood. I spent way too much time on the first example. I'll do the second one, and then I'll skip the rest because I'm running out of time. In Muskegon, they had a lot of neighborhoods with vacant lots, what we would as planners call infill lots. They have been vacant for decades. Sewer, water, sidewalk, all that. You can think about doing this with your no minimum lot size stuff, existing infrastructure. What the city of Muskegon did is they said, if you will build a starter home, 900 square feet or less, we, the city, will pay your down payment. We'll make your down payment for you, 20%. And we'll finance that with a tax increment financing package. So what they do is the city, you build a house, the house $150,000. The city goes out and borrows $30,000. The city makes your down payment to the bank when you buy the house. The city then has a tax increment financing package on your property. So they're collecting your taxes and the school district's taxes and the regional taxes, and they're applying that to that $30,000 loan. And when the $30,000 loan is paid off, the tax increment financing package goes away, and then everybody's living in a home and collecting their taxes just like they normally would. If you leave early, there's a clawback provision. So, you know, you can't like, this isn't for house flippers, this is for people who want to live in the neighborhood. But this again, no risk. If there is a default, the city is the first lien holder on the property. No money spent. Yes, we're using the city's leveraging capacity, but we don't have to raise taxes. We're not charging taxpayers for this. We're not losing money. We're getting all of our money back with interest at the end of the day. This is a package the city of Muskegon can do over and over and over again. They've built a couple dozen houses in this way and gotten people into homes. In Minnesota, we can do this through special assessments, the same kind of thing. In Florida, we've seen philanthropy partner with cities to do things like co-signing loans and working with local banks to create funding packages that are backed by the capital that the city has. So cities bank. They've got millions of dollars that run through city coffers every year. They put that somewhere. We will bank at your bank if you will help us by writing this kind of loan. So we will provide you the liquidity that the big market will not. This toolkit is going to come out. I was thinking it was going to be January. but I've noticed that our team has some other things scheduled in January and February, so I think it's scheduled for March. But we're going to be publishing that third toolkit in March, and it will have a bunch of these financing things, examples from around the country. If you are interested in this conversation, strongtowns.org slash housing ready. These toolkits are all free. Read the book. The book is really helpful and good, but get the toolkits. The toolkits are available to anybody to use them. and if there's anything that we can do, Strong Towns, this is our member week, so I think my team would get mad at me if I didn't say this. We've got 6,500 members around the country, people who give us $5, $10 a month to do this kind of work. If you go to our website today, you're going to get inundated with members sign-up messages because two weeks a year, we go full NPR and bomb people. That's this week, but if you wait until next week, you can go get this stuff and there won't be all that messaging around. But become a member anyway. I just want everybody to leave this room knowing that we're not powerless. Sometimes it feels like we are. Sometimes it feels like the things we're being asked to do are ridiculous because they kind of are ridiculous. They're drops in a bucket, right? They're drops in the ocean. We don't have to live that way. We can actually do great things. We just have to be brave enough to think a little bit differently, but not crazily, right? We can do this. is all very, very normal stuff that will be normal to people even outside of this room. So keep going. Thank you, everybody. This episode was produced by Strong Towns, a nonprofit movement for building financially resilient communities. If what you heard today matters to you, deepen your connection by becoming a Strong Towns member at strongtowns.org membership. Bye.