More On The Housing Crisis/Auto Industry Analogy

There are some really interesting parallels.

Cadillacs lined up in a car dealership lot. Source: gettyimages.com

(For those who have found this newsletter over the last few days, welcome! For the many of you who have subscribed, a hearty welcome! It’s been a busy week for the Corner Side Yard, with a big increase in views thanks to a popular piece. I invite everyone to take a look at this and many other pieces on this newsletter, and let me know what you think! -Pete)

The strangest thing happened to me over the last few days. I stumbled on an analogy that I hadn’t considered as particularly relevant, but now discovering how relevant it really is.

Last Friday, I wrote an article in which I made the case that our nation’s steady slide in decreasing household size, evident for more than 60 years, plays a key role in our current challenge with housing supply and affordability. I noted that the nation’s average household size fell from 3.38 persons in 1960 to just 2.55 persons in 2023, according to the U.S. Census. I follow that up by saying that housing supply hasn’t kept pace with changing demand. Here’s a take from that article:

“I’d say the nation is still overproducing homes for the traditional family arrangement that characterized American post-WWII society, and underproducing homes for the smaller families, singles, couples, and others who want homes scaled to their needs. I mean, that’s at the heart of NIMBYism and the YIMBY response, right?”

Then, I went even further, comparing today’s housing shortage with the decline of the auto industry’s Big Three in the latter third of the 20^th century:

“Just as there was a time when Detroit was overproducing Chevys when the nation was transitioning to buying Toyotas, the nation is still overproducing 4-bedroom, 3,000 square foot homes as the nation transitions demands smaller, more adaptable and more flexible living spaces.”

The analogy became clearer after reading The Future of Where's Bill Fulton piece on the simultaneous shortage and glut in the U.S. housing market:

“Here’s a paradox that pandemic revealed: We have a shortage of housing in the United States and housing prices went up a lot.

But at the same time, it turns out that we have a lot of extra bedrooms. In fact, we have 137 million extra bedrooms.

But we’re not using the bedrooms to house people. We’re using them as storage, as guest rooms, and increasingly post-pandemic as home offices.”

I’ll spell it out. Shifts in preferences among auto and housing consumers dramatically altered demand, but supply took much longer to keep pace with the changes. The oil shocks of the 1970s encouraged auto customers to take a hard look at fuel-efficient Japanese cars, while American automakers continued to build large gas guzzlers. Housing buyers and renters have increasingly expressed an interest in finding places that fit their size, location, amenity and contemporaneous needs, but home builders continue to produce more of the large single-family housing stock they’re accustomed to. Overproduction of one type of product, and underproduction of another.

Now, I’ve always been a bit of a YIMBY skeptic, for a number of reasons. Not because I’m a card-carrying NIMBY, opposed to any housing that’s not single-family and deeply concerned about traffic and parking concerns. I’m a strong believer in the kind of dense, walkable, mixed-use development that’s at the heart of the best cities, and want more of it. However, I’ve always been skeptical because I view upzoning as being fraught with unintended consequences that we still aren’t able to mitigate.

Starting as far back as 2014, I’ve always felt we have enough housing in the U.S.; it’s just not located where it’s most wanted, nor easily accessible (financially, physically) to those who need it. Fulton’s article noted ApartmentList.com's research on the matter and we arrived at similar conclusions. (Note: the same could likely be said about the nation’s office and retail markets).

Don’t get me wrong, though. The work done by those in the YIMBY movement has been necessary. I just have questioned if it’s an applicable solution for all parts of the country. There’s just a part of me that can’t let go of the fact that there are neighborhoods that are overlooked, particularly in cities, which can fulfill the needs of those who want the city lifestyle. Yet they are glossed over because of gentrification avoidance. In a counterintuitive way, gentrification avoidance might be deepening wealth inequality in the U.S.

And quite frankly, in my opinion the blame here is more with the American homebuilding industry, and less so with the municipalities who are accused of restraining residential development via single-family zoning.

Consider this. Builders know what they want to build. They know what’s marketable, what’s profitable. The same goes for the banks that finance housing development. Generations of successful and profitable single-family home suburban development have given builders and investors the confidence to continue promoting “what works”.

This is akin to General Motors saying “we need more Buick Rivieras” in 1974, instead of developing something like the Honda Civic.

Then there’s the NIMBY faction, most interested in protecting the value of their home investment. They’ve tracked the value of their property for years, and hope to cash out one day.

You pair the builders with homeowners who are also bought into the system, and you have a powerful coalition.

Extending the metaphor

If we extend the auto industry = housing crisis metaphor, what can it tell us? First, let’s lay out what happened with the auto industry.

I realize this is a simplistic summary, but the Big Three fell behind foreign automakers who focused on fuel efficiency and product quality; American products suffered in comparison. In the ‘70s and ‘80s, American auto sales plummeted, foreign sales soared, and the Big Three struggled to find its way. They were able to rebound through the rise of minivans, sport-utility vehicles, and pickups (the antithesis of the small-car movement, I know). However, Toyota, Honda, Nissan, Hyundai, Kia, and other foreign automakers continued to challenge the Big Three in the U.S. American fuel efficiency and quality eventually improved, but the Big Three had to accept a new position in a now-global automobile market.

In the housing market sense, one might think that I’d view the nation’s large, older cities as similar to the stodgy Big Three, and suburbs as comparable to the foreign upstarts. But truth is, I think it’s the opposite. The economic growth of cities over the last thirty years has made them more similar to foreign automakers and the conventionality of suburbia has make it more similar to the Big Three.

That being said, I see quite a bit of restructuring taking place in the suburbs over the next couple decades, very much like what took place with the Big Three. The Big Three witnessed cuts in workforce size, the rise of technology and robotics in the production process, the loss of union influence, the elimination of fat pensions, and eventually government bailouts to right the ship.

Of course, suburbia won’t undergo that kind of specific restructuring, nor will all suburban communities have to go through it; in fact, many will continue to prosper. But I do think we’ll end up with products that will lessen the distinction between city and suburbs, much like the distinction between American and foreign automobiles has faded away.

Let’s see how the next 10-15 years goes.