The Fed Should Print Trailers

A Benjamin Cole post

Thanks to the extraordinary insights of blogger Kevin Erdmann, the issue of housing costs and inflation has been brought into better focus. Erdmann recently brought up manufactured housing, or house-trailers, a wonderful topic.

This is no small matter. Housing consumes about 27% of typical household budget, but food only 10% and gasoline less than 4%. See here.

Yet housing is hardly a free market. Zoning out housing density is ubiquitous in U.S. cities, and trailers are criminalized routinely. The result is artificial scarcity, a housing shortage ironically made worse by tight money.

Manufactured Housing

According to the Manufactured Housing Institute, the average cost of a manufactured home in 2014 was about $65,000, and cost about $45 a square foot at retail. The price of a traditional, “stick-built” home was more than double that, or $97 a square foot (yes, that excludes land).

My guess is that in free markets, we would see innovations such as stackable manufactured housing units for urban or close-in suburban settings. Pioneer-types are already experimenting with shipping containers in this way, another type of housing that should be rapidly legalized.

A real-estate entrepreneur could buy a lot in or near a city, drag on some manufacturing housing or shipping containers, and be good to go. When his units filled up, he starts stacking.

Inflation, Money And Trailers

Milton Friedman famously said the inflation everywhere and always is a monetary phenomenon. But there are structural impediments that cause inflation as measured, and property zoning and housing regulations appear to be one. One can drive down “T” in MV=PT, and get to higher “P.” You can blame the central bank for that, but I think you can also blame the guys driving down “T.”

My guess is that Americans are not ready to un-zone property, or stand idly by while the next-door neighbor pulls a couple trailers into the backyard to work as rentals. Voters become greenie-socialist control-freaks in their own neighborhoods, from Newport Beach, Ca. to Brooklyn.

Conclusion  

For the U.S. Federal Reserve to obsess about measured rates of inflation, when there are substantial structural impediments in a major component of measured inflation (that is, housing) raises troubling questions.

To date, the Fed’s announced 2% PCE inflation target rate, which evidently has become a ceiling, appears to be a noose around the economy’s neck, judging from real GDP growth, or from falling NGDP trends.

As cities continuously raise barriers to new housing supplies, one wonders if the 2% inflation target is too low.

One might also ponder why FOMC transcripts are full of jibber-jabber about energy prices, and so rarely touch upon urban housing costs.

One thought on “The Fed Should Print Trailers

  1. Thanks for the shout-out, Ben.

    One of the interesting things about the housing boom and human perception is that the graphs people usually show about the period are single unit housing starts, or worse, new home sales. New home sales makes it look like we were building like crazy. It really does look unsustainable. But, every other category – owner-built homes, multi-unit homes, manufactured homes – were all way down. Almost all of the gain in home sales was replacing those other forms. Way back when I first got a whiff of this topic, I saw a graph of housing units per capita, or something like that, and it was flat for the period, and I thought, “How in the world could that be?” It’s taken me until now to fully connect the dots.

    Amid all the kvetching about predatory lenders and how low income households have been burdened, the types of homes utilized by low income households – multi-unit rentals and manufactured homes – have been in decline for some time, mostly for regulatory reasons. Well, they gotta live somewhere, folks! When the only option left for them is spending 50% of their paycheck on a studio in LA, taking out a subprime loan for a 2 bedroom in Riverside that is worth half what that studio is, is the best of a dwindling set of options. To get on the list of predators, their mortgage broker would need to get in line behind a host of more deserving folks, many of whom have an impenetrable veneer of moral self-satisfaction.

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