Feb 18, 2023

EconExtra: The Housing Theory of Everything

The “Housing Theory of Everything” describes how the current housing shortage is the root cause of many other issues we face: from wealth inequality, lower productivity and lower birthrates to climate change and obesity.


EconExtra is a series of posts that go beyond the textbook, relating current events and recent developments in economics to content standards, and providing resource suggestions to help you incorporate the current events into your lessons.



The Headline

The housing shortages and skyrocketing housing costs in the US have appeared in the headlines and our weekly reading lists over the past year or more. This is true around the world. Business Insider published an article this week entitled “ The Housing Shortage is the root of all America’s problems.” It draws heavily on the “Housing Theory of Everything” named by economists Sam Bowman and Ben Southwood in this 2021 article (Works In Progress):

"Where you live affects nearly everything about your life – where you work, how you spend time off, who your friends and neighbours are, how many kids you can have and when, and even how often you get sick. Most people’s most valuable asset is, by far, their own home. And housing is so important for the overall economy because it determines the location and supply of the most important ‘resource’ of all: people."



Key Points/Issues

Here is a generalized scenario. A young urban couple currently rents and struggles to save enough to buy a first home. When they finally do, they buy further out and spend more than they had planned. They have delayed having kids, and will have fewer if they have any at all due to income and space constraints, as well as their age (birthrate impact.) They have a longer commute. They can no longer walk everywhere and have less free time (climate change impacts and health impacts.) Even those happy to rent forever are impacted as those who want to buy a home can’t and put more upward pressure on demand for rentals, driving rents up as well. The original article details all of the potential impacts, including a global perspective for comparisons.


Here are a few of the key points made in these articles:

  • Decades ago, households with one wage earner working in manufacturing enjoyed a stable, middle-class life. What happened?
  • For most consumer durable goods, low interest rates and high demand spurs additional supply. Why has this not happened in recent years with housing? Why have durable goods costs decreased in real terms over decades, but housing costs have increased?
  • Studies of wealth inequality demonstrate that wealth inequality is much more extreme than income inequality. A major contributing factor in this is the difference in home ownership.

"And when homeownership — a driver of wealth for many families — is out of reach for Americans, this can contribute to persisting inequality. Roughly 90% of US households in the top 20% income bracket own their own homes, according to a 2021 Cleveland Fed report, compared to less than half of households in the bottom 20%."


More on the Housing Shortage


The (affordable) housing shortage in America, sized at between 1.5 and 6 million units, is a national issue. The solutions however, will be very localized, as explained in this blog by a Fannie Mae executive.


Lesson Ideas

1) Divide students into one or more discussion groups.

2) Have all students read the Business Insider article to introduce the topic and key concepts. All students can answer/discuss these questions.

  • How/why does the lack of affordable housing, exacerbate wealth inequality?
  • How/why does the lack of affordable housing contribute to climate change?
  • How/why does the lack of affordable housing contribute to lower birth rates?


3) Have half (or more) of the students in each group read the Works In Progress article and explain the following to the group: 

  • How/why does the lack of affordable housing contribute to lower worker productivity?
  • How/why does the lack of affordable housing contribute to less innovation?
  • How/why does the lack of affordable housing contribute to increased regional inequality?
  • Do you want to add anything to your answers to the last set of questions?


4) Have the remaining students read the Fannie Mae blog on the housing shortage and explain the following to the group:

  • What factors have led to the current housing shortage? Specifically, how did the Great Recession impact the current housing supply?
  • How has the Pandemic exacerbated this shortage?
  • What were some of the federal measures proposed in the blog to help the situation?
  • Why did the author suggest that most of the solutions to this national problem will be local ones?


5) Do the students have any other ideas that might help solve the housing shortage in their own community?

About the Author

Beth Tallman

Beth Tallman entered the working world armed with an MBA in finance and thoroughly enjoyed her first career working in manufacturing and telecommunications, including a stint overseas. She took advantage of an involuntary separation to try teaching high school math, something she had always dreamed of doing. When fate stepped in once again, Beth jumped on the opportunity to combine her passion for numbers, money, and education to develop curriculum and teach personal finance at Oberlin College. Beth now spends her time writing on personal finance and financial education, conducts student workshops, and develops finance curricula and educational content. She is also the Treasurer of Ohio Jump$tart Coalition for Personal Financial Literacy.

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