Austan Goolsbee: evaluation

Transcript context

…What’s your view? I hadn’t thought of it that way. My view has been more, part of the job of the Reserve Bank presidents is we have a district, and our district in Chicago is heart of the Midwest — most of Wisconsin, Iowa, Illinois, Indiana, Michigan. I’m out talking to business people. I’m talking to individuals, and overwhelmingly, what you hear is despair — I would even call it despair — about the cost of housing. That housing — they can’t move. This is not just in cities where you could argue a lot of it maybe has to do with building codes and zoning. We went out to the Iowa Farm Bureau, and in rural Iowa, I asked them, “What’s the biggest problem?” They said, “Attracting workers.” I said, “Why is it so hard to attract workers?” They said, “Because they can’t afford to buy housing.” I’ve spent a long time trying to think that through. It’s not wrong that it’s just more extreme. The last couple of years, house price inflation has been radically higher than goods price inflation. If you just compare buying a house to buying stuff at Costco or Target, there’d been a big differential, but what’s important is that’s not new in the last three years. That’s been going on literally for decades. If you take the 12 years before COVID, house price inflation was 3.5 percent or 4 percent a year, and goods price inflation was actually deflation of around 1 percent a year. The relative price of housing has been rising 4 percent, 5 percent per year for a decade and a half. It doesn’t take a PhD by any means to recognize that something compounding at 5 percent a year is going to add up to a big number. I think it goes to your question of, “Well, maybe it wasn’t a bubble.” I don’t fully understand why the relative price of housing has been trending upward like this. I find it hard to explain. I have a paper, you might’ve seen, with Chad Syverson, that’s about negative productivity growth in the construction industry over long periods of time, which is itself a puzzle. Maybe that’s part of it. Some component of it may be regulatory in nature, but as I say, you see it in rural areas, too, where the land use regulation is not as prevalent. I think that’s a real puzzle. On the construction productivity puzzle, what do you think is the main reason for that? That it’s negative. If it were zero — that would be a little easier to understand, but we’re forgetting how to build homes?…

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