Build Like It’s 1950

Taking aim at real estate is not the way to generate growth.

September 13, 2017

The federal government can give housing and the economy a boost by taking a page from the last time the country had a big inventory shortage. After coming home victorious from World War II, American troops were ready to enjoy life, and they didn’t disappoint. They gave us the baby boom and the economic boom.

Many returning soldiers were in their prime years for household formation. The result: tens of millions of babies born in just their first few years back. The numbers show a birth rate of around 110 to 120 per 1,000 women, up from around 75 per 1,000 women prior to the war.

Just as consequential was the housing boom. Private residential investment, mostly arising from new home construction, went from $3 billion a year over the five years prior to the war to $16 billion a year for the five years immediately following.

The contribution of home construction to the country’s gross domestic product rose from less than 1 percent to more than 5 percent. Consequently, GDP grew at an incredible rate of 8 percent in both 1950 and 1951. Jobs and incomes rose significantly as a result and federal tax revenue in those two years tripled and quadrupled.

What’s happening now? Congress is mulling over the mortgage interest deduction. Commercial real estate could get whacked by a change in the tax status of 1031 like-kind exchanges. Mortgage accessibility is being closely scrutinized even though default rates are running at historic lows. Capital at the secondary mortgage companies, Fannie Mae and Freddie Mac, is rapidly being drained off by the Treasury. Why harm real estate and economic growth at a time when, like the postwar period, home inventories are well below demand?

A better decision involves recognizing the massive housing shortage we have in this country from a decade-long underproduction of homes. We need more construction. An economic boom, not unlike the one we had almost 70 years ago, could result.

Lawrence Yun
Chief Economist and Senior Vice President of Research at the National Association of REALTORS®

Yun oversees and is responsible for a wide range of research activity for the association including NAR’s Existing Home Sales statistics, Affordability Index, and Home Buyers and Sellers Profile Report. He regularly provides commentary on real estate market trends for its 1.3 million REALTOR® members.

Dr. Yun creates NAR’s forecasts and participates in many economic forecasting panels, among them the Blue Chip Council and the Wall Street Journal Forecasting Survey. He also participates in the Industrial Economists Discussion Group at the Joint Center for Housing Studies of Harvard University. He appears regularly on financial news outlets, is a frequent speaker at real estate conferences throughout the United States, and has testified before Congress. Dr. Yun has appeared as a guest on CSPAN’s Washington Journal and is a regular guest columnist on the Forbes website and The Hill, an “inside the beltway” publication on public affairs.

Dr. Yun received his undergraduate degree from Purdue University and earned his Ph.D. from the University of Maryland at College Park.