Millennials, Rental Burden, and the Ultimate Trash House Solution
In Texas, Dan Phillips runs an architect company that builds houses out of recycled materials. He uses license plates as roofing tiles and crystal platters for windows. His ceiling is a zigzag of recycled picture frame corners put together seamlessly. He called standard building codes “tyranny of 2x4s and 2x8s”. Of the 14 low-income houses he's built for needy folks, half of it was lost to the bank in foreclosure. The payments on those houses were as rock bottom as he could make them, ranging between $99 and $300 a month.
On the Caribbean Coast, eco-architect Richie Sowa created a fishing net with 250,000 plastic bottles and built himself an island. The house is at the top of this plastic island made out of bamboo and a plywood hut. It also has a solar oven, a self-composed toilet, and a wave power washing machine. In Oakland, artist Gregory Cohen scavenges to illegally dumped garbage sites for materials. He reassembles trash into micro homes on wheels, which owners can push by hand. The owners, of course, are the homeless. He donates these micro houses to provide superior insulation and rain resistance over streetside tents.
Meanwhile, most of us in America making less than $45K a year can expect to pay over a third of our income for a rental. The median income for Americans after taxes is $40K per year. By the way, the median cost of a house right now is $375K. If you're an average American making 40K a year, your rent is half that. According to the Federal Reserve, your car payment, food, and medical school will generally be the rest. If you're under 35, your net worth is $14K. In short, your net worth is tied to your house. If you didn’t inherit a home, don't have an elite job to buy one, and you didn't get one before the year 2000, then your odds of owning one within your life are kind of slim. So, are you ready to build a house out of trash?
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Half of all Millennials are rent-burdened. According to the Federal Reserve Bank, Millennials have 35% less wealth than earlier generations, and half of them are rent-burdened. This isn't just an American problem. Lord David Willetts has served as a British minister of State for Universities and Science, Paymaster General, and Lord Commissioner of the Treasury Lord. Willetts explains that Millennials may inherit Boomer wealth, but it will happen far too late for them to do anything with it. In fact, he claims Boomers have pinched the wealth of the generation below them from buying second and third rental houses before Millennials can buy their first starter home.
A Unison report shows that it takes about 14-15 years to save up a 20% down payment on a medium-priced home in New York or Miami. This is closer to 36 years in Los Angeles. Remember, that's just the down payment. Politicians have recently suggested many solutions for housing codes, programs for starter homes, better zoning laws, and better public transport so new homeowners can purchase far outside the job-rich city centers. But in today's episode, we want to ask the impractical. We want to offer a solution that, quite frankly, you'd have to be a little mad to consider - why not just build a house for free? And we have three myths to bust to convince us to walk away from this madness.
Myth One: Why are Millennials whining so much about housing prices? They should just wait for the market to come down in price. It's coming down, right?
Joe: On occasion, we have revealed our approximate ages. I don't know if it will shock anyone, but I am an older Millennial. So, this episode came about because I am currently in the process of building a tiny house. If anybody is currently trying to get out from under the crushing non-stop life burden of rent, then you're facing the same thing I've been facing the last year, which is figuring out how the hell get a house when there aren't any. We will get into the stats of this, but I want to point out that if I sound bitter when we talk about this subject or pitch crazy ideas, this is why.
Todd: And you've lived this; you've been doing this the longest being an older Millennial.
Joe: Absolutely. Many of our stats come from that Unison report I found in an article where a woman in Austin, Texas was talking about how she will literally drive around with a trunk full of cash. And whenever houses go on the market, she will try to race there to buy a starter home. But by the time she gets there, it's already been purchased. So, there's a housing market where if you can pay for a house outright in cash, you still can't get one.
Todd: I think many Millennials who had home-owning parents were involved in the foreclosure stuff too. That had been pretty traumatic for them.
Joe: Yeah, Millennials have seen degrees not pay off, houses that are foreclosed, and now they're seeing themselves get shut out of the market. And again, if anyone thinks we're whining, hang on because we will get to the actual hard stats - and it is mind-blowing.
The first section we want to go over is why rent burden is a thing. Usually, when I think of rental units, I imagine moving to an apartment run by a crusty old landlord who doesn't like you, smokes too much, and tells you what you can and can't own as pets. But that's not really the case for a lot of rentals nowadays. It feels that even the landscape of rental units is more of a business cash cow than it used to be. It's becoming a bigger and bigger business now where there are corporations buying properties cash just to rent them out because people pay a third of their whole income into rentals. It's a good way to get some indentured servants for the next 30-40 years.
Now, there are some examples of why the housing market won't come down and how businesses own rentals for mere profit. One example is Donald Trump's son-in-law Jared Kushner. He worked for his father as a slumlord in New York, and Jared has since taken over that business. His father has gone to prison for 18 months for doing unethical things like giving donations to politicians to get favors. So, he's the second generation of slumlords and Kushner's Properties have received hundreds and hundreds of violations over the years, but they never got followed up on. It just kept getting worse and got so bad that a woman's ceiling caved in on her from neglect.
I've studied about this because I did watch this documentary a couple of years ago called Dirty Money. Their business pretty much is having these houses that they would never even visit. They certainly wouldn't spend the night there, and what they do is make most of their money on the fee and the fines of being late on your rent. They want people to be late, and they want you to get behind. It's kind of like a credit card. When you're cutting that close, there are no savings. There's no extra, and Kushner companies are taking advantage of these people by charging them ridiculous fines and not being forgiving to the people who have been renters for a very long time.
For anyone who thinks that we may be bashing on Jared who is just being a landlord, that's not really the case. Just a quick cursory Google search shows that he has nine thousand properties. We make it seem like he's a villain, but honestly, this is what businesses do; businesses are doing this 'Jared Kushner' business, which is very different from someone in your family who has bought a rental. Whenever I hear about rent being used by businesses to hold people in place, that feels like serfdom. Now, is it ethical if corporations buy up all our houses?
Let's say that every good capitalist and entrepreneur buys up nine thousand houses. They do exactly what Jared Kushner does to get a constant income stream. Is that unethical for all renters to be living under a business of some sort? Because if you think about goods and services, we are actually okay with offloading almost everything else like Amazon. In fact, all joking aside, Amazon has actually thought about building Amazon housing near their warehouses. So, this may at some point even be out of the hands of the individual investor. We may eventually live in a future where most housing belongs to large operations, and it's all rental because how else will they gain a consistent flow of cash? It has started to become kind of an indentured servant.
Right now, we're in Portland, Oregon where corporations are coming in paying cash for four or five hundred-thousand-dollar houses that would go to the 28–34-year-old first-time buyer. They're gone, and they can't compete with their 10% or 20% down mortgage. It gets to a point where it becomes almost like a monopoly. But keep in mind that housing could very well come back down at some point. If you go back to the year 2000, housing was a fraction of what it was. It was about a third. We are living in 2020, and it doubled over a decade, then it doubled again in a short period of time. A lot of people I know are smart investors, and they are anticipating it to crash back down. But if corporations keep buying up houses, it may not crash. And there aren't enough people buying a new house, what happens? Well, we would expect a crash or at least a burnout. What we're getting to is that the 'Jared Kushners' coming in with their nine thousand houses, and they're adding another house to their belt if it's cheap enough. Them doing that is what keeps the housing market staying pretty much where it is.
Myth Two: Back in my day, we didn't beg for a loan or ask permission to build a home. We went into a field with a bucket of cement on some bricks, and we made it happen. Why can't the next generation do the same?
There is a misconception that rent is cheap. I think we're headed towards parts of Europe where it's generational money to buy a house, inheritance, or your parents have to give you because you can't just bootstrap your way up. We are now hitting the heart of our episode, which is getting to the financial gap that Millennials can't leap to gain homeownership. And without homeownership, you will never gain financial value. Average 35-year old's have a median worth of about 14K. Home prices doubled in 2000, and at no other time in American history has housing costs jumped and stayed as high as they have been. Usually, housing does not go up that high per year. That jump with a low income makes it impossible to gain homeownership, especially with the corporations involved eating up the cheaper markets.
Even more, even if you could build a house out of trash, but the codes, the blue tape, and the cost of those regulations would make it still hard to do. Let's just start with high housing demand. We have low mortgage rates right now because coronavirus has basically made people want to leave heavily populated areas. People are looking for those smaller houses and smaller cities. And housing supply is low because of inefficiency and building. Many people talk about how the absence of labor, high construction costs, and local zoning are the reasons why the cost of building is high - not just materials and not just codes. A lot of it comes down to there being only so many people who are willing to throw a hammer and a nail for what they are being paid for. In fact, according to Market Watch, the annual average increase in home prices was only about .2% more than the average cost of living.
When you think about it, from 1955 to 1998, home prices increased .1% per year over inflation. If that remained consistent, houses would still be about $100K, and a small starter home would be completely doable. It shocks me to think about how cheap that would be today. Nobody would be living in a Kushner Ville. Nobody would be living in one of these collapsing rental units with black mold or stuck in a rental property where if you break the lease, you get your wages garnished. But yeah, builders themselves don't want to build entry-level homes and people who fight zoning. If you are in a nice neighborhood and everybody in your neighborhood has big houses, your property value stays higher. If you don't allow starter homes to be built that are not up to the same standards, it just looks like a shack sitting on a big property.
How many do you see when you're driving around? Would you consider it under the 1,500 1,400 square foot mark? Overall, you see a pretty good number of smaller homes. I see small homes wherever I go just because that's what I need to buy. But when you talk about what gets built just because It's less costly to buy a piece of land and build a large home and sell it for a lot, that is actually (if you're a builder) the smart move. You don't want to build a small home because building a small home is a waste of land use.
I know contractors are likely shaking their hands at me right now, but you can't build a trash home if you're in a place or state where you have to be under code. This means that since the year 2000, less than 8% of homes are within this small bracket. A starter home is about 1,400 square feet. That's less than 1 in 10 homes that get built these days. The median floor plan for a single-family home completed in 2020 was 2261 square feet. So, if you want to talk about just building more homes to solve the housing inequality crisis, it won't. We keep building for Boomers. We keep building for the generation above us who can afford a larger home.
Myth Three: You can't just build a house out of trash. They are building codes, and nobody wants to live next to a pile of garbage with windows.
As far as creativity goes, we found a film called Garbage Warrior. It was about a guy named Ron Brown, who builds houses out of recyclables. He's trained. He's obsessed. He's intelligent. His wife says he's incredibly smart and incredibly just as stubborn. And what he decided to do was build houses out of garbage because he hates waste. He has one that he built in 1972 and looks better than any house, with the exception of masonry. He built it out in the desert, so the homes can handle extreme heat, and many of them are framed beautifully. He's creative with glass and with the woodworking, so they're custom-built to last and look nice.
If anyone imagines a garbage-looking house, they actually look quite beautiful. We can't all build trash houses, but I love the idea of people building and having more control over what houses they end up with instead of just buying whatever trash box the market allows you to buy. With his houses, it didn't take 15 -35 years just to get a down payment. It's free, basically. So, do you think that covid has gotten more people to rethink rent? I think so because I think the combination of sitting around at home during covid and the realities of rent, you suddenly remember how much it costs for how little you're getting. The Washington Post said that 80% of Americans would prefer a farm life. And this is in part because of covid because people realized that they could do their jobs out in the country remote.
The amount of people who want to live in rural areas is higher than ever. Even more, urban areas have higher rates of mental illness and poverty due to chronic underinvestment. So, just going by statistics and self-reporting - happiness and well-being are reported as being higher out in the country. This is why people are starting to flee the cities, and that means everybody is looking for starter homes out in the boonies. And you guessed it, that means not a lot are available unless you build one.
With that being said, why do we have building codes? Why don't we just let people build whatever they want on 40 acres? We let people go downtown and buy up the garbage lot. Why can't we build one out of trash on our own time? The environmental permits for doing so are high, so I think it boils down to profit. I looked for good arguments as to why we don't build affordable housing in areas that can use improvement, and the most extreme case I could find is in New York, houses are extremely regulated. Some codes are supposed to protect citizens from shoddy construction companies. But the problem is if you buy something that's already passed code, you can let it rot, and you won't be caught on it for a long time.
We have done episodes on the measure of success, and we've investigated how long people now expect to live with their parents. Everyone sees it as a bad thing if you live in your parents’ basement and do not pay rent, but it sets you up to be successful. Rent is such a huge chunk out of your budget every month. If you must pay it, it is really separating who gets educated and who can start creative pursuits in life versus who ends up being the woman in that Jared Kushner episode. If you are lucky enough to have been born when you can get the down payment for a house, then all your rent money went to your own equity, something that you can borrow against. If you weren't lucky enough, all your money has and will continue to go to a business. And that is the world we're currently living in. If you're a millennial, I'm sorry to say that statistically, you're probably living in feudalism.
Nobody gets out of this episode without feeling slightly bad. Even by touching the name Jared Kushner, we’re not bringing him up because he was in a political party. I want to kind of get the end of this research and point out that the New York Times put on an opinion piece last month, and they looked into a YouTube video that talked about how historically democratic states that have had control over the state have not solved housing inequality. Blue state housing is worse, which is what talk about with statistics upholding it. Most big cities are blue, and you would think if everyone's supposed to be equal, they would figure out a way to make it at least fair fighting. All these people who are inexplicably rich and have started with hundred-thousand-dollar homes are now sitting in 400- or 500-thousand-dollar homes defending that mountain of gold they accidentally gained. They don't want affordable housing. They don't like these small little gas station-like houses popping up; they want to continue having their neighborhood inexplicably rich to keep them worth more.
Final Thoughts
The housing crisis today could be viewed from two very distinct viewpoints. Depending on who's living room you're sitting in, the crisis is either a soul-crushing prison sentence that charges you rent and has no parole or it's winning 100K lottery every decade. For the sake of humor, we'll call these two groups’ prisoners and winners.
If you're a winner, you bought your medium-priced home before the year 2000 and watched your property double in value - then triple. Now you have every incentive on earth to fight to keep your neighborhood value up to keep from having affordable homes built in your area and to protect your unexpectedly valuable asset. You may have started out buying a home in your 30s just so you can stop paying rent. But now, that medium-priced home has the same value as a private island off the coast of Panama or Belize.
If your prisoner, on the other hand, you cry yourself to sleep at night on a rented pillow. It's funny that Millennial field games now come with home building as optional minigames, even in games that don't require owning a house to win because digital developers have tapped into the impossible dream of their prisoner market. In games like Fallout for Skyrim and Conan, the most fantastic part isn't that you would fight dragons or save the world. The most unbelievable part is that you could own a house and pay it off. Maybe instead of fighting Jared Kushner to let us breathe clean air or begging the winners to lower our rent, perhaps we should all take a page from the nut jobs building houses out of trash.