The worst thing to happen to the housing market, especially for entrants, is we took power around housing permits out of the hands of bureaucrats, local civic officials, and we put it into the hands of homeowners. Now, what are the incentives of a homeowner? They live in a neighborhood. They like the fact there's not traffic; they like the fact there's not construction and free gift with purchase, and everyone — this is the atmospherics — is they know that the less housing that is built, the greater the scarcity of housing, which creates their primary asset or incentivizes or fuels an increase in value of their primary asset. So, the people in charge of issuing permits for economic growth and to provide more housing to meet the needs of new entrants who want to have their own house, the incentives of the people issuing permits is totally contrary to the needs of entrants.
What would actually make housing affordable, and how do you stop regretting a financial decision that was right for your family? Today, we answer your questions about housing, misgivings becoming apparent later in life, and taking a chance on a business idea.
Question number one. Question number one comes from Sure, Why Not 9876 on Reddit. "Hey Scott, have you ever taken a reasonably deep wonky dive into what would really make housing affordable? I just keep wondering, what would it really take?" So, what do we — First off, what do we get wrong around housing? Probably the worst thing we've done in housing is everyone complains about bureaucrats. The worst thing to happen to the housing market, especially for entrants, is we took power around housing permits out of the hands of bureaucrats, local civic officials, and we put it into the hands of homeowners. Now, what are the incentives of a homeowner? They live in a neighborhood. They like the fact there's not traffic. They like the fact there's not construction, and free gift with purchase, and everyone — this is the atmospherics — is they know that the less housing that is built, there's the greater the scarcity of housing, which creates their primary asset or incentivizes or fuels an increase in value of their primary asset. So, the people in charge of issuing permits for economic growth and to provide more housing to meet the needs of new entrants who want to have their own house, the incentives of the people issuing permits is totally contrary to the needs of entrants.
And that is the larger metaphor for the country the last 40 years. And that is the incentives have created regulatory capture such that the incumbents deny admission to the club such that their membership goes in value. And this is a supply problem, not a demand problem. And the way we approach it and actually end up making things worse, is the government provides tens of billions of dollars in what is a good intention, and that is creating more demand. Low-income housing tax credits. Tax advantage on mortgage interest rate, which is tax deductible, right? First-time home buyers credit. All this does is create more demand. When we don't address the supply side and maintain a national kind of NIMBYism as a public policy, we just again further escalate the price of housing.
We need to address the supply side. We need federal legislation and local legislation that says, "Look, you cannot access federal funds if you do not, or if you create a NIMBY-like situation where it's very hard to issue permits." We need to provide tax credits to developers such that they have greater incentives to build. Some examples of places that have done a decent job: both Austin and Minneapolis have increased affordability by getting rid of certain regulations, such as height limits or a regulation that you had to have a parking spot for every new unit built, which added on a ton of capital and expense to build sometimes underground garages in high-density areas.
According to a Brookings study, local zoning regulations prohibit building anything other than single-family detached houses on 75% of the land in most US cities. Height limits and minimum lot sizes can further restrict apartments. Smaller multi-family buildings have become rare. Duplexes, triplexes, and fourplexes accounted for 7% of new home completions in 1979. Get this, it's 1.1% in 2025.
And why does that matter? Nationwide, 20% of middle-income renters couldn't afford to pay their full rent at least once during 2025, up from 14% in 2024. Let's look at that same number for low-income renters. It's 28%, up from 24% in 2019. So, Robert Shiller did a study, and in his study, he was able to prove that housing underperforms most other asset classes when you take into account taxes, maintenance, and all those things.
Why do I think that study is incomplete? The psychic income and the component of wealth building is what is so powerful about housing. It is a step towards a key relationship. Whether you have a serious boyfriend or girlfriend, whether you decide that you want a bigger house to take care of your parents at some point, whatever it might be, pride of ownership, something, you know, having that asset, how owning your home, owning your nest, has real psychic ROI. It just does.
And while there's some cities where you're better off renting, essentially you take the yield, you take the year-long cost of the rent, divide it into the cost to buy it, and if it's above a certain return, you probably want to buy. If it's below a certain return, in other words, it's cheaper to rent, you want to rent. So, I'm not saying everyone has to buy. That's a — you know, "you never lose in real estate" and "the American dream" — those are all brought to you by the American Realtors Association. It does make sense in many cities now in this market to rent, not to buy. And you want to speak to people smarter than me. You want to use AI. You want to talk to friends in the real estate industry and see if it makes sense for you to buy a home.
Having said that, real benefits, psychic benefit, and also the economic benefit not captured in Shiller's analysis is the following. If someone says to you, you need to spend $2,100 a month and put it into a Vanguard low-interest index fund, you get an opportunity to go to Cabo, you think, "Oh, you know, I really would like to upgrade my car." And okay, you don't put the 2,100 bucks that month into Vanguard. People typically make their mortgage payment, and that is — it's a means of forced investment, which is good for younger people. It's good for all of us if we're trying, you know, you don't want to have your house repossessed. So, you tend to impose a certain amount of self-discipline around investing in an asset that does grow.
It may not grow as fast as the S&P nationally over a long period, but if you get lucky in certain areas, it does grow as fast or even faster. And also, it's really tax advantaged. And when you sell it, a quarter of a million or half a million if you're married of tax-free income on the upside of the sale. There's also, again, see above, mortgage interest rate tax deduction. So, there's psychic benefit, it's forced savings.
So, I do think housing is an enormous issue for the United States. The thought of unleashing kind of the private sector while also reducing, if you will, the ability or the inability, you know, unshackling the housing market through economic incentives and also pulling down or lowering the bar on what can get built by national and local NIMBY laws. The big mistake we make in housing is believing it's a demand problem, flooding the market of buyers with additional tax credits, which just gives them more money on the same base of supply, which drives up the cost. The issue is a supply problem, and we need to refocus our attention on the supply side versus the demand side.
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Question number two comes from Jackson who emailed us. He says, "Hi Scott, you've talked about selling Netflix at a loss early on and selling real estate in Potrero Hill. I imagine those kinds of missed opportunities haunt you differently than a straight-up bad bet. I recently sold a large position in a big tech company I worked at for 6 years, forced to liquidate to close on a Brooklyn townhouse. The stock has since run up significantly. I know the sale was the right call for my family, but the number is real and it stings. How do you mentally separate 'I made the right decision with the information and constraints I had' from the raw regret of watching the gains you left behind?"
My brother, get used to it. It's just the cruelty of capitalism is you're going to have a scarce amount of resources. At some point you're probably going to decide that it's worth it to send your kid to a great school that he or she got into that just cost an arm and a leg, and you're going to have to sell stuff. And some of the stuff you sell will go up in value. Now, the way you can sell yourself on a very existential level, or how I can sell myself, is that something that has just changed my life is my colleague at NYU, Adam Alter, does studies regret — or one of the things he studies is regret. He spent a bunch of time in palliative care and interviewed people who are at the end. These are people that have zero to give, have real perspective around the end of their life.
And their biggest regrets in reverse order are: number three, not staying in closer touch with their friends. Two, not living the life they wanted to lead — not one their parents or society or their spouse or themselves wanted to lead or felt they should lead — instead of living the life they actually wanted to lead. But the number one regret of people at the end are they wish they'd been less hard on themselves.
I'm like you. I have a tendency to focus on all my mistakes. I did a speech at UC Santa Barbara on Friday. It went so well and I'm happy about that, but I'm mostly fixated on the one or two things I could have done better, or I said something stupid or provocative, or I dropped an F-bomb where I really didn't need to. That's what I obsess about. And that's part of being, I think, successful is really trying to get better at something and recognize your mistakes. I have a tendency to dwell on them. What is it — anxiety is about worrying, you know, fear of the future, and depression is about fear of the past or upset over the past.
And by the way, okay, the stock has gone up, you've sold, but so likely has the value of that Brooklyn home you purchased. It's not like you took the money and put it in Treasuries or invested in another stock or invested in Nike which got cut in half in the last year or Netflix which got cut in half the other year. You invested in Brooklyn real estate which I think over the last 12 months has gone up. In addition, you've invested in your family, working at a tech company, and selling the stocks so you can buy a home in Brooklyn or a Brooklyn townhouse.
My brother, it's good to be you. That's what you call the mother of good problems. That means you're in a relationship. That means you probably have kids. It means, for God's sakes, you had the money in the stock to afford a townhouse in Brooklyn which probably puts you in the top 1% of Americans. So this is a really good problem, my brother. Whenever you sell stock, it's just very unlikely that you can time the top and time the bottom. You need to time your life, and that's what you've done here. You needed the money for your family, for a townhouse. You've probably made money in that townhouse already. Maybe not as much as this tech stock you sold, but okay. It sucks to be an adult. This is an inconvenience, not a problem. And again, don't be hard on yourself. You did the right thing. We'll be right back after a quick break.
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