The housing supply problem: Part I

This is an audio transcript of the FT News Briefing podcast episode: ‘The housing supply problem: Part I’

Marc Filippino
Good morning from the Financial Times. Today is Thursday, May 25th. And this is your FT News Briefing.

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Yields on UK gilts have soared to levels not seen since last year’s disastrous “mini” Budget. Meanwhile, Australia is going after PwC. Plus, we’re kicking off a special series on housing. Part one, we look at why there are so few homes on the US market.

Caitlin Friedman
In our price range. It was either just outdated, too much work to be done or it was just straight up ugly, and I just didn’t really want to live in it, you know?

Marc Filippino
I’m Marc Filippino, and here’s the news you need to start your day.

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The UK released a report yesterday on April’s inflation data. Overall, prices last month were down for March, but they were still significantly higher than what the Bank of England was expecting. What’s more, core inflation actually rose in April. UK bond markets did not like what they saw, and the yield on the two-year gilt skyrocketed. The FT’s Mary McDougall says investors are worried that the BoE is going to turn to even tighter monetary policy now.

Mary McDougall
While the markets completely reset its expectations for how many rate hikes there are going to be. People, lots of analysts had thought at the last Bank of England meeting that the Bank of England might have stopped raising rates. But now swaps market pricing and terminal rates of 5.3 per cent by the end of the year, and they’re currently at four and a half per cent. So it’s a big change.

Marc Filippino
Mary McDougall is the FT’s bonds and currencies reporter.

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The Australian government wants authorities to consider opening a criminal investigation against PwC. Earlier this month, emails came out that show the Big Four firm leaked confidential government information to clients. Here’s the FT’s accountancy correspondent Michael O’Dwyer, who explains how this all unfolded.

Michael O’Dwyer
So this story began to really kick off, I guess, earlier this year when a former PwC tax partner in the . . . in Australia was banned from acting as a tax agent in that country for two years. And that was because he had been part of an advisory board to the Australian Treasury department when it was drawing up plans for a crackdown on multinational tax avoidance. What happened next was that this partner, Peter Collins, seems to have taken that information, shared it widely within PwC, with his colleagues, not just in Australia, but in various countries around the world, including the US and the UK. And they’ve used that information to basically drum up business for the firm, selling advice to companies as to how they should react to these changes in Australia’s tax code. So essentially, it was a breach of confidentiality obligations that were owed to the Australian government.

Marc Filippino
The reaction has been rough, and there is a lot at stake for PwC.

Michael O’Dwyer
Within Australia there has been a huge furore after this news broke quite quickly after the emails published and released publicly in Australia. Its CEO in that country had to step down from his leadership position, and he has now left the firm. The firm locally has set up an external review and the international bosses of PwC are also extremely worried. They’ve sent in some of their most senior executives to try and get on top of the problem, to minimise it and to stop a global contagion, because the big risk for them is that their global brand gets tarnished. They spent a huge amount of money and a huge amount of time in the last couple of years building their entire global brand around this idea of building trust with stakeholders, with companies, with wider communities. This type of a scandal massively undermines and goes against those values that they’re publicly professing. And so it’s that danger that they are trying to minimise.

Marc Filippino
Michael O’Dwyer is the FT’s accountancy correspondent.

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It’s hard to buy a house right now. Like, really hard. US home prices rose 40 per cent during the pandemic. Mortgage rates haven’t been this high in 15 years, but intense bidding wars are still a regular occurrence. This is a problem for a couple of reasons, but the big one is owning a house is a crucial way to build wealth. And it’s becoming more and more out of reach for a lot of people. Over the next four weeks, we’re doing a special series on the US and UK housing markets. We’ll look at how they got so out of whack and what might work to bring back some balance. For part one, FT News Briefing producer Sonja Hutson travelled to Asheville in the US state of North Carolina. This growing city exemplifies a lot of what’s going on in the broader market. She joins me now. Hi, Sonja.

Sonja Hutson
Hi, Marc.

Marc Filippino
So tell me a little bit about Asheville, and why you went there for this story.

Sonja Hutson
Yeah. So Asheville is a small city in the mountains in North Carolina. There’s just under 100,000 people that live there. It is absolutely gorgeous. You know, it’s great for hiking, mountain biking, camping. And in fact, it has such a nice standard of living that lots of people have been moving there, especially during the pandemic.

Marc Filippino
Yeah. Makes a ton of sense. A lot of people were working from home during the pandemic. They want their life to be better.

Sonja Hutson
Yeah. You know, lots of people around the country made lifestyle changes during that time. So I met up with a young couple in Asheville. They’re locals. They grew up in the area. Their names are Caitlyn and Drew Friedman, who spent nearly a year looking for their starter home.

Marc Filippino
A year? Nearly a year? That’s insane.

Sonja Hutson
Yeah, it was quite a journey for them. And so I wanted to know a little bit more about what that process was like for them.

Unnamed speaker
(Whirring engine of oncoming vehicle) Good job.

Drew Friedman
Removing the heaviest cart of my life (laughter). It’s a heavy one (makes grunting sounds). It is a lot of metal.

Sonja Hutson
It’s moving day on Newbury Drive. Drew and Caitlin Friedman are unloading their red pick-up truck in the driveway of their new home. If you look down the street, you can see a piece of the Appalachian mountains, gorgeous rolling hills blanketed in bright green trees (chirping birds). It feels like quintessential spring, like new beginnings.

Caitlin Friedman
It feels really good. We’ve been basically sitting on the floor the past few days, so it feels very surreal, actually, now that our living room is set up in our living room (chuckles).

Sonja Hutson
Caitlin and Drew spent nine months getting to this point where they could relax on their couch in their home. They started looking for a place last summer, but there wasn’t much on the market. The couple only found about eight to 10 houses that they liked and that were in their budget of under $400,000.

Caitlin Friedman
I personally wasn’t finding a lot of options in our price range. Like we could go, you know, 50 to $100,000 over our price range. And I was finding all sorts of great things. But in our price range, it was either just outdated, too much work to be done or it was just straight up ugly, and I just didn’t really want to live in it, you know.

Drew Friedman
It’s discouraging. You know, I’m one of those people I want what I want. So any time I don’t get what I want, I kind of just say, well, you know, whatever then. You know, we’ll just, you know, live in an apartment (inaudible).

Sonja Hutson
Their real estate agent knew they were going to have a tough time. Nick Iannucci, who also happens to be Caitlin’s brother-in-law, says that at the beginning he deliberately showed them a bunch of houses he didn’t think would work.

Nick Iannucci
But I wanted them to look. I wanted them to see. I also wanted them to see how fast they would go off the market.

Sonja Hutson
To figure out why there are so few houses on the market, I talked to Nick’s boss, Neil Hanks. He’s been doing real estate in this market for more than three decades.

Neil Hanks
For probably over 15 years now, we’ve had a shortage of new homes being built. And so that’s a big deficit to try to make up.

Sonja Hutson
If you look at a chart of new single family homes being built nationally, it pretty much falls off a cliff right before the 2008 housing crisis and recession. Home prices cratered and the cost of materials and labour went up. So building a new house wasn’t as lucrative as it was before. Which is one reason why there are so few homes for sale right now.

Neil Hanks
And the second challenge that we’re facing right now is what we call in the industry is interest rate lock. And so if you’re thinking about making a move and you’re in a home with an interest rate under four and you realise that your replacement property, if you’re in a mortgage that property is going to have an interest rate over six, gives some folks cause for pause or may delay a move that they were anticipating making just to see if rates will moderate.

Sonja Hutson
So people are holding on to their homes, and buyers are fighting over the few homes that are available. Which brings us back to Drew and Caitlin.

Caitlin Friedman
We had a split-level house that we were totally going to do, and that was on the market in a day and gone. There was, we were waiting behind cars that were viewing that house, and then there was cars waiting behind us on further appointments all on the same day. I mean, it was . . . it went so fast.

Sonja Hutson
Asheville is also a really tight market because, as Neil doesn’t need to remind me, it is such a great place to live.

Neil Hanks
And people have moved here for those reasons. But the pandemic really accelerated that trend. And you know, people are moving here at much earlier ages than what we have seen in the past when we were known a little bit as a retirement community.

Sonja Hutson
So all in all, it was just a really discouraging process for Caitlin and Drew. Until they finally found this house on Newbury Drive in their price range.

Caitlin Friedman
I told Drew that this was the first house that I walked into that I could actually see our future in.

Sonja Hutson
And when they toured the house it had only been on the market for a day. They had two hours to submit an offer before the deadline. Drew says he really wanted to get the offer right.

Drew Friedman
You know, I’m in my head going, OK, so someone else is going to offer them 5,000 of it. OK, so let’s do 10. And then I said, well, someone’s going to do 10. And then I went to 11 and I said, no, someone’s going to think 10 to 11. And I said 11-5. I said, that’s the number. That is the number. And that’s what we did. And we got it.

Sonja Hutson
So Caitlin and Drew finally got what they wanted. But a lack of inventory means other buyers might still have to wait a long time to find a home. And when they do, they’ve got to be ready to pull the trigger and write a cheque immediately. As Caitlin put it . . . 

Caitlin Friedman
It took a long time for it to happen suddenly.

Sonja Hutson
For the FT News Briefing, I’m Sonja Hutson.

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Marc Filippino
Next week, in part two of our series, we go to the UK to hear from a pair of unlikely roommates and take a deeper look at something called home sharing.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.