In 1949 there was, like today, a shortage of affordable housing. Soldiers were returning from abroad eager to start families, but there was little to no housing available. This was due to the imbalance of supply and demand which led to a strong undercurrent of inflation in the land. Housing construction cratered during the Depression and did not recover until after the war.

Into this situation stepped a real estate developer named Willian Levitt who bought a 1,000-acre potato farm on Long Island, New York. From this the land built some 6,000 homes on lots of 1/7th of an acre in a development modestly named Levittown. The age of the suburbs as we know it was born. The homes built by Levitt tended to be almost mass-produced for an initial price of less than $8,000. This was when the per capita income was $1,533, according to data compiled by the Census Bureau.

Today a review of houses listed by shows the same houses in Levittown selling for $450-600,000 depending on upgrades. Current per capita income as of the end of 2023 is $70,539 according to Federal Reserve data. The minimum wage, which was increased from 50 to 75 cents an hour in 1949, is $7.65 today, the same since 2009.

Some yardsticks will show the problem. Since 1950, inflation has increased by a factor of 8, according to the Department of Labor. The minimum wage has increased by a factor of just over 10. Per capita income has increased by 46 times in his period, while housing costs are up 65 times. All income figures are pre-tax. Taxes make the distinction between prices and wages even greater than these multiples would suggest.

It would seem that America could use another William Levitt. It needs a lot more than that. When the Nassau County, New York Zoning Board looked to disallow Levitt to build detached houses on such small lots, he put the word out to the GI buyers who stormed the board and demanded that a variance be approved. The variance passed. Today, many zoning boards will not approve free-standing houses on less than an acre lot. This is the first factor that drives up the cost of housing as the land cost itself puts housing out of reach of most entry-level buyers.

The second factor is home design. Levittown houses were two-bedroom, onebathroom, living room and kitchen in 750 square feet, with an extra 450 square feet of unfinished space on the second floor or attic with no internal variation. Today, new houses are an average of 1,900 square feet, with options ranging from granite kitchen counters to double vanities. Options increase the profits of the builder while increasing the cost of the house. They also reduce the productivity of home construction.

Levitt’s genius was to build houses on what he called a reverse assembly line. Instead of, say, a car coming past workers who were assigned a specific role in its assembly, Levitt had construction crews go from site to site with each member dedicated to doing a specific function. At its peak, Levitt was building houses at a rate of 30 a day.

Today, finding land to build on is the first problem. While the Federal government cannot (in theory) influence local zoning boards, the government is the country’s largest landlord. Decommissioning surplus military bases and approving development on capped brownfield sites could provide the land needed at low cost to the developer. To keep the developer honest, the government could release land after approving plans to build houses to Levitt-like specification. In the case of Federal land, local zoning has no jurisdiction.

It is estimated that, if land can be acquired at modest cost, a 1,200 square-foot home could be built for under $200,000. If the development is large enough it will attract retail shops and other forms of infrastructure.Something like this is needed to break the housing logjam. Lower interest rates will not help, as such would lead to an increase in demand and corresponding increase the price of housing only by increasing supply to first-time buyers can housing prices be moderated. The trick is to funnel supply to the area of the market that most needs it without impacting housing prices overall. That would create a whole other set of problems.

The Economy

Economic activity continues to moderate. Most people are still talking about a soft landing which could mean no recession.

The problem is that a soft landing also means a lack of rebound in the next cycle. Meanwhile, commercial real estate, chiefly in the form of offices and some retail, are seeing values plunge as owners hand the keys back to the lenders rather than refinance at current rates. Many are waiting for the other shoe to drop for regional banks who hold most of the affected loans.

The white-collar recession talk is in full swing, as companies seek to replace remote workers with AI-program alternatives. Those who fought returning to work may rue the day they did so. In the eyes of management, out of sight is out of mind.

Interest Rates

Interest rates are higher than a month ago. The stock market seems to be oblivious. Such a state will be at best temporary if history is any guide. The Treasury Department has increased the size of its auctions scheduled for this quarter as government receipts have been below targets. The last auctions did not see the demand of times prior, an ominous sign.


Inflation seems to be going down in terms of wages, but up in terms of other inputs. Supplies from abroad are being disrupted from everything from the shutdown of the port in Baltimore to oil movements in the Mid East. Housing and auto ownership inflation continues higher. A more active hurricane season could put housing insurance out of reach for some.

The Stock Market

Stock prices in general have basically stalled since the end of the first quarter. Large institutional clients like pension funds and endowments have been shifting funds from stocks to bonds, given that the return on bonds is more predictable than equities.

Value seems to be among the mid-cap issues. This is where private equity fishes to find companies to acquire. Whether they resell the same back to the public at more or less than they paid remains to be seen.

Warren M. Barnett, CFA
May 7, 2024
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