Escaping the Housing Trap: The Strong Towns Response to the Housing Crisis
by Charles L. Marohn Jr.
Rating: 4.0 / 5 · Read · Finished 2026-06-29
Housing is supposed to serve as shelter, but also as an investment. You want the price of shelter to stay the same or go down. You want the price of an investment to go up. That’s the trap. That paradox always bothered me, and it’s what made me read the book.
The book ended up being 40% about housing as an investment, 40% about rules on what can be built, 20% about solutions.
Housing as an investment: Due to a series of government interventions aimed at getting more people to own their own home, mortgages are now federally guaranteed, and banks are allowed to use them as a higher-yield alternative to cash reserves.
Rules about what can be built: Federal government will only guarantee mortgage if house matches specific rules. New style of development is all-at-once and car-centric, removing incentive for neighbors to invite new neighbors. Result is NIMBYism.
Solutions: Turn empty bedrooms into studio apartments. Backyard cottages. Match investments in neighborhoods. Guarantee loans. Waive connection fees for vacant lots which already have utilities laid. Author is very focused on cost-efficient solutions.
Raw notes Who benefits from rising prices? Homeowners - high sales price. more home equity line of credit. Cities - increasing tax revenue and/or lowering property tax rate (political win) States - income tax on capital gains. Sales tax on purchase.
Fannie Mae buys qualified mortgages, allowing lenders to make new loans. Mortgage backed securities are federally insured. They can’t go bad. If a MBS was AA or AAA then banks can hold them as reserves instead of Treasury bills. This is the crux! Federal government wanted to insure mortgages so banks would give out more of them and more people could buy homes. Side effect is that mortgages are treated as risk free investments.
Appraisers who don’t hit the bid don’t get repeat business. They do everything possible to hit the requirements for government backing. Same dynamic with rating agencies giving high ratings to subprime MBS.
The 90s: in an effort to increase home ownership, policies allowed people to pay more for the same housing. Then tap on equity from rising prices to increase consumption. Result is that people own homes but are no wealthier.
Insurance on MBS was low because there was no history of widespread default.
Early 2000s, median home appreciation a substantial fraction of median income.
People cashing out equity from appreciation to pay mortgage. Craziness.
2008 - Teaser ARMs reset at higher prices. Defaults. Foreclosure. Sell repossessed homes into slowing market. Depreciation.
After that, institutional investors starting buying houses and renting them out. Crowding out normal buyers.
5 over 1 are investment vehicles for wall street.
Zerp zero interest rates mean nothing is forcing you to lower rents to fill vacancy. You can keep it vacant and pretend it’s still worth a lot.
Mortgages are a bad deal for investors, good deal for home owners. Home owners can lock in low rate or refinance to a lower rate. Only reason we make them is they are safe and guaranteed by government.
Mortgage standardization leads to housing monoculture
The missing middle. Dams in a wetland. Small crack on a boiling pot. Better to relieve pressure across large area, avoiding high intensity release in a small area.
Missing middle outlawed by zoning. Exceptions require permits which cost money, so only make sense for large scale apartments.
Missing middle is sweet spot that adds some housing and spreads land cost across more people, but doesn’t raise construction costs too much.
Housing scarcity and rising prices attract institutional investors who drive up prices even more.
Cities used to grow in line with private wealth produced. That meant new neighbors brought new amenities. Now neighborhoods are built all at once. No benefit to adding new neighbors.
Zillow Research article from April 9, 2018, titled “Homes ‘Earn’ at Least Minimum Wage in Almost Half the Largest U.S. Cities.” Zillow says: “In San Jose, the typical homeowner is gaining $99.81 of equity in their home every hour they’re at the office.”
Since you get everywhere by car, you would prefer new store patrons to live in other neighborhoods. No incentive to have new neighbors near you.
Control over neighborhood comes at loss of control over your own home. E.g. renovations are not allowed.
Change will happen whether you like it or not. If you don’t build, then your nanny and your children will not be able to afford to live in your city.
Complex systems are explainable at very large and very small scale but not medium scale. Large scale is statistics of supply and demand. Small scale is an individual choice to live somewhere. Medium scale is new luxury apartments being built, increasing supply overall but convincing nearby landlords they can raise rents because neighborhood is more desirable. “It’s in the middle ranges where chaos reigns.” Also example of wolf and rabbit populations.
Affordable housing means subsidized housing. Advocates say housing is not affordable to lowest earners, so build subsidized housing. Musical chairs analogy concluding there are not enough chairs for slow people, rather than not enough chairs. Also completely misses the scale of the problem. Building the missing houses is US at 200k per house would take trillions.
Some towns subsidize single family home construction by taking on connection fees and infra. Result is long term unsustainability and not able to make a dent in housing supply. More greenfield homes on edge of town result in more roads and traffic.
Solutions: Turn empty bedrooms into studio apartments. Backyard cottages. Match investments in neighborhoods. Guarantee loans. Waive connection fees for vacant lots which already have utilities laid. Author is very focused on cost-efficient solutions.
Assessed value gap larger for more expensive houses.
Land value tax punishes leaving land underutilized. Property tax punishes improving property.