Dec 02, 2025
On November 24, The Capitol Forum hosted Laurel Kilgour, Policy Director at the American Economic Liberties Project (AELP), for a conference call with Executive Editor Teddy Downey. The conversation centered on Kilgour’s recent paper, Capital Crunch: How the Fall of Local Finance and the Rise of Shareholder Primacy Warped Single-Family Homebuilding in America — And What to Do About It. The paper examines the structural financing barriers that have led to a steep drop in single-family housing construction and offers policy proposals to help rebuild America’s homebuilding capacity.
The full transcript, which has been modified slightly for accuracy, can be found below.
TEDDY DOWNEY: Good morning everyone and welcome. I’m Teddy Downey, Executive Editor here at The Capitol Forum. And we are extremely pleased to have Laurel Kilgour, Research Manager at the American Economic Liberties Project. Her recent paper, “Capital Crunch: How the Fall of Local Finance and the Rise of Shareholder Primacy Warped Single-Family Homebuilding in America—And What to Do About It”, explores how structural financing barriers, shifts in federal policy and capital market dynamics, have contributed to a steep decline in single‑family home construction and offers policy proposals to help rebuild the nation’s homebuilding capacity.
And to me, actually, if I can say a couple quick things before we get started. I should mention quickly, if you have questions, you can email us at editorial@thecapitolforum.com or you can put them in the control panel here, and we’ll get to them at the end of the conversation. But we have a couple of things that we need to get out of the way, Laurel.
First is, it is amazing that you are as instrumental in this anti-monopoly movement. We met, I want to say, two years ago in Brussels, and you weren’t even doing this at all. You were doing something totally different. And you just came up to me and you’re thinking, hey, this is an interesting thing that’s going on here. So, I kind of want to just take a step back and hear from you what that two years has been like, before we dive into this sort of much more rigorous way of thinking about housing than what we have from the Abundance Bros. But I want to talk about you for a second first.
LAUREL KILGOUR: Well, I’ll say I wasn’t entirely a newbie to learning about the movement at that point when I met you. So, I was sort of like outside looking in, with my face pressed against the glass, for a very long time. I think I read Lina Khan’s Amazon’s Antitrust Paradox antitrust article, or at least I read the news about it around the time when it came out. I’d read Matt Stoller’s “How Democrats Killed Their Populist Soul.” I read various other people in the movement, like Ron Knox, I think.
So, I’d been kind of following it for a long time. And I had actually already, by the time I met you, I was working. So, I started in big law doing patent litigation, realized I didn’t want to be a trial lawyer forever. And so, I moved to a boutique firm where I could do transactional work. So, I was actually just representing startups and investors. But that, when I was no longer in big law, gave me time to sort of get into trouble on the side.
So, I actually started teaching policy courses through Stanford Continuing Studies. And the first one was on privacy rights, because I’m certified in privacy. And then that went well. So, they basically trusted me to teach almost whatever I wanted after that. Although, they did deny my application to teach a course on gerontocracy that would have coincided with the 2024 election. So, I would have liked to come up and talk with that one. That would have been intriguing.
But I had taught a course on Big Tech antitrust issues. And it was a little bit early. I was sort of laying out what the complaints were at that stage. And there hadn’t been a whole lot of decisions by that point. But there actually was a good deal of interest in the class. There were people from tech companies who took the class as their sort of continuing education. So, that was really fun.
So, I’d kind of already been learning about the movement in parallel. And teaching that course was partly an excuse to keep up with some of the latest scholarship and learn about the procedural posture of the various cases. So, sort of giving myself a crash course. So, that was sort of good preparation.
And then when I met you in Brussels, my husband was getting his MBA in Ireland. And because we were living in Europe for that period of time, I connected with the Balanced Economy Project, which you’ve probably heard of, which was Europe’s first anti-monopoly nonprofit. And so, I did some contract work for them on the side.
Again, I was still working primarily for a boutique law firm for startups and investors. But I had started to develop this parallel path.
TEDDY DOWNEY: So, amazing. And I don’t think our audience can really appreciate how much the media community, the journalists in D.C., turn to you for expertise on this now. So, it’s just an incredible two years journey here. Obviously, started before that in terms of learning about all this stuff and sort of teaching. But just an awesome story.
LAUREL KILGOUR: And my litigation background has come in very handy in terms of sitting in and watching the trials and coming up with some kind of quick write-up. Sometimes I wish I had taken antitrust in law school and were a little bit deeper in the case law. But it’s a really fun challenge when you have a litigation background and you are able to not be the one in charge of all of the exhibits and the witnesses. And you just get to sort of listen to the narrative and try to come up with something that strikes a balance between being educational and entertaining.
TEDDY DOWNEY: Yeah, no. Yeah, absolutely. I mean, these trials in particular. And also, there’s just so much left to the judgment when you’re writing about it. It’s like the body language of the judge. What did you really see from the judge? What did you really think the judge was going for? People can just interpret that totally opposite ways, which I find fascinating. And it’s almost like you really, really need deep, deep expertise to be able to create context around each little question, each little piece of evidence. So, I think it’s a really difficult art to write up.
LAUREL KILGOUR: Yeah, and your reporters at The Capitol Forum do a great job. I sometimes run into them at trials.
TEDDY DOWNEY: Yeah, we do what we can. We do what we can here. Thank you for that. And so, back to the topic at hand today. The Abundance Bros have created this whole, I think, almost political movement here around, I think, myopically looking at the state of housing policy in the U.S. Maybe that’s too harsh, but what you’ve done here—
LAUREL KILGOUR: I mean, I actually think that gives them too much credit. There had been people who had been working on zoning and permitting issues for a very long time before they coined this sort of abundance catchphrase and wrote the book. So, this had existed for a long time. And people who are just interested in the specific policies, without necessarily having a grander ideology or ideas about factions within the Democratic Party, had been doing this for a very long time.
TEDDY DOWNEY: Yeah, so I’m not even maybe being critical enough. It’s hard for me not to be more critical of them. But I think what they did was really unserious work, if that’s unflattering enough. And then what we’ve been trying to learn from people who’ve really studied this in an evidence-based way, in a thorough way, of what is the problem in housing policy? You’ve done this incredible dive into the history around financing of homes. And first, I wanted to ask you how you thought about this approach in particular. And then I’d like to get some highlights and then we can dig in the weeds from there.
LAUREL KILGOUR: Yeah. Well, I would just say my colleagues had noticed some gaps in sort of the existing policy discourse and there really hadn’t been a lot of discourse around the supply side and often particularly the financing of home builder supply. And I think that there was sort of this general awareness that we’ve had, as part of a lot of other shifts between the New Deal era and the neoliberal era, there hadn’t really been an accounting, a rigorous accounting, of how that changed in a way that impacted the home building sector. So, that’s one way of looking at it.
Another way of looking at it is if you do want to look at the gaps that are specific to the discourse around zoning and permitting. As I say in the paper, we agree that there are zoning and permitting changes that make sense in order to address the housing crisis. But it’s not sort of explanatory in a really deep way in terms of why we have such a supply crisis. It’s something like we’re two to four million units short or five million units short by various estimates.
And much of the lack in supply has come due to a sluggish recovery after the great financial crisis. So, if you look at previous recessions that happened 60s, 70s, 80s, 90s, whatever, the typical pattern would be you would see a very sharp drop in construction, but then you’d see a very sharp rebound right afterwards. And in 2008, it wasn’t like that. It was a sharp downturn definitely. But then it was a very gradual increase in production. And we’re still not up to the level that we were even at the 1990s. We’re 20 percent below the construction level of the 1990s.
And so, there really is—as much as a lot of the policy groundwork for making that happen happened decades earlier—there is this very sharp inflection point at the great financial crisis. So, median home prices had recovered by 2013. And it’s just been a very slow recovery since then.
And zoning and permitting don’t really provide an explanation for why that period of time was really pivotal, right? So, you don’t see—there may be some particular regions, maybe there were some zoning changes, but you don’t kind of see that en masse. Like I haven’t seen academic research that’s saying, yes, it was zoning changes that happened after the financial crisis that have led us to this moment. And so, yes, zoning can be part of the solution, but you need to look—it is worthwhile looking at, okay. Well, what are the unique causes of this particular problem? And that should probably be—those causes—should somehow relate to the solution in some way, a fairly logical way of approaching problems. And I’m not saying—this looking at homebuilder finances is also not sort of a monocausal explanation. Housing markets are complicated. There are many different dimensions to them. But it is a significant sort of underexplored factor.
TEDDY DOWNEY: I want to get through some of the highlights. Was there anything in particular that really jumped out to you here that you want to just hammer home? You break up the conclusions into some different sections. And so, we can work our way through those. Because I think they all are good to talk about on their own. But anything that really jumped out to you as like, wow. This is really remarkable that finding from digging in here?
LAUREL KILGOUR: I mean, so many things, it’s hard to choose. So, I will say one thing is—to do this a little bit chronologically—is to look at, when we did have abundant construction, what was our political economy like back then? And so, I think a very good sort of central institution that was involved in homebuilding at that period of time were the savings and loans institutions, that had evolved from these sort of community‑generated buildings and loan associations. And then they were sort of formalized and supported by the federal government during the New Deal. And they were very intentionally designed with certain legal guardrails to make sure that they were just organized to support community homebuilding.
So, they took local deposits. They made local mortgages. And they made these loans to local homebuilders.
And when I say local, I mean, they started with sort of charter constraints of saying, you can do all of this activity only within a 50 mile radius. And I think that radius was changed at certain points of time. But you can see in the design that it was intended to kind of create this virtuous cycle loop within local communities to make sure that that money was going to support local homebuilding on reasonable terms.
They were also designed so that one single shareholder could not hold more than ten percent of any S&L. So, you couldn’t sort of warp what it was doing towards one particular person’s self-interest. You had to have at least 400 members of the community sort of having shares in this institution. So, in a number of ways, it was really explicitly designed like that, which, all of this is a huge difference from what we have today.
So, just taking this single unique type of institution as an example, like just to show different where things are today. I think from the 40s through the 60s, the number of S&Ls, also called thrifts, held stable at about 6,000 throughout the country. And we had a much smaller population than we do today. And now, there are under 600, I think, thrifts in the entire country. So, obviously, fewer in an absolute sense and also in a per capita sense.
So, I think in that kind of big picture thing is—if you want, we can get into the history of how they were dismantled, but they were eventually dismantled.
TEDDY DOWNEY: Yeah, I think that is so fascinating, that story. And to me, the way I saw the paper is it’s really, as you mentioned, a story that starts with a healthy market that includes a lot of small lenders and small home builders. I wanted to ask you, first, before we dig into that as just sort of the theme to think about throughout the paper, what is a small home builder?
Because, I mean, I know about small developers. They’re doing little projects here or there in the D.C. area. But I’m not really familiar with small home builders other than that. I’m curious to get sort of an understanding of what that looked like maybe back then, if you can talk about that. Just because we know about big home builders now, not so much about small ones.
LAUREL KILGOUR: Yeah. So, I would have to go back and look at the census to see if there’s data on very specific number of employees or size during that particular era. But for purposes of the paper, the real dividing line now is are you publicly traded or are you relying on private capital? And there are a few privately held home builders that are on the builder top 100 list.
So, if you really want to be more precise, I’ve seen other academic studies use “do you build 500 or fewer homes per year”? And then that makes you a smaller builder. But the real dividing line is where are you getting your financing from? Are you getting it from the capital markets? Or are you having to rely on bank loans?
TEDDY DOWNEY: Okay, interesting. And the scale of the projects is totally different, to your point, under 500 a year versus, I mean, the big publicly traded ones. I don’t know. They’re just huge, huge numbers. And so, to me, this story is almost what happens to these small banks and small home builders, and the different shocks and the different policy decisions that change this ecosystem that involves lots and lots of small home lenders and builders to very few of either, really. And maybe you can walk us through some of those big events and policy choices that you focused on.
LAUREL KILGOUR: Yeah, I mean, what really came through to me in researching this is just how important—it’s an obvious point—but just how important the choices that we make during times of sort of financial distress and emergency and recessions are to shaping markets.
So, the major policy inflection points here came in dealing with emergencies, not just sort of part of like a master plan necessarily. Although, I think to some degree, the dismantling of S&Ls and the other changes were partly intentional. But there were also—you can see throughout the paper, there were some unintended consequences of policy choices that may have seemed reasonable at the time. Because people were not fully thinking through what are the disparate impacts to smaller versus larger home builders or banks or publicly traded versus not publicly traded? And just not thinking through what types of incentives are being created by different types of sort of bailout packages or what have you.
We can start with what happened. I think people are pretty familiar with the S&L crisis and have a sort of picture in their head about it. And that often starts with, well, thrifts were just sort of badly designed or something. And so, this was inevitable.
But one of the, I think, sort of silver linings of the way that the Fed is back in the news as a political institution—and Chris Hughes in his book “Marketcrafters” goes deep into the history of some of the Fed governors and the choices that they made. So, I think that you really, to understand what happened, do need to understand not just the choices by Congress and bipartisan presidents, both Carter and Reagan, but you also need to understand what federal agencies did and especially what the Federal Reserve did in terms of choices.
So, when we had this really high inflation in the 1970s, people sort of have, until very recently said, well, the Volcker shock was the only possible thing we could have done. And that’s not the only thing that was discussed at the time. So, you had the Fed chair, Nixon’s Fed chair, I think Arthur Burns, I think, was the one who was saying that we could respond to high inflation. He was trying to persuade Congress to go and do some fiscal measures in addition to monetary policy. And maybe you wouldn’t have needed something as severe as Volcker shock, if you had tamed inflation in different ways.
There were also proposals that had been made. So, Andrew Brimmer, and several other Fed governors, but not a majority, were in favor of doing credit allocation. So, where the Fed can charge that – you know, the Fed is essentially setting the price of money. You could charge the price of money differently to different parts of the economy, charge more to sort of speculative finance than you charge to productive centers of the economy.
So, that’s one way of doing it. And they proposed that because they’d noticed in sort of a brief downturn in the late 60s, that their monetary policy was not having an even impact across the economy. Because the bigger businesses and finance could go turn to like international markets for better rates. And even though they were sort of part of the speculation at the risk that you might want to deter, they had these other sources and homebuilders and other parts of the economy didn’t have access to that.
So, that’s sort of what got the Fed thinking about that. But those governors were ultimately sort of overruled. And Arthur Burns wasn’t listened to by Congress. And so, instead, we have Paul Volcker coming in with the Volcker shock, where I think by 1981, the Fed funds rate was like getting up close to 20 percent. I mean, if you think it’s been painful during the pandemic—and I personally have experienced it being painful during the pandemic, some of the hikes in interest rates—imagine what it was like having the interest rates being several times that in the 1980s.
And one really interesting thing I saw looking back at the census was that between 1977 and 1982, there was a huge crash in the number of homebuilders, actually. So, there was damage that was happening. There was a sort of overlap in these different policy choices, right? So, it’s hard to say which one had the most impact during that big, wide range of 77 to 82, like during that snapshot. But partly what was going on was the Volcker shock. Partly what was going on was deregulation, right?
So, both Carter and Reagan signed into effect deregulatory measures that basically were intended to save the thrifts, they said. And some of the thrifts lobbied for them. But they essentially dismantled the thrifts. They essentially took away this policy mandate that they are supposed to be local institutions that are supporting local homebuilding. Instead, they could just kind of go into all of these speculative other areas of the economy, even if they weren’t risky—and many of them were—but areas of the economy where they simply didn’t have experience. So, like commercial loans, commercial real estate, but even things well beyond real estate. The thrifts could even, I think, take stakes in other businesses. So, they were just sort of changed into these very open speculative financial institutions.
At the same time, Reagan cut back on the number of bank examiners that could go out and detect whether there was any kind of fraud going on. There was a lot of fraud that happened during the S&L crisis, in addition to the S&Ls who were in financial trouble. Because of inflation and the Volcker shock, they sort of use this phrase “gamble for resurrection.” So, some of them were just like, look. We’re in it so deep, we may as well try some speculative investment and hope that it saves us.
So, the effect of that was that initially, some people made a lot of money. But then they crashed really, really hard. So, the number of thrifts overall crashed by 50 percent within a decade.
TEDDY DOWNEY: That’s kind of where people, I mean, I certainly learned, I did not know that history of how deregulation was a response to try to help the thrifts and then led them to speculate, which leads to their collapse. And so, like you said, some of it’s unintentional. But it’s all policy choices that lead to this collapse in the number of thrifts.
LAUREL KILGOUR: Well, I’ll just say one of the other important choices was that: what do you do with all of these collapsed thrifts, right? So, you could have said, okay. Well, we’re going to help local communities by auctioning them off within local communities. But instead of doing that, George H.W. Bush, I think, created this temporary agency called the Resolution Trust Corp, which auctioned off these assets to Wall Street at fire sale prices. And so, this was something that took money—another way of taking money out of local communities and benefiting Wall Street. It was a big scandal at the time.
And so, I think that that was a very—it’s sort of a precursor to then what you see after the great financial crisis, when there were also auctions to Wall Street, sort of running that playbook again. And during that sort of Resolution Trust Corp, you do start seeing when the S&Ls are sold off—one of the examples I give in the paper is in Florida, Morgan Stanley and Lennar, one of the large home builders, teamed up to buy the assets of savings and loans. And that also included a whole bunch of land and property. So, sort of something that empowered this larger builder and Wall Street to get into the sector more.
TEDDY DOWNEY: I want to come back to the land point later. Obviously, that’s another big point in the paper. But for now, they were selling these to big banks or like big financial institutions, not to people who were at any plans to actually reinvest in those areas. So, a real double whammy of taking this tool and basically keeping it out of the mix of ever going back and lending again to these home builders.
And you mentioned before the lending to the home builders dries up, they collapse. Was there anything else to note about how much the smaller home builders were really hurt during this period? And you mentioned the great financial collapse, the great financial crisis. Maybe we’ll move to that afterwards.
LAUREL KILGOUR: Yeah. So, in response to the S&L crisis, Congress passed this law called FIRREA. That was, in some ways, sort of a dramatic overreaction to what was happening. So, instead of trying to figure out how can we restore these back to like a healthy model—like the New Deal that’s intended to support local home building—instead, because these S&Ls were sort of turning into casinos that were gambling wildly, they said, we’re going to basically kind of dramatically restrict overnight 85 percent of any size loan that you can give. And they also restricted the amount they could do in the real estate sector. And it was imposed in a—there was no kind of phase in. There was no kind of thought about how this would affect home builders.
And so, it was particularly difficult for home builders because their loans were structured as revolving loans intentionally. So, you could have a natural built-in period during the middle of the project for the bank to kind of review—based on its relationship lending—is this project going well? Okay, we’ll, just do the renewal, and it’ll hit over to the next thing. But the consequence of this kind of pullback happening overnight meant that there were projects that were just stopped in the middle, even where the builder had been in business for decades and was fully kind of complying with the terms of their loan, fully paid up. Like, it was just implemented in a way that was pretty draconian.
A number of home builders did eventually recover because of sort of the boom period of the 1990s, but it was a difficult transition. And at first, the smaller home builders had difficulty. Who else do you turn to? Because these thrift institutions were designed to understand these projects and support them. And community banks, I think they probably eventually were able to turn to community banks. But they said in a Congressional hearing that a lot of the banks they initially talked to, big banks, community banks, just were not interested in taking on this weird kind of risk of home building that they just weren’t familiar with.
So, it was a very difficult transition. And I think from the smaller builder’s perspective, they probably transitioned from S&Ls to community banks. But then just as they were doing that, it was at the period of sort of Borkian antitrust, let everything merge. And so, all of these community banks started merging. And so, eventually they lost that option as well. And certainly, by the time of the great financial crisis, we had way fewer community banks than we did. So, it’s sort of a story of over time you lose one type of institution you rely upon, maybe you switch to a different one. But then that goes away too. And so, we’re in a very fragile situation by the time the great financial crisis comes around.
So, from the perspective of smaller builders, yes, there’s some recovery during the 1990s because the 1990s economy recovered. But they were in a much more fragile state and weren’t able to build as much as they would have. And so, by the time the great financial crisis came around, that was really bad for them.
And then the story for the big builders, when the S&L crisis happened, is that they also could no longer rely on local institutions. And so, they saw that basically they had the option of going to Wall Street. And so, there had been a few publicly traded home builders here and there, like a handful, that had started going public as early as like the 60s. But it was like one, two, three, a decade that you were seeing, like not a huge number of them.
But then you saw 15 IPOs just between 1991 and 1993 in this sector. So, they sort of went to Wall Street en masse.
TEDDY DOWNEY: And then they end up merging. But before we get to that and the great financial crisis, just to kind of recap. So, the best kind of situation was when not only did you have these local lenders, you had them with specific expertise and a specific mission to build them, to lend to home builders.
LAUREL KILGOUR: Right.
TEDDY DOWNEY: That to me is so interesting. And then your next best thing is just having a local bank, right? Having a local lender that you could actually go talk to, that could get to know the project, that is actually going to be dealing with you. Even if they don’t have expertise, that’s still better than just some big bank that’s not going to finance the project in the local community.
LAUREL KILGOUR: Right. And I will say there’s interesting empirical research. So, someone, I don’t remember the exact time period, it’s in the paper. But there’s academic research where someone got their hands on data about 20 years’ worth of actual bank transactions across the vast majority of banks in the United States. So, a huge amount of data over a very long time, and they were able to empirically show that the larger the bank, the less likely they are to lend to smaller businesses. So, this is not based on some hypothetical model. It’s like looking at actual transactions over a 20-year period. And so, I think it’s reasonable to think that the same dynamic was happening with the smaller home builders as well.
TEDDY DOWNEY: I can attest that as a small business that has been around for thirteen years, the bigger the bank, the less likely they were to give us the time of the day when we were getting our start now.
LAUREL KILGOUR: And probably worse terms as well.
TEDDY DOWNEY: Oh, I’m sure. I’m sure they were. Well, hey, any terms would have been better than no terms, which is what we were offered at the beginning.
Now, let’s talk about the great financial crisis, because that’s the next shock here. What happens? And we already set the stage that, hey, the 70s, 80s is the beginning of the Bork era. We get to the financial collapse all the way to 2008, 2007. And there have been a lot of mergers since then. So, maybe you can walk us through what happens during the great financial crisis to put even more stress on these small lenders, small builders, and what we’re left with after that.
LAUREL KILGOUR: Yeah. So, there were several different policy responses. One of them that’s on the buy side, you might remember, is that people got first time home buyer tax credit, kind of intended to stimulate the buy side.
But on the supply side, there was this not home building specific, but very broad law. I think it was called the—it’s a very long title. We’ll see if I can remember it exactly. But I think it is the Worker Homeownership and Business Assistance Act of 2009. So, we’ll see if I get that entire title right.
So, what it basically did was to give sort of a tax credit. And it was across the economy. There were maybe a few sectors that were carved out. But large home builders were just as eligible for it as small home builders. There wasn’t any kind of differentiation, whether by size, or whether by do you have access to capital markets or not. And what it did was, it included this thing called a net operating loss carryback provision. Which is basically, normally, you can sort of write off go back and write off losses within a certain period of time. And I believe that time was extended from like a two year look back period to a five year look back period. Which basically means that if you had made a ton of money during the housing bubble, and had to pay a lot of taxes, then you could look back to that period of time and basically say, well, I have all these losses now in the present around 2008. And so, I’ve had all these terrible losses. So, I shouldn’t have had to pay so much taxes back then. So, I’m going to recoup some of that taxes that I was paying during the good times to help carry me through the bad times.
And there was, I think, for the first four years, there was like no cap on the amount that you could claim. And then for like year five, there was maybe like a little bit of a cap. But basically, this is something that was a huge boon to the publicly traded home builders who already had access to—they could issue corporate debt. They had other types of assistance that they could call upon. And some of them were not in actual financial trouble. So, I think it was Pulte Group that had like $1.5 billion in cash or cash equivalents on its balance sheet, but it nonetheless got $450 million through this tax assistance.
There were some home larger home builders that were in some financial trouble like Lennar. But then you go and look and see what it actually did with the money and it went and bought land at fire-sale prices. So, went out and bought distressed land. So, this money was not going towards employing more workers or helping people afford housing. It was just sort of expanding its empire basically.
And the smaller home builders—although some of them did benefit from this tax credit—they weren’t able to take advantage of it in the same way. So, the larger builders could generate tax losses, kind of magnify their tax losses, in order to get more of this like good times money back. So, and they were able to use that—they would sort of sell off—they would basically do kind of like a land arbitrage thing. So, they would sell off land in the areas that were going to take longest to recover. And then they could use that money and buy land in the areas where it would appreciate fastest.
And the smaller home builders couldn’t do that for a couple of reasons. One was, because their debt was secured by land—so just not as liquid—they just couldn’t make as liquid choices. And they just were often kind of limited to a particular region. It was much harder for them to try to do this regional arbitrage between these different areas.
So, not only were they not able to take advantage of this tax relief, they were actually hurt by what was going on. Because these larger builders were doing these giant fire sales in bad areas so that they could get the tax loss. And so, those fire sales hurt the smaller home builders because they were depressing the market a lot more than it might have otherwise, in those particular areas.
So, it was a huge whammy. We lost something like 30 percent of all construction kind of more broadly as a sector. And I think within, if I’m remembering correctly, I think within home builders specifically, it was like a 50 percent decrease in the number.
So, it was just a huge shock to the system. And those numbers still have not recovered to—it’s understandable if they had not recovered to the heights of the housing bubble. But the number of home builders overall still has not recovered to like early 2000s levels. So, it’s interesting. There is this sort of correlation between the number of home builders and this shortage of building generally.
TEDDY DOWNEY: And you mentioned in the paper that actually there were lax lending standards at some of the big publicly traded home builders, in-house lenders, that sort of precipitated the financial collapse. So, these companies benefit. They should have been punished. They get rewarded and they get to crush their smaller competitors in the end. I mean, this could not be a more unjust outcome if you tried to dream one up based on what you wrote in the paper. So, maybe you could talk about those lax lower lending standards.
LAUREL KILGOUR: Basically, as the publicly traded home builders grew in the 90s—I don’t remember the exact time period. But they started developing integrated mortgage units. So, they would both develop and sell the property, but also sell mortgage alongside of it. And because they were integrated, you basically had the larger parent unit kind of putting a lot of pressure and telling the mortgage unit what to do.
Like once the pace of sales in the early 2000s started to slow a little bit, they said, well, we’re building so much, how can we keep this going? And we can keep this going by lowering our lending standards to the point where there’s very little diligence at all on buyers and sort of people falsifying documents. And the quote that sticks out to me was there’s Lennar again. Some division regional president was saying that the relationship between the parent and—the builder and the mortgage subsidiary was a “master and slave” relationship.
TEDDY DOWNEY: Wow. Wow. Yeah.
LAUREL KILGOUR: And so, this sort of lack of lending standards is something that, along with other things, contributed to the great financial crisis. Like all of this was also—this wasn’t entirely something caused by the home builders. Because obviously, there was also the problem of a deregulated Wall Street that was doing mortgage backed securities. So, it was sort of they’re not the only players in the system that didn’t play by the rules.
TEDDY DOWNEY: A lot of people out there doing fraudulent loans, not just the home builders. And I want to quickly turn to some of these sort of—I want to call them results or sort of strategies that the companies do now to continue the status quo or make the problem worse. One thing, we have a product here called Coordination Out Loud, where we look at executives trying to collude over earnings calls. You have done an amazing job here piecing together quotes over a ten year period of publicly traded home builders talking about maintaining supply and price discipline, which is one of my favorite types.
LAUREL KILGOUR: Well, I should also give a shout out to the research team. So, the lead researcher, Ashley Nowicki, was helpful in tracking down these quotes. There are a number of interns who helped as well.
So, I did a lot of research, but there was also a lot of research from the team that came together to make this possible.
TEDDY DOWNEY: And maybe you could just walk us through how those comments—in 2015, you have D.R. Horton saying, it “actively controls the number of unsold, completed homes in inventory.” Or in 2025. I love this anecdote. I love this one. Pulte Group said it balances “price and pace with a bias towards price” resulting in “gross margin being an important driver of our returns” and “prioritizing price and margin over volume” as it plans to build a thousand fewer homes than it has capacity for. And you have a nice note here that Bill Pulte, a grandson of Pulte Group founder, served as a board member from 2016 to 2020, is currently director of the FHFA. I had not known about that. That is very interesting. I probably should have known that, but that is a great little note.
LAUREL KILGOUR: He’s the one proposing 50-year mortgages.
TEDDY DOWNEY: Yeah, and we could go down that road. We’re not going to. But let’s stay on the sort of price and supply discipline. How does not building more homes precipitate the housing problem that we have? Under the guise of supply discipline.
LAUREL KILGOUR: Yeah. So, you can make money in a number of ways. And one of them is you boost the price. And in order to do that, you lower the output. Conversely, in a healthy market, you might aim for a lot more volume at a lower price.
And one of the main mechanisms that is happening here is – a key mechanism seems to be their control of land and land banking. This private land banking is something that has existed for a long time. Like that is not a new phenomenon, but the way they do it is new. So, they used to actually take the risk of owning lots.
But since the great financial crisis, and particularly I think maybe 2017-ish is kind of a pivot point, but they’ve switched kind of herd behavior of this sector. They’ve switched from owning most of the land to optioning most of the land. So, they find some kind of like financial middleman who is willing to take the risk on the land. And so, instead of owning it, they just have to put down a very small 10 or 20 percent of the value, and then they have like a carry fee. And so, they are controlling land, but they have an option to get out of it quickly.
So, they kind of learned, some of them, the lesson during the financial crisis of it can be kind of painful to be holding on to a lot of land that suddenly loses its value. So, you want this kind of quick exit option, and so you pay for the exit option. But besides this kind of—they call it like a de-risked strategy. D.R. Horton tells investors that this is a “de-risked” strategy, to be just controlling land. But it also seems to help them control a lot more land collectively.
So, President Trump on social media was saying that they have two million lots that they’re sitting on, not building on. And I don’t know the exact number, but I’ve read that they collectively control a million more lots than they did in 2020. And D.R. Horton alone has something close to 600,000 lots. So, D.R. Horton is like the number one home builder.
So, this seems to be a big part of the strategy. And the cost of land has increased at two and a half times the cost of labor or construction over the past, let’s say, decade-ish. And so, you actually have home builders, when they respond to industry surveys, they now put land as a higher concern than labor or construction costs. And so, it does seem like this kind of hoarding of land—and they say in their statements to investors, this is like several years’ worth of inventory for us, like maybe up to five years. And so, it does seem like this land hoarding can be having an impact on preventing smaller builders from getting a chance to buy that land instead, or other big home builders from building it.
And so, I think that this is a strategy that seems to be blessed by Wall Street. So, maybe like, as you said, earnings calls could be a kind of coordination mechanism if this herd behavior—if they all know that everybody is hoarding land—that encourages everyone to hoard land and to pace production. So, Wall Street is telling you that we really like that this sector—it now has a disciplined production method that doesn’t – obviously, that would be more achievable and have more impact in regions where they have really high market share, there’s a lot of concentration.
But because of this coordination across the sector this impacts areas that would be even sort of less concentrated areas. You can see this dynamic happening, and especially in areas where sometimes they say that they are involved in joint ventures, sometimes with private equity or sometimes with each other.
TEDDY DOWNEY: Yeah. I mean, it’s really fascinating. And to your original point, if this were a healthy market, you couldn’t just not build homes and get away with it. Someone else would step in and do it in a competitive market.
LAUREL KILGOUR: Right. Yeah, and I’ll just mention that there’s an economist, Cameron Murray, who has written about the “delay premium” that explains why it is rational to wait to develop land sometimes.
TEDDY DOWNEY: Yeah, and obviously, makes it harder to have a good supply of homes if people are refusing to build them when they can. And ostensibly, that’s their whole business model to do.
We’ve got a few questions here from our patient listeners. I want to get to one quick other predatory behavior in this market that I did not know about. I mean, I see it advertised a lot, and I’m always curious about it. But home builders, your paper mentions, make their own below-market mortgages to customers to entice them to buy. Tell us how that can be actually a predatory conduct.
LAUREL KILGOUR: Right. Well, you can give discounts to customers in a variety of ways, and one would be just cutting the price of the house. But they don’t want to do that because they want to maintain area comps and keep the sticker price high. And when you have your own integrated mortgage unit, that was never taken away from you despite whatever you did in the early 2000s, you can give the discount through that mortgage unit and price it several points below whatever the prevailing price is. And the home buyers say, oh, great. That sounds like a great idea.
And that, I think, makes a huge difference, especially in this fairly high interest rate environment. It was maybe not as much of a factor during the ZIRP era. But now that the mortgage rate is such a huge factor for homebuyers, that gives the large builders a huge advantage. And if you can imagine, if they do this long enough, that it could put the smaller builders out of business. Because to match the same sort of rate, the smaller builders, in some instances, would have to discount the sticker price by 20 percent or 30 percent. And that’s just not financially sustainable for some of them. So, that either could drive them out of business or maybe it drives them to a different segment of the market. I don’t know. But I think it is a dynamic that is worth watching.
TEDDY DOWNEY: Really fascinating. It sounds like a lot of the other conversations that we have in other industries like groceries or wherever, where the biggest providers are manipulating price or manipulating rebates or otherwise, getting an advantage that pushes their smaller competitors’ prices up or costs up and out of the market.
And I want to get into solutions. I think we’ve got some questions here that get into this. But I think we’ve covered a lot of ground. Some of the solutions, obviously, are really—I mean, we don’t have to get into details. Maybe when it comes to solutions, please read the paper. The paper is excellent. But the basic gist is that you’re trying to get back to that original situation when you have more small lenders, more small builders. There’s tons of good ideas here in terms of congressional policy, Fed policy, what the FHFA should be doing, how to deal with these land issues, taxes on land, value tax. There’s just a lot of good stuff, keeping Wall Street out of rentals.
I want to get to some of these questions. Because if we go to the solutions, we’re never going to get to the questions. But we got the first one from Karen. How much of the pricing problem comes from private equity firms holding properties off market to raise rents and housing prices?
LAUREL KILGOUR: Yeah. So, that’s a dynamic that is happening in certain regional markets, definitely. I think that there are over a dozen markets where institutional investors have a double-digit percentage of the market.
In those particular cities, they are probably—when I say a double percentage of the market, I mean, specifically single-family homes that are for rent. That is a category that basically didn’t exist for institutional investors until the great financial crisis.
That was also part of the policy response was that we auctioned off a lot of homes, foreclosed homes, to institutional investors. You do see in certain cities—I think Atlanta is known as the worst one where it’s something like a 30 percent market share of single-family rental homes. I think that is contributing. That is supply that is suddenly devoted to rentals that could otherwise be something that ordinary families are buying.
TEDDY DOWNEY: We’ve got a question here from Campbell. It’s about the abundance stuff. Is there any actual tension between among pro-supply zoning reform, papers like Laurel’s and anti-monopoly more generally?
LAUREL KILGOUR: Yeah. So, I would say that there is alignment on some specific zoning and permitting reforms, and I do recommend some zoning and permitting reforms at that level. But I think part of the reason—I think people who are looking at this are not necessarily seeing what abundance is. It is not just a set of policy solutions around pull-funding for biotech plus zoning reform.If you look at the Abundance Institute, for example, it was in favor of the AI moratorium. So, saying that states cannot pass laws relating to AI for ten years. That is something that is different than—that’s just not within this universe of should we build more housing and how?
So, there’s a lot more to the project than that, sort of looking at the funders. To some extent, it’s been described as an interfactional fight within Democratic Party about which people occupy which seats or whatever. But it’s also about this difference of opinion of: is oligarchy a problem? Is concentrated power a problem? There’s a lot that’s kind of packed in there that is beyond just these specific policy choices. Yes, within that, there are long, as I said, long existing policy recommendations around zoning and permitting that we embrace.
TEDDY DOWNEY: Yeah, and you specifically mentioned making sure that they’re not anti-competitively complex to the benefit of the big home builders, for example.
LAUREL KILGOUR: Right.
TEDDY DOWNEY: Rules like that need to be addressed. The other thing I would just say is, I think, to the extent that you take the Abundance Bros in good faith—which I don’t—there’s room for conversation. But if it’s a bad faith effort to just deregulate more and just do the sort of neoliberal Clinton era deregulation of instead of doing airlines, we’re doing housing. Look, I mean, I think Laurel’s paper goes into some of that. What happens when you deregulate the thrifts from what they were supposed to be doing, savings and loans? They became casinos. We know what happens. That’s not the answer. So, it depends if you’re willing to do it.
LAUREL KILGOUR: It’s also, I mean, there really is this fundamental thing of you can have whatever, you know, you could deregulate all of the zoning, but that doesn’t give developers the financing to actually build. So, cities are in control of their zoning and permitting process. But unless they issue revolving loan funds, they are not guaranteeing that after those changes are made, that anything will actually get built.
TEDDY DOWNEY: Yeah. And last question here. So, we’ve got two more, but we’ll just limit it to one. And this gets to our solutions thing. This is from Christy. What can citizens and leaders do to stop the corporate takeover of housing?
LAUREL KILGOUR: Yeah. So, Jeff Merkley has a bill that requires selling institutional investors to sell off their portfolio of single family rental homes over a period of ten years. I think there were a variety of local efforts along those lines as well. So, check out what is going on locally. Yeah. So, in terms of that —
TEDDY DOWNEY: Well, I think you could certainly read the paper, read the whole paper, and promote Laurel’s ideas in the solutions section. There are a lot of ideas there. And Laurel, this has been an incredible conversation.
I think it fits perfectly in a—this is a very difficult topic, very complex market. The paper is super thorough.
It has great history. It has amazing insights into the political economy around this important product that is so intertwined with the American dream. And I hope everyone gets a chance to read it. It’s been an honor to get to know you two years ago in Brussels at Cristina Caffarra’s event and to see how influential you have become in this world around antitrust and anti‑monopoly policy. And I can’t thank you enough for doing this today.
LAUREL KILGOUR: Well, an honor likewise. I know you’ve been in this fight for a very long time. And you do such great work.
TEDDY DOWNEY: Thanks. Thank you, Laurel. And I’m just going to give—you can hang with us or you can drop off. I’ve got to do my little quick outro here. We’re wrapping up today’s call.
This concludes today’s call. Hope you found the conversation useful and informative. You can find our work, including our podcast, on our website, or wherever you get podcasts. We always welcome your feedback, tips, ideas. You can send them to us at editorial@thecapitolforum.com. Thank you so much for joining us and have a great day, everyone. And thanks to you, Laurel. Thank you so much. Bye, everyone.
