Build This House: Real Estate Opportunities in The U.S. Under Biden

ABSTRACT

In the face of sudden economic stops, monetary policy has demonstrated its limitations, and successive waves of fiscal relief packages disbursed by governments have provided critical liquidity support to help shore up balance sheets for households and for companies hard-hit by the pandemic.2 As multiple vaccines are disseminated across the globe, an uneven economic recovery has taken shape, with countries such as Italy, Spain, and the U.K. having experienced severe contractions in 2020, and with China actually posting real GDP growth in 2020.3 While investors remain exuberant about the prospects of additional stimulus measures-fueling the unleashing of pent-up demand and the onset of the 'roaring twenties'-expectations for higher inflation have sent shudders through bond and equity markets in the U.S. Nevertheless, considerable slack in the labor market remains in the U.S., with segments of the economy still far behind recovery.4 In early 2021, the real unemployment rate hovered around 10%.5 The aggregate unemployment rate for those at the bottom part of the wage quartile far exceeds that of the top-with many minimum wage jobs in sectors such as leisure and hospitality having been decimated during the crisis, whilst higher-earning white-collar workers have, for the most part, been able to retain their jobs working from home.6 Indeed, even thinking beyond unemployment numbers and focusing on income, many households within the bottom three quintiles of the income distribution came into the crisis in a situation of stagnation, or deep distress. [...]these opportunities are also to be found across global markets. [...]with central banks and governments committed to expansionary monetary policy in the wake of the pandemic, a lower interest rate-induced surge in buying homes (for those who can afford to) has unfolded within advanced economies across the globe, including Singapore, Canada, and the U.K.18, 19, 20 In December 2020, U.S. housing starts jumped to their highest level in 13 years.21 In early 2021, U.S. existing home sales reached the highest level in 14 years.22 Similarly, with the rush of pent-up demand emerging from initial lockdowns, house prices in the U.K. hit a six-year zenith.23 Looking beyond lower interest rates as a causal factor, purchases have been stepped up throughout the pandemic by those who have been able to work from home, and might have transitioned into a more amenable living arrangement, potentially with more space to live and work and play. [...]homeowners in the U.S. spent an average of $17,140 on their homes in the first eight months of the pandemic.24 Due to the surge in demand, a shortage of supply, and ongoing tariffs and disruptions to supply chains, the price of lumber has spiked by 180% since the spring of 2020, eating into developers' margins, and also contributing to the rise in house prices.25 It is important to note in the debates about the potential return of high inflation, house prices are not included in