take up two vote thursday at 2:30 p.m. eastern to would bring an end to the closures. tamara senators will take votes on both the president's plan to extend daca protection for three years and a democratic proposal already approved by the house. the temporarily opens the government without any new wall funding. both measures will require 60 votes and the prospects for either are unclear at this time. >> we step with the shutdown discussion for the next 30 minutes. kevin erdmann is joining us to talk about the role that housing supply plate in the great recession which was approaching its lowest .10 years ago this month. first, start by explaining just what housing level is. >> guest: a housing bubble is when prices rise to level the seems like it can't be justified by fundamentals. a lot of times i think we use

price to income levels, that sort of w thing. it seemed back, looking back to 2004, 2005 prices have written above the fundamental. when everything collapsed it seems like that must've been the outcome.e looking back, it really wasn't as inevitable as it seemed. it's a lot more complicated than we originally thought it was. i think a lot of the things we thought were solutions to a bubble may have a problem source. >> host: talk about the things we thought, how policymakers, economists traditionally explained the concept of housing bubble that started in the mid- mid-2000 and then we saw with the great recession. >> guest: credit markets, the tricky thing is anytime, we fund houses with credit. we find houses with mortgages. that's just how we do things.

that's how our housing market works, and anytime home prices rise, you are going to tend to see mortgage levels rise along with it. in fact, it's not just an american issue. if we look at canada or australia or the uk there's a lot of countries that have the same problem of high housing costs. and we tend to see credit markets rising along with it and it seems like that's a causal issue, that's what's causing priceses rise. what i found looking back is there is a fundamental cause of home prices which is the original value, just like income for corporations is the fundamental reason for prices rising or falling on the stock market. a lot of times i think we sortes of undress me the effect that has had awh think that's what happened during thele bubble. rising rent was the core problem because we didn't have enough

houses and because credit was writing at the same time it meant us to think it was too much credit and with too much of everything, and so are solutions were all about holding back, getting rid of the excesses when all along we didn't have enough houses. >> host: kevin erdmann with us this morning on a day with a lead story in the "wall street journal" is about housing prices in this country. a slumping housing market deepens a decline of 6.4% .4% in december signals market sluggishness which could extend into 2019. the headline on the "wall street journal" home page. if you want to join our discussion of the talk about housing supply in this country and what it could mean, there's a few chicken what it meant in the great recession -- shut out

his headline, how a housing caused the great recession and cripple our economy. talk more about this housing shortage and where we receive it in the mid-2000. >> guest: we mainly see it -- there's 45 major cities, so you look at new york city and boston on the east of los angeles and san francisco in the west. those cities really have a very different housing market than the country. they allow the building at much lower rates than any other major city. what you see, what we see today is that costs are high in the cities even today and it's because they don't have enough houses. there's this demand to get into the cities, they are economically successful and there's a sort of basically bidding war that can fit into the cities. that was happening at that time

also. those cities really are the core of the problem and they were sort of the prime trigger that set of what became the bubble. >> host: when we talk about this impacts, help me understand this housing shortage. i want to show viewers this chart. it's census bureau data and it shows the monthly supply of houses in the united states going back to the 1960s the 19y want to focus on the mid-2000s. specifically in the time just before the great recession a year before the great recession, the ratio of houses for sale to houses sold was 7.2. that climbs over nine during the great recession at the height of the great recession about ten years ago, it was 12.2 houses for sale versus every house sold. how does that show a housing shortage? >> guest: i think the main thing that shows is that there

was a lot of demand for housing going up through the bubble. when that spikes during the crisis, during the bust, what was happening was we sort of sucked credit and money out of the economy in an attempt to kill what we thought was a bubble, and that spike innovatory is because people didn't have the means to buy the house. they still needed houses as tenets is interesting thing. i think a better indicator in terms of these cities is how they start. in your extend or boston or san francisco or l.a. what you find is housing starts in the cities are half of come half of the national average for less typically. the problem is those are cities with the highest incomes and the strongest income growth,he and because their housing expansion is so much slower than the rest of the country, they have created this negative, this reverse migration pattern were americans are migrating to places were incomes are lower

instead of what we would naturally be the case with a good move to places with more opportunity. >> host: inpl your book, you refer to the migration something akin to a refugee crisis. >> guest: yes. housing refugee crisis. what happens in 2004 and 2005 is this is the story of came to a head in so many would what's happening in the cities like l.a. and san francisco can i call them -- really was happening is this migration pattern, the segregation basically of americans, according to can afford to bid their way into this place to get access to these lucrative labor markets in tech or finance or what have you, this came to head and there was a flood of households out of those cities for lack t of housg it basically typically households with incomes that couldn't win the bidding war for

access, they were flooding out by the hundreds of thousands strength of years, and so what happened is they were flooding into place like riverside, california, sacramento, las vegas, phoenix. an east coast it's different. it's a little bit funny. florida tends to get most of that outmigration from the northeast. so floored is sort of the center point of that bubble come through like a secondary bubble that happen. you have thesese expensive citis were people are moving away because costs arere high and any of these what i really the bubble sees were people are flooding in. even though those cities tend to have more generous t lending policies it wasas so overwhelmed by the splits, of households hae housing refugees in a way that they couldn't keep up. even if you like phoenix ran into the a problem of having nt enough houses. even the base of the problem was that if it were not in l.a. and that's what led to the surge of

migrant. >> host: i want to talk more about the housing policies that were put in place after that and its impacts but what you chat few callers on this idea that it was a housing shortage, that was one of the main causes of the recession. new jersey, good morning. >> caller: good morning. i'm a realtor over here for a long time and i would just like to say i read your book, it sounds like great information i want toou make a couple comment. first of all the reason why there is a shortage i think is because in many areas they create the zoning laws with the don't allow housing a different source to bee built on the one level. the other thing would ask about was, i was a realtor then, too. when the crash came i notice the president at the time and congress on both sides didn't do anything for real estate.ot that thewords, the banks through and put out of their homes and then all they had to do was to do a crammed up on the interest or principal until the crash was subsiding

but they didn't do that. it ended up in new jersey, we were 50th in job creation, number one inn foreclosures because the banks didn't even winterize these homes. they threw everybody out because congress let them do that. we ended upp with all these houses on the market that could not be sold. they were partwi of the inventoy but they were not part of the inventory. i'm wondering what your thoughts were if congress congress and e stay in homes rather than be thrown out, just to give you more time to work out, what are your thoughts on that? >> guest: those are great points. the first point is on point. it is sony is a big part of this. sony and a lot of other tools can be used in the cities to obstruct new housing supply. it's not really even just an american problem. you see the same problem in places like sydney australia or london or toronto or vancouver in canada. it's something about, they're

sort of a new wave of urbanization that today's technology level and culture sort of demand, and governments are having a problem of allowing meeting that demand. on your second point, i think probably the surprising finding of my research is that what was happening then, what really was the best thing that could've happened even as early as 2006 and 2007 what if just to let the mortgage markets continue to function. one of the things i found that was surprising was that there t a change in the character of borrowers during what we call the bubble. homeownership rates among households with lower incomes were not rising. all the new ownership was among households with higher income. there wasn't a shift in the average score of borrowers during the boom. what happened is because we thought those were the causes, those where the policy solutions

were done. the federal reserve started pulling back on the money supply. we started tightening of credit markets, and then as things deepened and fannie and freddie were taken over by the federal government, at every point along the timeline we were pulling back, saying we will not make loans to working-class borrowers anymore. you can see these extreme movements late, after the crisis had happened where people with say scores under 750 or 760, the number of mortgages irrigating at that point is a a fraction f what they had been. that's what cratered a lot of these markets is in every city across the country was that they had a bubble or not drink that time, the bottom end of those markets just crashed across the board. what i would say is what we should be doing is letting fannie and freddie continue to lend to those markets and then

those foreclosures would woulde never had to happen. the prices of those houses would have remained fairly level and is households would not have had his problem of having a house in negative equity and they would've avoided a lot of the upheaval that we exchanged. >> host: shelton washington is next. cameron, good morning. >> caller: good morning. i have a question for your guest. he has so far i believe addressed the sales marketer i'm in the rental market. i'm 60, i've never owned a home. i'm self-employed. i've never considered only go for for a number of recent but predominately because i owe theb irs money going back to 2008 in the great recession weighed use my tax money i would assume in to survive for two years because i had no clients. i'm self employed or as a result i got tax debt that keeps catapulting and catapult. if i to buy home as soon as i i put my money into escrow they

would swoop in the thickets i can't buy home. my question is do with the rental market. i've been looking to move from where i been b living here for seven years because of barking dogs, i need to move. the rental market inventory is what i research on the web at about a 30 year extreme percentage where you just can't find what you are looking for. the last point i would say here is that the biggest reason for me as i work at a male. i'm a programmer. i need high-speed internet. i've yetra to get in my car onc, i'm not exaggerating, not once been the last three years of looking everyday in washington state, notok once, to check outa property. if you want somethingk private enough where you will not get your neighbors barking dogs and have high-speed internet, it just does not exist. so the question is, please comment on the lack of inventory for us renters. and maybe why there are so many renters. thank you. >> guest: that's a great

question. it's a great point, and this is a product of his having solved all the wrong problems. a lot of regulatory limitations have been put on lending to the low tier market that tend to be dominated by rentals where rentals tend to be a larger part of the market. a lot of the households in those markets could be homeowners. they could be