NYU Stern's Arpit Gupta <> The Boyd Institute

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A discussion on the housing crisis.

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Oct 17, 2025

The Boyd Institute sat down with Arpit Gupta, Associate Professor of Finance at NYU Stern, to discuss the housing crisis.

Here’s a condensed, structured summary courtesy of Chatty:

Gupta argues that “housing affordability” is misunderstood.
Rent-to-income ratios are misleading because households adjust by moving or trading down—creating the illusion of stability.
The real crisis is about access: can people live where they want, near jobs, schools, and amenities?
The biggest pain point: new entrants, not incumbents, face unaffordable prices due to rate lock-in and supply scarcity.

Gupta’s research shows higher property taxes can improve affordability by lowering upfront prices and promoting turnover.
In Texas, local MUDs (Municipal Utility Districts) enable value capture—financing infrastructure through future property tax revenue—creating a pro-growth fiscal loop.
California’s Prop 13 system breaks this feedback, making cities fiscally hostile to newcomers and school funding fragile.
Aging demographics further erode support for property taxes since older voters no longer value local school quality as much.

Gupta praised California’s new transit-oriented development law (SB79) but warned that details matter: inclusionary zoning, parking mandates, and union rules can kill feasibility.
Infill (“missing middle”) development faces high land costs and low scale returns—only large up-zonings (e.g., Jersey City-style towers) truly pencil out.
He supports both high-rise urban construction and greenfield new cities (like California Forever) to absorb demand.

Discussing the Louie et al. (2025) paper, Gupta noted that measured supply elasticities often fail to predict outcomes because:
- Most U.S. markets are nationwide restrictive.
- Existing indices like WRLURI miss procedural and cultural barriers (e.g., local veto politics).
His own LLM-based dataset of zoning codes shows regional variation—e.g., the Northeast stricter on lot sizes than California—but agrees that “local vibes” (norms, NIMBYism) explain much of the variation.

Houses are valued as discounted streams of rents, but prices are distorted by:
- Monetary policy (low rates inflate P/R ratios).
- Lock-in behavior: prices rise with rate cuts but don’t fall symmetrically when rates rise because sellers refuse to transact.
Inventory, not price, adjusts first—markets “freeze” before dropping.
The healthy equilibrium: prices grow ~with inflation, rents match wages, and leverage yields ~8–12% real returns.
U.S. cycles oscillate far from that.

The Fed’s MBS holdings and current tightening have frozen mobility.
Gupta argues the U.S. housing and AI-investment sectors form “two economies with incompatible interest rates”—AI drives high rates that crush housing.
He proposes “variable-term” mortgages: payments stay fixed, but loan length adjusts with interest rates.
- Would reduce risk premiums and improve affordability.
- Common in Finland and Denmark, never scaled in the U.S. due to Fannie/Freddie standardization.

Gupta advocates industrial policy for housing, modeled on “Operation Breakthrough” (1969):
- Federal R&D to boost construction productivity (which has fallen for decades).
- Factory-built housing to stabilize labor demand and enable economies of scale.
- Regulatory standardization (codes, land assembly).
- Tax-side levers: accelerated depreciation and FHA multifamily finance (as in 1960s–80s) to spur large-scale development.

The U.S. construction model relies on undocumented, contingent labor, making the workforce unstable.
Deportations and AI data center construction both strain limited skilled labor.
Advocates a factory-based housing system to stabilize employment and raise productivity—a potential bipartisan win (manufacturing revival + cheaper housing).