Shut Out

How a Housing Shortage Caused the Great Recession and Crippled Our Economy

The United States suffers from a shortage of well-placed homes. This was true even at the peak of the housing boom in 2005. Using a broad array of evidence on housing inflation, income, migration, homeownership trends, and international comparisons, Shut Out demonstrates that high home prices have been largely caused by the constrained housing supply in a handful of magnet cities leading the new economy.

The same phenomenon is occurring in leading countries across the globe. Gentrifying cities have become exclusionary bastions in the new postindustrial economy. The US housing bubble that peaked in 2005 is more accurately described as a refugee crisis than a credit bubble. Surging demand for limited urban housing triggered a spike of migration away from the magnet cities among households with moderate and lower incomes who could no longer afford to remain, causing a brief contagion of high prices in the cities where the migrants moved.

In this book, author Kevin Erdmann observes that the housing bubble has been broadly and incorrectly attributed to various “excesses.” Policymakers and economists concluded that our key challenge was that we had built too many homes. This misdiagnosis of the problem, according to Erdmann, led to misguided public polices, which were the primary cause of the subsequent financial crisis. A sort of moral panic about supposed excesses in home lending and construction led to destabilizing monetary and regulatory decisions. As the economy slumped, a sense of fatalism prevented the government from responding appropriately to the worsening situation.

Shut Out provides a much-needed correction to the causes and consequences of financial crises and secular stagnation.


About the Author

Kevin Erdmann was a small business owner for 17 years. In 2010, he sold his business and earned his master’s degree in finance from the University of Arizona, which grounded his real-world experience of investing in the rigor of the academy.

In 2013, he began blogging at to share his contrarian observations about investment strategies and research. He was surprised to uncover evidence that seemed to contradict conventional narrative and common assumptions about the housing bubble and the financial crisis. As the evidence accumulated, he developed a new account of the causes of the housing bubble and financial crisis. That account eventually became a two-book project, Shut Out and a follow-up book still in development, both of which synthesize and expand on the housing theories he originally published on his blog.

He lives in Gilbert, Arizona, with his wife and three children.


Advance Praise

 “Kevin Erdmann has put forward the radical thesis that restrictions on housing supply have been at the center of America’s macroeconomic dilemmas, in addition to raising the cost of living for ordinary Americans. This is one of the few truly new ideas in the debate over the Great Recession. While I still am not sure how much I agree, I find myself thinking about Kevin’s ideas often, and they grow on my mind. Kevin has poured his heart and soul into making the case in this fascinating new book.”

—Tyler Cowen, author, Stubborn Attachments, and blogger, Marginal Revolution

“Do you believe that you know what happened during the housing bubble and bust? Think again. Kevin Erdmann has amassed a wealth of fascinating data that sheds new light on what actually went wrong with America’s housing market. The basic problem was not too much building or too much lending to low-income people, but rather restrictive housing-development laws pushed people out of ‘closed-access cities’ on the two coasts and into the ‘contagion cities’ in Arizona, Nevada, and Florida that were the epicenter of the housing boom. This book sheds important new light on a number of issues beyond housing, including monetary policy, income inequality, and international investment flows.”

—Scott Sumner, author, The Midas Paradox, and blogger, The Money Illusion

“Well, this book is interesting! Over the course of the past 30 years, there have been two central truths about the US housing market. First, since the 1980s, several rich, high-wage metropolitan areas (think San Francisco or New York) have used zoning and other land-use policies to substantially restrict housing production, leading to fast-increasing housing prices and substantial dislocation of people who would prefer to live in these high-wage areas but can’t afford to, due to the lack of housing. The second is that there was a boom in housing prices in the mid 2000s followed by a massive crash. Erdmann reveals the deep connections between these two phenomena and, in so doing, challenges the most well-known explanations for the housing crash.

“Erdmann shows that the boom was largely in rich, excessively restrictive areas and metropolitan areas that housed the ‘refugees’ from these areas and not in the rest of the country.  And he argues that the bust, rather than the boom, is the truly exceptional story—a result of excessive restrictive credit policy, borne out a lack of understanding of what caused the boom.  One needn’t agree with his story in full to see that he scores extremely important points and adds a perspective that has been missing from discussions and public policy responses to the housing crash. Fixing supply constraints in rich areas, Erdmann shows, will not only make us richer by allowing people to move to areas where they can get higher wages; it will also make our economy sturdier and less prone to the type of disasters that set back the national and, indeed, the world economy in 2007–08.”

—David Schleicher, Professor of Law, Yale Law School