Prior to his confirmation as Fed Chair this week, the confirmation hearings for Kevin Warsh generated the predictable volume of political noise: alignment accusations, independence pledges, the usual theater. Linneman's read cuts past all of it. That a president nominates someone with broadly compatible views is unremarkable by definition. The question worth asking is not whether Warsh will be independent. It is what he will do with the institution once he is running it.

On that question, Linneman came away from the testimony with three specific signals. Warsh endorsed dissent within the Fed, a correction to a long-running problem: twenty years without a dissenting governor's vote does not pass a smell test when the decisions being made are genuinely difficult. Warsh also expressed skepticism about the dot plot, which Linneman treats as government-introduced noise, in part because it has no history of accurately predicting rates. Asking Fed members to publish rate forecasts generates less quality information than the speeches they were already giving, and markets have spent years pricing off a signal that was never as clean as it looked.

"I like the fact that he believes in narrowing the mission of the Fed back closer to what it was, which is inflation and growth and a lot of these ancillary things."

That narrowing would help focus the Fed on the deeper problem: how it addresses housing costs. The complication is that two-thirds of American households own their homes; for them housing costs stay generally constant. One-third of households rent, and their housing costs are subject to significant change. Today the Fed uses “Owner Equivalent Rent,” which is a contorted concept as it’s based on what home-owners hypothetically would charge themselves in rent. Linneman has researched how people answer that question, and as you might guess, many don’t have answers that reflect “market.” This is “ essentially home price with more noise,” Linneman says, and relative to what the Fed was doing before, “that can't be an improvement."

Warsh has said he wants to take a fresh look at how the Fed thinks about housing costs, which feels important given they make up more than one-third of CPI.

The people making the doomsday argument about AI are not fringe voices. They are technically credible and their concern is specific: AI eliminates job categories faster than new ones form, resulting in higher concentrations of wealth and significant labor displacement.

One part of the AI economic doomsday scenario relates to what happens when wealth is created, either at the personal level or the corporate level. In that event, the wealth does not stop circulating, that has never happened. Linneman imagines the most extreme concentration scenario imaginable: One firm captures all of it. What does that firm do with the money? It builds data centers. It develops physical assets in outer space. Its principal buys a 900-foot yacht, and someone has to build the yacht. The wealth finds its way into the labor market regardless of who holds it first, because the only alternative is that it sits in a room doing nothing, and that has never been how wealth behaves.

The deeper problem with the doomsday argument is imaginability. In 1900, fifty percent of the American labor force worked on farms. The tractor would eliminate most of those jobs. If you had told a kid working in the field at the time that his grandchildren would work at a company called Apple making phones, he would have asked what a phone was. If you had told him people would pay a thousand dollars a day to stand in a theme park owned by a company called Disney, he would have had you committed. Those new jobs came into existence because accumulated productivity had to go somewhere, and it went to things no one could imagine in advance.

The transition costs are real. Lamp-lighters disappeared. Typing pools disappeared. The people in these roles found other work, usually better-paid work, and usually not immediately. That part is real. What the doomsday scenario gets wrong is the steps after the displacement.

For investors underwriting data center and industrial development, the historical pattern is a demand signal. Today there’s a need for the physical infrastructure required to run the AI buildout, power it, cool it, and move the goods purchased by the people and firms who benefit from it. But housing and industrial space will continue to be required, to house the people and products in the next economy. Waiting for confirmation that the economy survives the transition before committing capital to that infrastructure is wondering about one outcome that has never occurred.

Young Americans rent longer than they ever have, and the standard explanation looks to interest rates, home prices, and monthly payment affordability. Linneman's runs through sociology. The expansion of the 24-36 renter cohort was built over decades by two forces that had nothing to do with the Fed funds rate, forces that matter to anyone underwriting multifamily demand over a ten-year hold.

The first force is divorce. Where there was one housing unit, there are now two. Where there was one pooled income, there are now two split ones. Linneman is direct about the social valence: "What's one of the best things socially that happened to the apartment market over the last 75 years? The answer sadly is divorce." The divorce rate started to spike in the 1960s, peaked in the 1980s and has since stabilized.

Where this trend head in the future is, in Linneman's read, very hard to predict.

Linneman also says the conventional framing on homeownership is wrong about its core affordability problem. The barrier to ownership across non-subsidized income cohorts is the down payment, not the carrying cost. Linneman has been making this argument since 1990 research with Susan Wachter, and a decade of single-family underproduction has made it more acute. Home prices up, required down payments up, barrier up, entirely independent of whether the prospective buyer could have serviced the mortgage once in.

However, that barrier has one slow-moving offset.

For multifamily investors underwriting Class A and student housing assets, this is a trend to watch. Boomer income grants are already embedded in occupancy and will become moreso — Linneman's question about who actually pays the rent on new student housing is not rhetorical. The shift toward lump-sum wealth transfers, as the boomer generation ages deeper, is the mechanism that begins converting structural renters into buyers at the margin. It moves slowly, constrained by tax law and the natural reluctance of a generation to commit capital before they are confident they will not outlive it. This demographically driven transfer of wealth will have a much bigger impact on homeownership than most people expect.

Editor’s Note: The Real Estate Haystack believes in sharing valuable information. If you enjoyed this week's newsletter, subscribe for regular delivery and forward it to a friend or colleague who might find it useful. It's a quick and easy way to spread the word.