Key takeaways
- The United States is experiencing its second crisis of housing scarcity. Unlike the first, which arose in fast-growing 19th century cities before the advent of tall buildings and modern transit, this one is purely political.
- Today, the housing supply is limited by the twinned problems of anti-density regulations and difficulties scaling up mass transit.
- Suburban housing restrictions have their roots in racial exclusion. Restrictions in legacy urban cores are the result of postwar policies to “renew” these cities into lower-density, car-oriented forms, followed by efforts to curb abuses of urban renewal and mitigate the population loss it drove.
- The conventional wisdom is that both sets of restrictions survive because incumbents seek to defend property values and/or “neighborhood character” against an influx of low-income residents and automobiles — a logic that assumes transit will not scale and costs will be locally concentrated.
- But this conventional wisdom misses crucial political dynamics. Land values for many homeowners in hot markets would rise, not fall, at higher densities; meanwhile, renters often resist such density even though it would lower their costs. These gaps in the standard model point to possibilities for new arguments and coalitions to strengthen the emerging YIMBY (Yes In My Backyard) cause.
- These coalitions should seek to move zoning decisions to higher levels of government that serve wider areas and therefore can better realize the benefits of density while sharing its costs over a larger population. At the same time, local communities experiencing rapid growth should receive the support they need for the sake of fairness — and to prevent a voter backlash.
- Reformers should also tackle a host of regulations that drive construction costs for both housing and transit far higher than they must be; for transit in particular, U.S. expenses are well above international norms.
Introduction
The facts of America’s housing crisis are well-known. Housing costs for both owners and renters have increased faster than the broad cost of living. American families devote an increasing share of their budgets to housing.
The crisis pinches hardest in the most productive urban areas. Cheap housing is scarce where good jobs are abundant while good jobs are scarce where housing is cheap. Income gaps between U.S. regions have stopped shrinking after a century of income convergence. Until the 1980s, the country’s most productive areas attracted workers from less productive areas. The labor markets those workers left behind tightened, raising wages and contributing to a convergence of regional incomes. But since 1980, high-wage regions have exported cost-of-living refugees to lower-wage regions with cheap housing.
Another indicator of the crisis: Home prices are rising faster than construction costs (excluding the cost of land) for an increasing number of metropolitan areas. Often, as we will see, that is a result of land use regulations that ban apartments and mandate excessive use of extremely expensive land per home. Quite simply: Productive urban land costs millions of dollars for a single acre. Growth controls such as single-family zoning limit the number of homes that can be stacked on an acre of land to spread that cost over more units. With high land prices and regulatory bans on using less land per unit, urban homes cost millions even though new apartments could otherwise affordably be stacked on the same lot without having to use any more land.
No one is happy about these trends. Housing is a truly transpartisan crisis, with detrimental impacts on both progressive and conservative goals. Progressives see the housing crisis as shutting low-income and minority workers out of the most dynamic labor markets. They see land use controls as tools of redlining and of segregation by race and income. Progressives also object to urban sprawl, deficient mass transit, and excessive dependence on automobiles, all of which contribute to urban air pollution and climate change.
Conservatives, who have long emphasized the perverse outcomes of excessive regulation, attribute the housing crisis to constraints on property rights and individual liberty. They fear that unaffordable urban housing undermines family formation and contributes to a culture of childlessness. In rural areas, land is plentiful, but incomes tend to be lower. Many states forbid the titling of deeply affordable manufactured homes as “real property” instead of as motor vehicles, which means potential buyers can’t access traditional mortgage financing for these lowest-cost types of new homes. Reform of housing policy offers conservatives a great opportunity to use regulatory relief to solve important social problems.
Progressives and conservatives alike lament the drag that the housing crisis places on growth of the national economy. Slower and less equal income growth, in turn, fuels populist discontent, political polarization, and ideological radicalization that serve no one’s long-run advantage.
The sections that follow explore the housing crisis from five key perspectives.
The first section provides a historical overview. This is not the first time America has faced a housing crisis. In fact, today’s crisis is in large part an outgrowth of policies adopted in response to housing and urban problems of the past. The path that policies have taken over time, in turn, constrains the options that are open today, but it does not doom us to perpetual housing scarcity.
The second section explores the modern system of growth controls that shape the supply of housing and determine the character of our cities and suburbs. Those controls are a large part of the reason that home prices have risen faster than inflation while the prices of many other goods, from refrigerators to televisions to automobiles, have fallen in real terms.
The third section explores the political economy of housing policy. The housing crisis is a collective action problem in which good things can be attained by working together, but local incentives are not always consistent with the greater good. One key to resolving this problem in a democracy committed to federalism is to ensure that decision-making powers rest with the lowest level that faces the full costs and benefits of the policies that are established.
The fourth section discusses the many unintended spillover effects of restrictive housing policy beyond the obvious, direct consequences for housing prices and scarcity. Housing has a powerful influence on social and economic equality, the environment, family formation, and other important policy issues.
The final section deals with potential solutions to the housing crisis. Housing policy is a highly complex issue with innumerable connections to other social and economic subsystems. Still, it is possible to list some general principles and specific policy recommendations that offer a potential transpartisan resolution of the crisis.
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