Hits: 0



Comment

The United States faces a peculiar housing quandary.

According to Freddie Mac, in 2020, we were short 3.8 million homes. That’s a deficit of one full New York City. And the hole is getting bigger. Land isn’t the problem. Less than 5% of the country is built up, a small fraction of Europe’s housing footprint. The problem is that not enough homes are being built.

President Joe Biden has put housing at the top of his pile of priorities. In June, the White House came up with a laundry list of efforts to address the shortage, from providing incentives for states and localities to relax zoning restrictions to deploying money from the 2021 Covid rescue package toward affordable housing and investing to maintain public housing that is falling into disrepair.

But for all the oomph the president and his advisers hope to signal, the laundry list is not up to the task. “Small carrots,” noted Gilles Duranton, an economist who specializes in real estate at the University of Pennsylvania’s Wharton School. The administration, he added, is “chasing trillions with billions.” 

America faces a housing shortage mainly because existing homeowners don’t want anybody to build more homes — at least not in their vicinity. And they have the power to bend the political system to their will. Think of the state referenda and city council meetings that put caps on building heights, impose green spaces around new construction and require that homes sit on a minimum of as much as two acres — enough space to raise a couple of cows.

These restrictions raise building costs and hence the price of housing, pushing it above the means of young families and other first-time homebuyers. Current homeowners know that if the restrictions went away, the price of their homes would fall.

Research on the greater Boston area by economists at the University of Warwick, the University of Toronto and the Federal Reserve Bank of Boston found that the number of housing units rises sharply when density constraints are relaxed — whether by allowing more multifamily buildings, relaxing height limits or simply allowing building on smaller lots. Rents in multifamily buildings fall as much as $144 a month for each new unit added due to the new rules.

The problem is that the value of single-family homes also falls, in part because the added housing weighs on perceived neighborhood quality: House prices drop by 9.17% per unit when density regulations are relaxed and multifamily homes are allowed. “While lowering housing costs through zoning reforms may help first-time homebuyers and lower-income renters,” the economists wrote, “it comes at the expense of — and thus will likely generate substantial political opposition from — current homeowners.”

What will it take to reduce the opposition? Homeowners can be bribed. Or, to put it in a nicer way, they might relent if they are made whole, compensated for the declining value of their homes. The problem is that such a bribe would cost much more money than the American political system seems willing to tolerate.

Duranton and the Spanish economist Diego Puga tried to get their heads around this amount by putting a price tag on the regulations that limit housing construction in more than 100 cities across the US. Using 2010 data, they took the value of farmland near city borders, which had not been subjected to zoning limits and other municipal regulations, and added the typical local construction costs for single-family homes plus a gross profit for the developer of 17%.

Then they compared this number with the market price of a similar house in the city. The difference, averaging about $100,000 per home (up to half a million dollars in cities such as San Francisco and San Jose, California), amounts to the cost of regulations. Multiplying that by the number of homes in urban America produced a staggering total cost of $12 trillion. The price of our NIMBY housing politics.

This number comes from more than 10 years ago, when the housing market was still reeling from its 2008 implosion. Today, the price tag is probably much larger. Say we decide that half of the housing restrictions make some sense, perhaps from an environmental perspective, the unnecessary half would have cost homeowners $6 trillion, somewhat less than half a year’s worth of gross domestic product.

Compare that with the most expensive policy in the federal government’s housing arsenal: the mortgage interest deduction. In 2017, before it was slashed as part of President Donald Trump’s tax reform, it was worth just $66 billion. And nothing in the Biden administration’s current list of initiatives is even near that large.

Can something be done on the cheap? The kind of competitive grant process envisioned by the Biden administration to encourage municipalities to loosen housing restrictions, at a cost of a couple of billion dollars, might encourage more building in, say, Dallas — where regulations are relatively lax and housing is already comparatively cheap. But to spark a building boom in the super-expensive cities will require real money.

In 2018, Minneapolis became the first city to loosen single-family zoning and allow two- and three-unit houses on some land previously zoned for single-family use. Berkeley and Sacramento, California, and Charlotte, North Carolina, as well as the state of Oregon, followed suit.

But nothing much happened in these places. Indeed, the changes may have been politically possible only because they wouldn’t work. The research in Boston found that allowing builders to put up multifamily buildings, without accompanying changes to allow greater density, had a negligible impact on housing. In Minneapolis, the Star Tribune reported last year, only 23 building permits had been issued for new duplexes and triplexes in areas where they would not have been allowed before the change. 

“Simply lifting bans on multifamily housing may not actually create more housing options,” wrote Sara Bronin, who teaches law and architecture at Cornell University. Many other hurdles — mandatory public hearings, rules on lot configuration, building size and occupancy regulations — are also at work. “These zoning requirements kill housing by a thousand cuts.”

This is costing us dearly. Bloated housing values segregate American society. They are forcing a huge transfer of resources from the young who don’t yet own homes to the old who do. What’s more, economic research has established that workers get a productivity boost when they move to a large busy city such as Los Angeles or New York. To the extent that housing costs prevent this from happening, they make the nation poorer.

Unfortunately, it seems we cannot afford the bribe.

More from other writers at Bloomberg Opinion:

• Want to Cure the Housing Crisis? Kill Zoning: Virginia Postrel

• Can We Escape a Crash? The Housing Market Says Yes: Conor Sen

• House Inventories May Not Save Prices After All: Jonathan Levin

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Eduardo Porter is a Bloomberg Opinion columnist covering Latin America, US economic policy and immigration. He is the author of “American Poison: How Racial Hostility Destroyed Our Promise” and “The Price of Everything: Finding Method in the Madness of What Things Cost.”

More stories like this are available on bloomberg.com/opinion



Source link

Leave a Comment