Build, Baby, Build
Build, Baby, Build
Sometimes the solutions aren’t complicated.
The headline in Jerusalem Demsas’ essay in the Atlantic Monthly last November says it clearly: “Housing Breaks People’s Brains.” The subtitle refines the point, “Supply skepticism and shortage denialism are pushing against the actual solution to the housing crisis: building enough homes.” Is there anything else to say?
Unfortunately, the headline, essay, and venue—a magazine read largely by (supposedly) smart and educated progressives—didn’t break the fever at Barron’s, where two academics wrote a post with a headline that needs an answer: “Yes, Homes Are Expensive. And Building More Will Solve the Problem.”
The post at Barron’s is premised on our national belief that we are in the throes of a “housing crisis.” Few make a quantitative case for that claim, aside from a reference to cost burden, that is, the number of people in a given jurisdiction paying more than 30 percent of their pre-tax income on housing.
I’ve inveighed against cost-burden analysis in the past for being based on old American Community Survey data. Worse, the numbers are reminiscent of Dr. Evil’s ransom demands in Austin Powers. In almost every jurisdiction, cost-burdened households number in the tens of thousands. Some analysts take that number and insist that is how many new units are needed.
In an example from the linked post above, one city, Albuquerque, was advised by a consultant that it had 15,500 cost-burdened households, and therefore needed to build 15,5000 units. But the city had only permitted 12,000 units of housing total over the course of 5 years, and at an unrealistically cheap price tag of $100,000 per unit, building the proposed number of units would have cost $1.5 billion, double the city’s entire operating budget.
Interestingly, the authors of the Barron’s post confirm what I have argued before, namely, that there isn’t a massive need for new subsidized housing construction. The authors argued that there is no national housing shortage, and that there isn’t one in most major cities, either.
In fact, they write, “of the 707 growing metro markets, only 26 have shortages of housing, with household growth exceeding housing-unit growth. These markets tend to be small, containing less than 1% of the nation’s population.” Using United States Census data, the authors also found that “two-thirds of the growing markets had a surplus of housing, meaning the increase in units from 2000-21 exceeded the growth of households by at least 10 percentage points,” and the markets where this occurred represent “about 72 percent of the U.S. population.”
The authors correctly point out that the problem has to do with the gap between incomes and housing prices. But then they suggest something that I’ve seen suggested before, that it isn’t lack of supply, but job creation that drives up housing prices. This line of thinking—that more jobs means better paying jobs and thus higher housing prices—is a stubborn one.
When developers and investors decide to build more housing, the first thing they consider is an area’s job growth. Why? Because when there are new jobs in an area, more people will move there. When population goes up, so does the demand for housing, and thus the opportunity for investors to get a good return on their investments.
The best investments are made in an area where job growth and population will outpace existing housing. If this doesn’t happen, then prices will skyrocket, not because of the abundance of jobs but because, yes, there isn’t enough housing.
Investors and developers look for rising prices as a signal. Prices represent the interplay between supply and demand. If I’m a developer, I’m not going to build 500 units of housing in a place with high vacancies, growing unemployment, and falling population. I’m looking for the opposite relationship—falling vacancies, more jobs, and more and more people. Wages matter, too, because people who earn less money feel price shocks first and for longer. When housing prices go up, poor people give up a greater share of their incomes to pay for it.
The authors do have at least one proposal that I completely agree with:
The most effective housing assistance for low-income households is not found in building more units but in helping low-income households afford the units that already exist through housing vouchers for renter households and down-payment assistance for home buyers.
As I argued last October here at The American Conservative, while allowing more housing to be built is the long-term solution, cash subsidies for market-rate housing, limited to people who can’t work, is a short-term fix.
Overall, the problem with the housing economy is at the margins, among people who earn lower wages and are bound up in intergenerational poverty. When local governments make it hard for producers of market rate housing to build apartments or homes, the resulting scarcity leads to inflation, which, again, hits those people in the margins hardest. That’s why the last line of the Barron’s post is a bizarre head scratcher: “The U.S. cannot build itself out of its housing crisis.”
In fact, the United States can build its way out of the problem of price volatility. If local governments would stop choking housing supply, creating inflation, complaining about the crisis they created, then demanding more federal subsidies in the form of Low Income Housing Tax Credits, we would be well on our way to a healthier housing market.
The solution is pretty simple. First, reform zoning laws, and regulate housing only for health and safety. Second, tie federal subsidies to local governments making these changes. Third, consolidate the billions of dollars in federal programs into a single cash-for-rent program. Finally, reserve capital investment of public money for the hardest hit, especially people with mental health and addiction issues.
Good housing solutions start with good thinking about the problem. We can build a less volatile housing economy if we put our brains to good use.
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