How to make housing affordable again
We did it once; we can do it again.
In previous excerpts (here and here) I made the case that unaffordable housing is one of the Western world’s biggest problems, and it has emerged only recently due to bad government policy. In another excerpt, I made the case that YIMBYs are only 50% correct, because they view urban sprawl as something to be fought against and urban density as something to aspire to.
In this and subsequent posts, I would like to outline some policy reforms that will help to make housing more affordable.
Most of the following is an excerpt from my second book Promoting Progress: A Radical New Agenda to Create Abundance for All. You can order my e-books at a discounted price at my website, or you can purchase full-price ebooks, paperback, or hardcovers on Amazon.
Other books in my “From Poverty to Progress” book series:
This post is part of a multi-post series on Housing:
How to make housing affordable again (this article)
Geographical Mobility
I will delve into this issue in much more detail in future books in this series, but geographical mobility is a key weapon against unaffordable housing. Being blessed with a huge geographical footprint, the United States has hundreds of metropolitan areas. Many of them have relatively affordable housing.
In most of the rest of the Western world, there is nowhere to migrate to, as all major cities within those countries have the same problem. This is unacceptable for the many different reasons that I mentioned previously.
In the short term, moving to another metro area with affordable housing is the preferred solution. Already there is a big trend in the United States of young, poor, and working-class people migrating to different cities to seek more affordable housing.
Urban containment zones lead to unsustainable housing price increases, so eventually the policy must come to an end. We need to find better options that allow the building of affordable houses in what are now protected green belts.
Working from Home
Another major trend that will both help and hurt housing affordability is working from home. Before Covid-19, working from home was relatively rare. Most businesses actively discouraged their employees from working from home. Many had strong rules against it. Employees who worked from home typically had a long tenure at their company and had earned the respect of their employer.
Suddenly, with the Covid lockdowns of 2020, that all changed. Particularly in the sectors of digital technology and finance, working from home suddenly became the standard. While many employers are still eager to return to all employees working in one building, many employees want working from home to remain the norm. It is not clear how this will all work out in the long run, but I seriously doubt that working from home will now return to the low pre-Covid levels.
Because working from home is becoming a new norm, many employees who work for companies based in the major metropolitan areas on the Pacific Coast and the Northeast are moving to areas with more affordable housing. The financial incentive to sell their overvalued house, and then purchase a larger and cheaper house elsewhere is just too enticing for older workers. The financial incentive for younger employees to own a house at all is even more enticing. Making this trend even stronger is the pending retirement of Baby Boomers, who also want to retire to an area with a more affordable cost of living.
If this trend continues, they will probably push housing costs down in the most expensive metro areas, while driving housing costs up in the destination cities. While the housing affordability crisis has until now been largely restricted to about a dozen metro areas, it is now expanding much further.
It is vital that these newly growing metro areas do not repeat the same mistakes that the metro areas of the Pacific Coast and the Northeast did. They must avoid implementing policies that will make their housing unaffordable in the long run.
Necessary Policy Reforms
We desperately need to come up with a new urban planning paradigm that puts affordable market prices for housing as its centerpiece. This strategy must not include urban containment zones, excessive zoning rules or excessive environmental regulations.
Unwinding the current system that promotes unaffordable housing will be a serious challenge. It is not due to one policy on one level of government. Unaffordable housing is due to building restrictions by local, country, state, and federal governments.
Peeling back each layer of regulation will take many years, if not decades. And many if not most homeowners will be opposed to them because these reforms will reduce the value of their largest single investment. Realistically, it will be hard to make progress within the next few decades.
I believe the proposals made by Shlomo Angel in his book, Planet of Cities is a great starting point for a new paradigm. Angel argues against land use policies that force density and gives clear evidence that those policies are not only failing in their main goals but also driving up housing costs.
Instead, Angel advocates for a “Making Room” paradigm which he describes thus:
The Inevitable Expansion Proposition: The expansion of cities that urban population growth entails cannot be contained. Instead, we must make adequate room to accommodate it.
The Sustainable Densities Proposition: City densities must remain within a sustainable range. If the density is too low, it must be allowed to increase, and if it is too high, it must be allowed to decline.
The Decent Housing Proposition: Strict containment of urban expansion destroys the homes of the poor and puts new housing out of reach for most people. Decent housing for all can be ensured only if urban land is in ample supply.
The Public Works Proposition: As cities expand, the necessary land for public streets, public infrastructure networks, and public open spaces must be secured in advance of development.
Until Angel’s paradigm gains traction among urban planners, the simplest policy, for now, is for urban planners to “tear down the wall” or at least major portions of it and let metro regions grow where land is cheap. Florida did this in 2011 (or, more accurately, the state removed the requirement that cities had to implement these policies). We need to go much further, and we need to do so across the nation, particularly near the Northeast and Pacific Coasts.
Affordability Trigger
Housing inflation is a relatively new phenomenon. Until 1970, housing prices did not vary much from the core rate of inflation. This made housing affordable across the nation
A useful means of measuring housing affordability is the ratio between the median cost of a house and the median family income within that metro. In 1969, virtually every metro in the United States had a ratio of 3.0 or less. The national average was 1.8 (Antiplanner, 2020). The graphic below is based on average earnings, rather than median income, but it gives you an idea of historical trends.
We should also establish the general principle: if an urban area has an affordability index of 3.0 or higher, urban planners should modify their plans to enable affordable housing construction on the outskirts of the metro region where land is cheap. Even just eliminating one-quarter of the green belt to give cities growing room would make a huge difference in the long run.
We need to let housing markets work on the outskirts of metro areas where land is cheap. While some might be horrified by the idea of promoting “sprawl,” it is unavoidable if we want to keep housing affordable.
We Need to Rethink Zoning and Building Codes
Shlomo Angel primarily researches high-level urban design and the negative effects of urban containment zones. We also need to focus on the lower level of individual plots of land. This brings us to the world of zoning and building codes.
Our current paradigm of zoning and building codes were designed by an earlier generation of urban designers who believed that quality of life can be improved by separating incompatible land uses from each other. Ironically, these urban designers were an earlier generation of progressives whose ideas are now roundly rejected by the newest round of progressive urban designers.
Typically, zoning segregates residential, commercial, industrial and retail activities from each other. Residential zones also typically define lot sizes and height limits, which have a major impact on density. Typical zoning rules also include parking requirements, soil quality, shapes of lots, the number of unrelated people who share the same home, and a myriad of other restrictions (Fischel).
Ordinances cannot mention the income, ethnicity, or race of occupants, but they can mention age to allow for retirement communities. Many communities abuse the original intent of these restrictions by minimizing the number of schoolchildren to stop local housing construction (Fischel).
Building codes also prescribe certain regulations regarding materials and procedures to be used in new structures. These regulations include material for water and sewage pipes, insulation standards, fireproofing and sprinklers. While these regulations add to the cost of housing construction, those costs seem to be modest in comparison to zoning (Fischel).
When done in a limited way, zoning and building codes make complete sense. Few people would want to buy a house, only to have a large-scale industrial plant or mining operation as a next door neighbor just a few years later. The plant would probably ruin one’s quality of life while also ruining the property values making it difficult to sell. We also do not want to create incentives for builders to use shoddy materials that save a few dollars, but then force the owners to pay for expensive rebuilds afterwards. And few people want to live on land without access to open space, transportation rights-of-way, schools and other public buildings.
The New Urbanist planning movement advocates mixed-use zoning, where residential, retail, and commercial buildings are all allowed on the same plot of land. In many cases, this would mean that all three types of land use would be spread vertically throughout a single building. Such a type of land use is common in Europe, with retail shops on the ground floor, commercial offices on lower floors and residential housing on the middle and upper floors. I see no reason why this should not be allowed throughout a metro area.
The prime goal of zoning and building codes should be:
Affordable housing, as measured in cost per square foot on the open market without public subsidies.
Cost-effective construction standards that minimize the total cost of ownership, including both the construction cost and long-term maintenance and energy costs.
Cost-effective safety and health standards based on the most common and most dangerous hazards in the local region: fire, floods, hurricanes, tornados, and lead or mercury poisoning. Since these hazards vary greatly by region, this is likely to lead to great regional variations in regulations.
Reasonable access to ground transportation, open spaces, and public buildings.
I believe that our current system has strayed from these fundamental goals, particularly the first. Building mobile homes, renting out rooms within a private residence, establishing businesses within a private residence, and building detached or attached AUDs (Accessory Dwelling Units) should all be encouraged. Landowners should also be able to build duplexes, small apartments, or condominium complexes on land that is currently zoned for single-family residences. In many localities, however, these desirable practices are illegal.
Environmental Impact Is Secondary
Since the 1960s, state and federal governments have adopted a myriad of environmental regulations to protect wild habitats and the plants and animals that live on that land. Many of these regulations have been successful, but we need to factor in housing affordability first. Far too often, environmental regulations are used as a means to hold up vital housing construction.
Required environmental impact statements make sense in rural or wild areas that are far from metro areas, particularly for large-scale industrial, timber, or mining operations. Near metro areas, however, the priority should be keeping housing affordable.
Local governments should instead set aside open spaces in sensitive local habitat so that they can be used for both outdoor recreation and wild habitat protection. It is important, however, that open spaces and wild spaces do not completely or mostly encircle entire metro areas.
Nor should environmental impact statements be able to hold up the building of residences in or near a metro area. If a metro area has unaffordable housing, then local, state, and federal governments should favor housing construction, not hold it up. If the area already has large-scale housing nearby, then we have already drastically changed the natural environment.
A Typical House
Let me give an example with which I am intimately familiar. My house is a two-story single-family residence consisting of 2,430 square feet. It includes 3 bedrooms and 3 bathrooms plus an oversized two-car garage. Those statistics make my house almost exactly the average size of new homes built in the United States.
My house is located in a relatively new housing development on the outskirts of my metro area, so the purchase price was much more affordable than other houses of a similar size. My lot is just over 7,000 square feet, while the footprint of the house is only 1,660 square feet of land (or 23% of the total plot). I am pretty confident that all but the wealthiest Americans would consider it a “nice house.” Most young families would be ecstatic to be able to afford to purchase such a house.
Now, some urban designers may insist that such a big house on the outskirts of the suburbs is a clear example of sprawl. If we are trying to reduce the impact of housing on wild habitat, however, we should be concerned primarily with the size of the lot, not the size of the house.
So to be more environmentally sensitive, let’s shrink the lot down to 5,000 square feet (or 33% of the total plot). By shifting the house forward on the lot, you can still have a nice backyard, which most American families want.
One might argue that my plot of land is a bit too large or a bit too small, but this is exactly the type of housing that we should be building at scale on the outskirts of metro areas. Of course, any good master plan should also mix in denser duplexes and small apartment complexes to increase affordability, but urban designers should do so because of customer demand, not to conform to an ideal of fighting density.
Just as in my housing development, any good urban design should mix open spaces, public buildings, as well as access to streets, arterials, and highways into the plan. When done at scale in every metro area that is seeing population growth or experiencing a problem of housing unaffordability, we could at the very least keep housing prices from rising faster than incomes. Over the long run, we could even make housing more affordable.
Unfortunately, with current land use regulations, we cannot possibly develop at the necessary rate.
Most of the above is an excerpt from my second book Promoting Progress: A Radical New Agenda to Create Abundance for All. You can order my e-books at a discounted price at my website, or you can purchase full-price ebooks, paperback, or hardcovers on Amazon.
Other books in my “From Poverty to Progress” book series:
This post is part of a multi-post series on Housing:
How to make housing affordable again (this article)