Is America’s Affordable Housing Model Broken?
Scott Beyer, author of the book “Market Urbanism” says that housing affordability is arguably the biggest issue facing our nation today.
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It’s early evening in Las Vegas and I’m returning to my Airbnb after a busy day of writing. My Lyft rideshare driver Richard picks me up for the brief 7-mile trek, with a beautiful sunset in full view over the mountains.
As is my custom, I engage all Lyft rideshare drivers in conversation, finding that they often have insider information about what’s really happening in the world. So I ask Richard his thoughts about the overall state of the economy in Vegas. He immediately chimes in:
“There are scores of jobs and opportunities here. The problem is there’s been a huge wave of Californians moving to the area which is driving up housing costs”
Richard then reveals to me that he’s recently received a notice from his landlord informing him of a rent increase of over $1,000 more a month. This, he says, is nearly double what he’s paying for a three-bedroom for his family of five.
“Seriously, I have no clue as to what we are going to do at this point. This is not doable for us. And purchasing a house, well that’s completely out of the question with how housing prices are now skyrocketing in Vegas.”
My conversation with Richard is a sobering tale, one that is becoming the new normal for many seeking affordable housing in the U.S. today. A number of recent reports suggest that in excess of 20 million households are forking over more than a third of their income on housing. This comes amid a massive shortage in the nation’s overall housing stock that’s fueling these affordability issues.
Experts assert that there are a number of reasons for this. Some point to zoning laws that prohibit density in locales where demand could easily support it. Others suggest that it is the result of NIMBY-oriented homeowners pressuring local officials to not allow new affordable housing development. Then there is the decades-long issue of racist housing policies as highlighted in the book “Know Your Price: Valuing Black Lives and Property in America’s Cities” by Brookings Institution Senior Fellow Andre M. Perry.
In a recent Yahoo Money article on these affordability issues, two analysts say that they expect the housing market to become even harder to break into over the course of this year.
"Affordability from a home price/down payment perspective is the worst it's ever been, meaning extreme barriers to entry," according to a BofA Global Research note by BofA Securities U.S. Economist Alexander Lin and BofA Securities U.S. and Global Economist Jeseo Park.
Despite continued interest on the part of consumers in terms of purchasing a new home, two primary narratives loom — higher mortgage rates and constraints on housing inventory.
On my recent trip to the San Diego and Sacramento areas, I witnessed firsthand the worsening housing issue in California, one that was already among the worst in the nation. The property management website, Zillow, estimates an average California home value of $745,200, a figure that is more than double the rest of the country. And the Bay Area Economic Institute, a think-tank asserts that California’s median rents are among America’s highest.
Scott Beyer, author of the book “Market Urbanism: A Vision For Free Market Cities” believes that the main way to comprehend the affordable housing problem is to understand first and foremost that housing and land is one of the most regulated industries in the entire United States. Says Beyer:
“It’s kinda like the financial and healthcare industries — it just happens to be one of those industries that are really regulated and have a lot of government oversight. I think that is a huge factor in why housing is unaffordable.”
Beyer says that in most major cities, you’re looking at regulations that often have a major stranglehold on land use, namely the density of the homes, what the setbacks are, parking volume, and environmental factors such as runoff and drainage.
“Every aspect of a parcel in any metro is going to be really heavily regulated, '' says Beyer, who I spoke with in a recent phone interview.
“So when you view it as what basically amounts to a quasi-socialist industry as opposed to a purely capitalist one then you start to understand why housing itself is so unaffordable.”
He states that government regulations, depending on the area, have an impact of upwards of 15% to 50% of the final sticker price of the land parcel and the home that is being built on it. So, he says, when looking at a situation where say x percent of the nation is homeless and a much larger percentage is housing burdened or dealing with housing scarcity, you have to look at government regulations and the effect they are having on this problem.
Beyer believes that while it’s often hard for public agencies and politicians to acknowledge this scenario, real solutions begin to surface when government becomes less involved and reduces its role. That being said, Beyer is under no false pretenses that extreme measures like abolishing zoning, which he talks about in the book, are going to happen anytime in the near future or beyond.
He does believe that government leaders can look at things like streamlining the permitting process and having broad upzoning of an entire city so that housing supply can be increased. He is also a fan of doing away with what he views as counterproductive measures like rent controls and exclusionary zoning.
When I asked Beyer what the average everyday consumer can do in response to an overheated housing market, he admitted that that’s a bit tricker. He did, however, offer this thought:
“If you happen to be someone who may not be able to afford a home and is watching housing appreciate year after year, you can at least get involved in the stock market and find real estate investment trusts and various homebuilding ETFs and home building stocks to invest in. In other words, while you may not be able to afford an entire home, you can at least buy portions of homes by identifying stocks and ETF real estate investment.”
So back to Las Vegas, an area I at one point considered moving to permanently for affordability and tax reasons, I asked Scott how “Sin City” could avoid the same lack of housing affordability facing neighboring California. He offered this:
“Los Angeles already has really tight regulations and as a result really high home prices. So if you are a public official in Las Vegas, you can look at the Los Angeles example and say, ‘hey, let’s not let that happen to us. Because we are already seeing a huge influx of new transplants from L.A. let’s get out ahead of this by loosening our regulations and building a lot of housing so that 10-20 years from now, we are not in the position that Los Angeles is now.’”
Despite various prescriptions for addressing housing affordability, Beyer says he remains pessimistic about the prospects of immediate changes to the current narrative. Says Beyer:
“Given the global instability in the world, people still view the United States as a haven as they always have. So I think the population is going to grow. Moreover, I think the income and wealth in this country are going to continue to grow particularly in the upper tier. So the top 10-20 percent of this country will continue to bid up the price of housing.”
It’s here where he believes that the future of Market Urbanism lies in championing less regulation and greater density so that areas can be rezoned, allowing for more housing on available land.
He concludes: “Rather than living in a zero-sum world, we need an affordable housing model that more people can benefit from by putting more units on the market. In this scenario, everyone wins.