Can we build our way out of the housing price inflation mess?  We must, but how?

We Need to Build Our Way Out of This Mess

By Eli Dourado
The New York Times
OPINION – GUEST ESSAY
Aug. 11, 2021

Mr. Dourado is an economist and a senior research fellow at the Center for Growth and Opportunity at Utah State University.

Excerpts:

Many Americans experience the fallout from our failure to build in the housing market. Housing costs are at an all-time high, and over the past half-century, the median rent has outpaced the median household income. In our coastal hubs, our most productive cities, the numbers are even more dire. The typical home value in San Francisco, for instance, is $1.48 million, 12 times the city’s median annual household income of around $120,000.

Housing costs exacerbate economic hardship and inequality. Because the poor spend a greater share of their income on housing, high costs hit them the hardest. State homelessness rates track housing prices. The economist Matthew Rognlie showed in 2015 that capital’s rising share of income, an indicator of growing inequality, was caused entirely by increases in housing prices. Housing costs also perpetuate educational inequality; they are 2.4 times as high near high-scoring public schools as near low-scoring public schools. Children whose families are priced out of the best school zones forgo hundreds of thousands of dollars of lifetime income as a result.

The solution to high housing costs could not be simpler: Build more homes. To address housing affordability, many progressives have advocated subsidized affordable housing programs. These programs may not be adequate to generate sustained cost reductions, and they aren’t necessary. What will work with certainty are the laws of supply and demand. If we increase the supply of housing enough, prices will fall. 

But to build housing and infrastructure, we must sweep aside the regulatory obstacles that stand in the way. In housing, zoning and related rules are the culprits behind the restricted supply of new homes. 

While we would not tolerate open segregationist justifications for zoning today, laws that ban multifamily construction in certain neighborhoods — along with parking minimums and restrictions on lot coverage, setbacks and building heights — continue to perpetuate segregation by income and race. These rules reduce the supply of housing, increasing its cost. To become a nation that builds, we must tear down the regulatory obstacles. In housing, ordinances that prohibit multifamily housing need to go. Other policies that limit density, like parking minimums and height restrictions, must be liberalized.

Environmental assessments, of which over 10,000 are produced per year, likewise add years to the process. Even after finalization, a lawsuit filed by virtually anyone can challenge the adequacy of these documents and bring the project to a halt.

If we want to build infrastructure as well as housing, we need to address environmental review as well as zoning. We must protect the environment, but we need not do it indirectly with laws that operate only through paperwork and court cases. We should do it directly — with stricter air and water standards, smarter conservation policies and a carbon tax. A direct approach would enable speedy government decisions and get shovels in the ground. A pro-building, pro-environment deal, eliminating environmental review in favor of these direct protections, could improve the environment through stricter substantive standards and through a stimulative effect on new, clean infrastructure.

How did the most dynamic country on the planet become so sclerotic? We did it to ourselves. We enacted laws that privilege the status quo at the expense of change and progress. We liberally passed out veto rights to anyone with the money and wherewithal to hire a lawyer. If we want to reverse the damage and create a more prosperous future, we must make it easy to build.

---

Comment:
“Build more homes… Sweep away regulatory obstacles… Make it easier to build.”  If we increase the supply of housing, prices will fall. We’ve heard this refrain before. What is left out of this hypothesis is the role of land speculation in raising housing costs – holding onto vacant and underutilized residential sites for windfall gains at resale.  Government regulations are not the only obstacle, by far.  If we prevailed on state governments to authorize changes in their property tax structures we could substantially increase the volume of building permits, as has been proven in Pennsylvania cities that have adopted a split-rate land value tax. Lower the tax rate on improvements and tax land values heavily – that will increase housing supply, and put a damper on residential land price inflation.

Tom Gihring, Research Director, Common Ground OR-WA