Affordable Housing is a Political Choice

Affordable Housing is a Political Choice

Local and national housing policies have squeezed affordable housing out of the market. Learn why change is needed & how we can improve housing policy.

Affordable housing is a political choice
Published October 1, 2020

Roadblocks to Afforable Housing 

Affordable housing is a political choice. Local and national housing policies have squeezed affordable and attainable housing out of the market. Since the Great Recession of 2008, homebuilders and developers have faced roadblocks at nearly every turn when trying to build shelter products that are affordable for the buyers below the median income.

The U.S. Is Facing a Severe Housing Crisis

The United States may be facing its most severe housing crisis in history. It has been declared in articles in Foreign Affairs and Bloomberg recently. Home Builders have known that this was developing since the end of the Great Recession. Federal government restrictions have largely engineered this shortage.

These restrictions respond to a phenomenon called the "HomeVote," a term coined by William Fischel.[1] HomeVote drives up home values for those that are already homeowners. These homeowners are motivated to stop growth in order to limit supply and accomplish their objectives by being vocal at city council meetings and the ballot box. Those of us in the home building industry call it by the acronym NIMBYism (Not In My Back Yard). Americans tend not to support building more homes near their own.

Government Affordable Housing Schemes Fail

Most local governments are reactionary to solving housing issues, stumbling along the way with ill-conceived programs, thus ineffective. I will describe two here and then highlight a deregulation program in the Texas state capital that is working.

Prominent government efforts in two major cities are failing in different ways to provide. Chicago's inclusionary housing plan produced only 1,000 homes in 13 years. Meanwhile, the city's affordable housing shortfall has surged to 120,000 homes.[2]

In Sacramento, the city is converting a 134-unit dilapidated hotel into rooms for the homeless. The cost: $59.6 million or $445,000 per a 250 square-foot unit in a region that a home with 1,600 square feet sells for $425,000.[3] A rather stupid move considering that there are far more effective ways to support the homeless population with $59.6 million.

On a bright note, Texas' decision to waive regulations for affordable housing shows results in Austin. The "Affordability Unlocked" Development Bonus Program waives or modifies some development restrictions in exchange for providing low- and moderate-income housing. The program's objective is to increase Austin's number of affordable housing units in development and fully leverage public resources by allowing housing providers to build more units in their developments when they include significant amounts of affordable housing. In return for setting aside half of a development's total units as affordable, bonuses include height and density increases, parking and compatibility waivers, and reductions in minimum lot sizes.[4]

Lumber Tariffs and Labor Shortages

Lumber shortages have driven prices to record highs in July, increasing more than 80% since April. The National Association is demanding the White House to play a constructive role to alleviate this growing threat to housing and the economy. Specifically, they want domestic lumber producers to ramp up production to ease growing shortages and make it a priority to work with Canada on a new softwood lumber agreement that would end tariffs averaging more than 20% on Canadian lumber shipments into the United States. [5]

The labor shortage in the home building sector has been growing since the end of the Great Recession. It continues to be acute, driving up cycle times and increasing costs. Despite the COVID induced high unemployment, we have not yet seen restaurant workers enter the construction trades. Perhaps the extended benefits of the CARES Act have limited this shift in the labor field. Nothing has been done on immigration reform that would help alleviate the labor shortage. Again, we see government policies that limit the production of housing.

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Home Builders Will Focus on Profit, Not Volume

With so many roadblocks blocking new home construction, home builders will likely focus only on the most profitable opportunities and not chase volume or market share.

Recently, Lennar highlighted its earnings call that it plans only for 10% growth next year, a relatively modest goal considering the market's housing shortages. The nation's giant homebuilder will focus on profit margins and debt pay-downs. It is a rational, conservative strategy in a cyclical industry. If other large national home builders follow this strategy, the housing shortage will only get worse.

Since the last recession, the large builders have found the financing and expertise to get land entitlements despite zoning and approval difficulties. Smaller builders have lost market share as industry consolidation continues.

A Challenging Environment

Americans are desperate for more homes. However, the environment is challenging to ramp up housing production. The industry is cautious. The structural challenges described are foreboding, from zoning restrictions to community opposition to increasing materials costs to labor shortages.

American politicians need to pay close attention to social unrest developing from this housing shortage. The government must play a more active role in removing these roadblocks and providing incentives to expand production to meet the market needs.

Sources

[1] https://www.hup.harvard.edu/catalog.php?isbn=9780674015951

[2] Chicago Real Estate News, “Chicago affordable housing program has failed, report finds”, By The Real Deal Staff, September 15, 2020.

https://aaronleiderrealestate.wordpress.com/2020/09/15/chicago-affordable-housing-program-has-failed-report-finds/affordable-housing

[3] Sacramento Bee, “These tiny apartments for Sacramento homeless will cost more to build than a luxury house”, By Matt Kreiser, September 15, 2020. https://www.sacbee.com/news/local/homeless/article245547415.html

[4] https://www.austintexas.gov/department/affordability-unlocked-development-bonus-program

[5] http://nahbnow.com/2020/08/nahb-seeks-white-house-action-on-soaring-lumber-prices/

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Jeff Whiton Housing Tides Research Team Member

About Jeff Whiton

Jeff formerly headed operations for Lennar and KB Home in Colorado building nearly two per cent of the state’s total single-family housing stock. He was honored as Colorado’s Home Builder of the Year in 2001. Whiton also served as the CEO of the Home Builders Association of Metro Denver for eight years reviving the association from near bankruptcy after the Great Recession.

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