The perennial issue of affordable housing has become particularly critical of late, with rising rents and house prices and higher interest rates making it harder to sustain a mortgage. The Biden administration responded with a five-point agenda. Some of its elements have merit, but from a practical point of view it will do little to make housing more affordable.
Affordability certainly deserves attention. The whole housing market is going the other way. Realtor.com reports that average rents nationwide have increased about 17% over the past 12 months. The Case-Shiller home price index shows an increase of almost 20% during this period. The prices of construction materials increased by approximately 19.2% and the cost of construction services jumped by approximately 18.1%. Mortgage rates were below 3% a year ago. They currently stand at around 5.5%. The National Association of Realtors’ affordability measure tracks a 9.3% decline over the past 12 months.
Here are the five points of the White House program and the limits of each:
First on Biden’s list are zoning and land use. This is a good place to start. Zoning — like restrictions on multi-family units — often keeps housing prices high. These barriers to construction have been largely responsible for skyrocketing home prices in places like San Francisco and Berkely, California. Rent control in New York and other cities across the country is responsible for landlords’ resistance to renovating and expanding the availability of existing structures and why residents continue to keep huge apartments off the market when they might otherwise be downsizing. Restrictions against multi-use arrangements in existing buildings have also dampened what might otherwise provide cheap housing supply.
But as important as zoning and land use are, there’s not much the federal government can do in these areas. Most of these rules are set at the local level. Washington cannot simply order states and cities to change their laws, much less apply them in different ways. Meanwhile, local politicians still face considerable resistance to change. Zoning changes are frequently met with backlash from residents and existing business interests. They reject high-rise buildings because they will alter the nature of the neighborhood and hurt the property values of those already in place. Low-cost housing often faces resistance on a not-in-my-backyard (NIMBY) basis. Those who resist are also often big donors to local politicians. It’s simply unrealistic to expect a mayor or city councilors to cross paths with their big donors just because Washington thinks it’s a good idea.
It is also far from clear how the White House would implement the second and third points of its program: to increase financing options for non-traditional construction, such as manufactured housing, and to improve the coordination of housing financing programs. multifamily. Much of this is beyond Washington’s power to influence, especially in the absence of major legislation. While there are federal multi-family funding programs and better coordination would no doubt help spur construction, such efforts should be robust enough to overcome the notorious tendency of Washington bureaucracies to move slowly and jealously guard their prerogatives.
The fifth part of the White House plan aims to address labor shortages and high material costs. The plan language here is vague at best. It’s unclear, for example, how the White House plans to find more construction workers. There is no mention in the plan of grants and training. He mentions the promotion of modular and prefabricated housing, as well as the sponsorship of research into labor-saving construction technologies. But even if such an effort could result in a good idea, it’s unclear how Washington could get the country’s highly fragmented construction industry to embrace it. As for material costs, one clear area where Washington could help is to allow low-cost Canadian softwood lumber into the country, but the plan is silent on this.
Affordable housing remains a pressing issue for millions of Americans, especially as housing seems to be becoming less affordable every day. If any of the White House proposals are helpful, it would make little difference and will certainly take longer to take effect than most would like.
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Post expires at 8:37pm on Friday June 24th, 2022