America’s dual housing crisis

“Part II of this article concerning housing in the Urban and affluent area of our country” Solutions, but will the politicians come together as one to repair a fixable problem????

The second crisis: housing shortages

What such an approach wouldn’t do is ease the housing pain felt by middle-class renters in the big, expensive coastal cities. Nor would it address the broader set of economic problems tied up with those housing shortages. Focusing our attention on this crisis could have large benefits — but attempting it at the federal level is fundamentally hard.

In a place like Palo Alto, California, where a modest-size vacant lot sells for $4 million, the basic logic of American housing policy has collapsed. When land is “that” expensive, a middle-class family simply can’t afford the kind of suburban house that many middle-class American families aspire to live in. Consequently, the region features an unusually large number of middle-class “super commuters” driving more than 90 minutes in each direction, and is struggling to attract and retain teachers because school teachers — unlike computer programmers — have no particular need to live in the Bay Area and would rather work somewhere they can afford a decent place to live.

It’s precise because housing pain reaches so far up the economic ladder in coastal California (along with with the Seattle and Denver metro areas and much of the Boston/New York/Washington megalopolis) that Harris and Booker like the idea of ensuring that even non-poor people facing rent burdens can get help. The problem with subsidizing the non-poor is that it would make living in California even more expensive, as landlords adjust prices in response to an injection of government money to help renters.

What’s more, the subsidy strategy takes a somewhat limited view of the real problem: the lack of homes for people to live in. After all, at root, the reason the Bay Area and the Westside Los Angeles and all the places that have convenient commutes into Manhattan are expensive is that a lot of people would like to live in these places. The people who live there and are facing exorbitant rents are one set of victims of housing scarcity, but the people who don’t live there but might like to should also be an important consideration.

That scarcity has broader effects. Wages and productivity are higher in the expensive metro areas even though higher housing prices make it in many cases not worthwhile for people to move there. But if it were economically feasible for more people to move to the highest wage areas, economists Chang-Tai Hsieh and Enrico Moretti calculated that national economic output would rise 9.5 percent. The fact that the most expensive parts of the country also generally have the lowest greenhouse gas emissions per capita is another reason to regret that more people don’t live in those places. And to get more people into those places, there would need to be more houses for people to live in, not just more subsidies.

We can overcome land scarcity

The good news is that the technology to make this happen already exists. A single-family detached home built on a $4 million vacant lot will inherently be very expensive because it contains at least $4 million worth of land. But if you make it a duplex instead, then each unit is consuming only $2 million worth of land. Done as a strip of three-floor townhouses, you could have eight one–family homes each consuming $500,000 worth of land. Modern construction methods make it very cheap these days to build a wood-framed five- or six-story apartment building (with parking and/or retail on the ground floor) and end up squeezing even more housing out of scarce land.

Nothing newly built on incredibly expensive land is going to be exactly cheap, meaning that low-income families are always going to need some form of subsidy. But even the most accessible towns and neighborhoods could be made broadly accessible to the middle class if denser building types were used. And the amount of subsidy required by low-income families would also fall. The problem is that in the vast majority of America’s suburban land — in other words, where the vast majority of people live — it’s generally illegal to build anything other than a detached single-family home. Indeed, even large swaths of reasonably dense cities like San Francisco are set aside exclusively for single-family use. Policymakers are, however, beginning to challenge this paradigm. Minneapolis recently acted to make three-unit homes (“triplexes”) legal everywhere in the city. Oregon passed a law to legalize duplexes statewide and fourplexes throughout the state’s bigger towns.

In California, state Sen. Scott Wiener successfully mobilized a large coalition of labor, business, and affordable housing advocates behind a bill that would have legalized midsize apartments across large portions of the state, but it was ultimately shot down by the state Senate president. Wiener is planning to bring back the legislation next year, but despite encouraging polling, the bill realistically may need clear support from the governor — who has made housing a signature issue rhetorically and then failed to back the most ambitious housing initiative around — to have a chance of advancing. Zoning is the quintessential local issue, and the idea of acting on it at the state level, as in Oregon or potentially California, is itself fairly radical in the American context (though commonplace in Canada, where it works fine). For the federal government to get involved would be a dramatic departure from current practice. The Obama administration’s economic policy team did talk about this problem a fair amount in their second term and proposed a modest initiative to provide technical support to towns looking to reduce regulatory barriers to housing supply. Trump’s HUD secretary, Ben Carson, has been even more vocal on the topic, though as of yet, he hasn’t really done much of substance about it.

But three of the 2020 candidates do have ideas that are supposed to tackle exclusionary zoning.

Booker’s housing plan, in addition to the subsidies, calls on the federal government to link eligibility for Community Development Block Grants (CDBG) — financial assistance that goes primarily to low-income municipalities — to zoning reforms. Carson has also floated this idea. But while it makes a certain amount of sense, it’s unlikely to really move the needle. The reason is that the CDBG program is designed to mostly target funds to low-income communities, and the communities that are most in need of regulatory reform are generally not poor.

Schuetz ran the numbers on this and found that “in California, only 17 percent of the most exclusive communities receive any CDBG funding, compared with 37 percent of less exclusive communities.” What’s more, the most exclusive California communities that do get CDBG grants are receiving very modest amounts of money — only about $5 per capita — and in even the lower-income, less exclusive communities, it only amounts to $10 per capita. In New Jersey, none of the most exclusive communities get CDBG money. This plan, in other words, would incentivize useful changes but only in a very modest way, and not necessarily in the places where it would do the most good. Elizabeth Warren takes a different approach. She proposes to create a new pool of grant money for infrastructure and other local projects to be awarded to communities that adopt land-use reforms. This is modeled basically on the Obama administration’s Race to the Top program for K-12 education, which, while controversial on the merits, was unquestionably effective in inducing policy change.

Obama was operating in the context of a historic economic collapse that produced crises in every state budget. Race to the Top was effective because stakeholders in public education systems were desperate for money. The same calculus probably won’t apply to comfortable homeowners who are happy with their neighborhood looking the way it does. But for places where land use reform already has some political momentum, the carrot of extra money could help put it over the top. Since California alone is one-eighth of the American economy and a much larger share than that of the housing problem, anything that increases the odds of success for the ongoing zoning reform effort there is actually a very big deal. Meanwhile, Warren’s plan separately calls for a big infusion of money into a federal affordable housing trust fund that would directly finance the construction of subsidized units and thus mechanically increase supply.

Julián Castro’s housing agenda, reflecting his background as a former big-city mayor and a former HUD secretary, is extremely detailed and gets into the weeds of dozens of small-bore regulatory issues. But he also proposes what would be the most ambitious federal involvement with housing in generations, including not just new money but also a Presidential Commission on Zoning Reform looping in stakeholders from across the government. Castro follows Warren in wanting to link zoning reforms to federal grant programs, but his version of this idea carries even more bite because he would include transportation grant money in the incentive program. That makes the Castro version of zoning reform, not just a carrot (though it is that) but also a stick, as jurisdictions would risk losing out on transportation money unless they change.

Does it make sense to go big on housing?

One thing all these plans have in common is a somewhat complicated structure that aims to produce policy change through bank shots. That’s because the federal government is very distant from where specific decisions about zoning approvals and permits are actually made. Most national politicians, for this reason, simply don’t have much to say about it. And even those who do want to talk about housing may be underestimating the difficulty of trying to generate change in this way. If you’re a local government that wants to encourage new construction, it’s pretty easy to simply remove rules that are blocking it. But the premise of the Booker, Warren, and Castro plans are that local governments don’t want to become more inclusive, so the federal government should offer them money to change their ways. The problem is that if you do want money but don’t actually want to change, it could be relatively easy to game the system. Imagine an affluent suburban town that’s told it needs to stop banning apartment buildings if it wants to be eligible for grant money. It duly removes the offending apartment ban but also says that new apartments must be built to the most stringent environmental standards, which drives costs way up. But then the town also says that these expensively built apartments need to have 25 percent of their units set aside to rent out at subsidized rates to low-income families.

Who could object? After all, the whole point of this was to improve housing affordability. Well, under those circumstances, apartments may be “legal” but none are actually going to be economical for developers to build. And if a 25 percent inclusionary zoning requirement isn’t high enough to block wall construction, you can always push it up to 35 or 55 percent. The point isn’t that environmental rules or inclusionary zoning ordinances are bad, but that’s it’s inherently difficult to tell the difference between a good-faith and bad-faith regulatory scheme. Having the federal government break the back of exclusionary policies would require not one law but a concerted whack-a-mole approach needing significant ongoing commitment. One view, not much articulated in housing policy circles, but expressed well by Mother Jones’s Kevin Drum, is that this whole thing is basically overblown and the housing crisis is a myth. Drum’s point is that, on average, Americans are spending about the same share of their income on housing as they’ve always been. To the extent that low-income people are having difficulties, it’s because they’re low-income, so we should give them financial assistance, but there’s no particular reason the real estate problems facing writers in a handful of expensive coastal cities should dominate the national policy conversation. That’s a valid way of looking at the situation. For the typical American, housing scarcity in the Pacific Coast and the Northeast Corridor has a pretty simple solution: live in a cheap Sunbelt metro area instead. There is no national shortage of housing — there are plenty of places to live in the suburbs of Las Vegas, Phoenix, Dallas, Nashville, and Atlanta, for instance.

The national problem, however, isn’t so much that there’s nowhere for people to live as it is that wages and productivity are considerably lower in the cheap metro areas than in the expensive ones. If housing were more plentiful in Los Angeles, San Francisco, Seattle, Denver, Boston, New York, and Washington, then a larger share of the US population would live in those higher-wage, higher-productivity cities, and thus, economy-wide wages and productivity would be higher. If you’re interested in promoting more rapid economic growth over the medium term, this is one of the most powerful levers available, and it’s almost certainly worth trying to pull it even though the logistics are difficult. But in recent years, Democrats have mostly been concerned with questions of expanding the welfare state or tackling inequality. And to the extent, those issues are the focus, housing looks more like a niche state and local issue that happens to be salient in the country’s main media and political circles. Given that even the candidates most interested in housing have also made big commitments on health care, climate change, immigration, and other topics more squarely in the federal purview, that’s likely as it should be.