On Monday, we wrote about broad-brush strategies states could adopt to increase their housing stocks.
“Those might include decreasing limits on lot sizes, making down payment assistance programs more generous, encouraging more multi-family developments, changing zoning laws to allow more manufactured homes, and scrapping bans on some construction techniques,” we wrote.
The effects of those should be:
- Easing the path to homeownership for first-time buyers
- Making renting more affordable
- Reducing homelessness without blowing state and city budgets
Also on Monday, the Terner Center for Housing Innovation at UC Berkeley unveiled three white papers that it had written in collaboration with the National Housing Crisis Task Force and other research institutions. And they fill in some details about possible reforms.
The Problem
In April, the White House Council of Economic Advisers suggested that the U.S. was short some 10 million homes, according to PBS. It based that on how many homes were being built before the 2008 credit crunch and the subsequent Great Recession. If we’d kept up the pre-2008 pace of construction, we’d have 10 million more homes than we currently do.
“The analysis notes that home prices have risen 82% since 2000, while incomes are up just 12% — a mismatch that had been masked for a period by historically low mortgage rates,” PBS reported. “But when rates jumped with inflation in the aftermath of the pandemic [and now with the Iran war], monthly mortgage costs also rose for buyers and affording a home, a signifier of middle-class status, became a top concern for voters under 40.”
White House economists suggested states and local governments should slash the regulatory costs associated with home building. And they recommended reducing federal funding for those who fail to comply.
Most economists take a less pessimistic view than the White House’s. For example, last year, Goldman Sachs said, “At least 3-4 million additional homes beyond normal construction need to be built to address the shortage in US housing supply and boost affordability, according to Goldman Sachs Research.”
The Terner Center’s White Papers
Planning
The first of the center’s papers is The Role of States in Planning for Housing in the 21st Century. It addresses the role of land-use regulation in constraining the supply of housing.
It argues that states have largely devolved their planning powers to city and county governments, and that it’s time for states to reclaim some of those powers.
We suspect that, too often, uber-local politicians are in hock to vested interests and small groups of wealthy and powerful residents who wish to see “their” cities and areas built in their own image.
The paper suggests that states can set planning targets for cities and counties, and failures to meet those can result in enforceable penalties.
Factory-Built Housing
The second white paper is Catalyzing Factory-Built Housing: Policy Themes Across Four State Ecosystems. This argues: “As the United States faces a persistent housing shortage, factory-built housing (FBH) offers a potential pathway to reduce development costs and shorten timelines, but scaling the industry requires coordinated state-level policy action.”
FBH homes are different from manufactured homes. The latter were once known as mobile homes or trailers and traditionally came with a steel chassis that allowed them to be towed. However, the U.S. Department of Housing and Urban Development is proposing changing the specs for these homes.
Unlike manufactured homes, FBH homes are, upon completion, indistinguishable from traditional site-built (or “stick-built”) homes. They arrive on site as factory-made modules that slot together to make a fine house. And, in some ways, they are superior in quality to conventionally built homes.
“Research from the … Terner Center highlights that IC [industrialized construction] and FBH have the potential to reduce hard costs by 10–25 percent and construction timelines by 20–50 percent when the right conditions are met: experienced construction teams, standardized designs, and a stable demand pipeline,” says the paper. “To facilitate these outcomes, states and regions can implement coordinated policy actions to remove key barriers and build a sustainable FBH market.”
Relationships Between Federal and State Governments
The third white paper is Remaking Housing Federalism for a New Era. It notes that financing and consumer protections are largely a function of the federal government, while land use has been devolved to states — and by them to local governments.
“The paper argues for restoring the federal government’s role as a valued, trusted and indispensable partner. But it also contends that states, localities and the private and civic sectors must realize their full potential as catalysts of housing production and preservation,” says the National Housing Crisis Rask Force, which authored this particular white paper.
“To that end, it recommends a series of governance reforms at the state and local levels to enable collaborative efforts within government and across sectors, align with metropolitan housing markets and, most importantly, create a National Housing Solutions Exchange to accelerate the diffusion of innovative practices and policies, taking the ‘best to the rest.’”
Downsides to More Housing
There are no simple solutions to the housing shortage. But ideas like these can ease a scarcity problem that has created an affordability crisis for homeowners and renters alike.
Unfortunately, the changes proposed by many commentators come with downsides as well as upsides.
For example, green energy housing standards might benefit residents through lower utility bills, as well as relieving pressure on the environment. But they also add to construction costs.
Meanwhile, building enough homes to restore the balance between incomes and housing costs will help millions to more easily afford to shelter and feed their families. But it would also likely reduce some of the $17.9 trillion in home equity that homeowners currently enjoy.
Nothing’s easy or cost-free. But one thing’s for sure: We can’t go on as we are.
