The journey from cities to car-oriented suburbs was once a given, a rite of passage that marked the transition for some Americans, especially affluent ones, from youth to adulthood. But no longer. Americans increasingly prefer to live in walkable communities in either cities or suburban towns, with jobs, retail, parks and other amenities just a stone’s throw from home.

Yet many people who are searching for their ideal living situation come up empty handed, especially in suburban communities within short commuting distance of major metropolitan areas. There just isn’t enough diversity in housing choices to meet the growing demand for centrally located mixed-use development.

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The reasons behind the gap between supply and demand are varied. The desire to remain constantly connected has fed younger workers’ fast-growing preference for commuting by mass transit. Millennials are marrying and having children later than previous generations, at the same time that their baby boomer parents are retiring and looking to downsize to smaller, more convenient homes.  Local zoning codes in many places haven’t been updated to reflect evolving social patterns and new family structures.

Yet one cause of the shortage is often overlooked. An arcane set of federal housing rules prevents the private market from creating enough housing in these sought-after walkable communities.

The Department of Housing and Urban Development (HUD), Fannie Mae and Freddie Mac all limit the share of nonresidential space and income allowed in properties receiving federal loans. The caps were designed in the wake of the Great Depression, with the idea that a large number of stable residential units served as insurance against riskier retail and office space situated on lower floors. The policy effectively make it impossible to build or renovate low-rise, three- and four-story buildings that mixed housing with retail or offices, because there simply wouldn’t be enough residential floor space to qualify for financing.

The rules perhaps made sense 50 years ago, an era when Americans often looked for homes in neighborhoods that were entirely residential. Today, however, many people want to live within walking distance of a store, a school or a train station, whether in a conventional urban setting or near a suburban main street. In a recent Urban Land Institute survey, 50 percent of respondents said walkability is either a top or high priority in where they would choose to live. In fact, these communities are so popular that loans to development projects in mixed-use neighborhoods now default at a lower rate than those in residential-only neighborhoods.

Yet without the secondary market Fannie and Freddie deliver, many viable mixed-use, low-rise projects never get off the ground, or past the banker. With demand so high, these dusty rules have had the effect of driving up rents and prices for what does get built.

The restrictions are especially damaging to poor and moderate-income low-rise neighborhoods, many of which have long suffered from neglect. The caps make it harder to rehabilitate buildings and reinvest in the deteriorating main streets. A change to the loan regulations could encourage mixed incomes and mixed use, the type of neighborhoods that expand opportunity and improve quality of life.

The benefits of walkable communities have become increasingly clear. Cities such as Washington, D.C., New York, Boston, San Francisco, and other walkable cities across the U.S. have an average 38 percent higher per capita gross domestic product (GDP) than non-walkable cities. People who walk more and drive less tend to have lower rates of obesity. Walkable communities lead to lower automobile use, and less pollution from cars.

The federal government could improve housing choices and remove barriers to investing in existing communities by simply updating the rules. No new law or budget is needed.

Recent small changes by HUD and new Fannie and Freddie programs go in the right direction, but are too limited to allow either small or large developers to meet the demand for walkable communities.  The Obama administration should remove the unnecessary barriers to housing creation, and bring development policy into the 21st century. It would be a quick fix with lasting impact. 

Leinberger is president of LOCUS: Responsible Real Estate Developers and Investors. Wright is president of Regional Plan Association.