Is this the beginning of the end of America’s housing crisis?
As the new decade kicks off, there are finally some signs that America’s housing crisis might be starting to abate. Recently, the Department of Housing and Urban Development (HUD) published an update to its Affirmatively Furthering Fair Housing (AFFH) rule. It will ease the onerous restrictions on localities seeking federal funding, instead encouraging municipalities to allow more housing to be built, increasing affordability. Furthermore, more states are now following California’s lead in making it easier to increase housing options by preventing localities from adopting restrictive zoning rules that often make building additional housing next to impossible.
These developments will not only ease the financial pressure on Americans already living in high-cost urban areas but also help put the American Dream within reach for the millions of families living in economically depressed areas across the country. These changes make it easier to access opportunities that astronomically high housing costs currently render out of reach. Restrictive zoning laws, regulations requiring minimum lot sizes, lengthy environmental review requirements and other land-use restrictions have served to artificially inflate the costs of housing for years, particularly in the nation’s prospering cities. They do so by severely restricting the amount of new housing that can be built as populations increase. This has made accessing opportunity even tougher and is a major part of why so many Americans seem to be stuck in place.
The nation as a whole has largely recovered from the financial crisis. But the recovery has been deeply geographically uneven, with urban areas experiencing high levels of population growth and new business formation while rural areas remain much more economically stagnant. Research from the Economic Innovation Group (EIG) notes that “highly populous counties—those with more than 500,000 residents—were far more likely to add businesses above and beyond 2007 levels than their smaller peers.”
Prosperous zip codes added more than 180,000 new businesses between 2012 and 2016, while distressed zip codes lost 13,300 businesses during that period.
Unfortunately, the disparity between the nation’s expensive, largely urban areas and lower cost, typically rural areas extends beyond just employment opportunities. A recent report from the Joint Economic Committee’s Social Capital Project found that zoning and home prices (even within cities) have a dramatic effect on educational opportunities. According to the report, “the average U.S. ZIP code associated with the highest quality (A+) public elementary school has a 4-fold ($486,104) higher median home price than the average neighborhood associated with the lowest quality (D or less) public elementary schools ($122,061).” Because education is such a foundational building block for future economic success, it is imperative that localities ensure housing options for all income levels.
Given the importance of both economic and educational opportunities, the recent change in the HUD rule and in state policies that encourage the building of more housing are desperately needed steps in the right direction. By eliminating the requirement that localities submit detailed plans to HUD outlining how they intend to build affordable housing in expensive areas as a way to undo the results of past discriminatory housing policies, Secretary Carson has made clear that he trusts the decisions of local leaders and is far more concerned with increasing the overall supply of housing. In California, where average home prices are 250 percent above the national average, lawmakers’ efforts to ensure that homeowners are allowed to build Accessory Dwelling Units (ADUs) will make it easier to add more housing in localities across the state. There are still problems to be addressed if California’s housing crisis is to be solved. But this is a significant step forward that other states should emulate.
Ultimately, the lack of affordable housing across much of the country is a problem from which America can only build its way out. A functioning housing market where supply is allowed to meet demand is still a ways off. But reaching that goal is an essential step to ensuring that the next generation of Americans have the opportunity to live their American dream.
Ben Wilterdink is director of programs at the Archbridge Institute, a Washington, D.C.-based think tank focused on economic mobility.