Housing supply

Dysfunctional policies broke the US housing supply chain

Long before the COVID-19 pandemic made supply chain issues a topic of table conversation, the United States was already grappling with failing production systems in a key industry: housing.

The United States has failed to build enough housing to meet the demand created by population and job growth since the Great Recession, and even earlier in some parts of the country. The shortfall is especially apparent in metropolitan areas with an abundance of well-paying jobs and amenities; places where many people want to live consistently build too little housing. For example, the San Francisco Bay Area added just one unit for every seven new jobs created between 2010 and 2015, while rents increased by more than 40% over the same period. Similar patterns can be seen in cities: affluent, well-equipped neighborhoods such as Georgetown in Washington, DC, Greenwich Village in New York, and Hancock Park in Los Angeles have added minimal housing over the past 30 years.

In my new book, Fixer-Upper: How to Repair America’s Broken Housing Systems, I show that anemic housing production in high-opportunity locations is not primarily due to container ships with lumber saved outside ports or a “great resignation” among construction workers. . On the contrary, policies that regulate land use and housing production make it extremely difficult to add housing in desirable locations. In every state in the country, it is illegal for a landowner or developer to build new homes (or alter or demolish existing homes) without the explicit approval of the local government. And the people who already live in these places are using a variety of legal and political tools — zoning laws, historic preservation, environmental regulations and direct lobbying by elected officials — to block attempts to build more homes.

It is understandable that current residents want the opportunity to share their concerns about changes in their neighborhood; adding homes and people can increase demands on local schools, roads and parks. But giving existing residents, especially long-term owners, veto power over new developments creates economic, social and environmental costs that are borne by the rest of society. Researchers estimate that restrictive land use regulations slowed U.S. GDP growth by about 36% between 1964 and 2009. Indeed, businesses in high-cost regions are struggling to hire and retain workers, which limits potential growth and innovation.

And these costs are not equitably shared. Restrictive zoning in affluent, predominantly white communities limits the economic mobility of low- and middle-income households, while reinforcing economic and racial segregation. About 10 million tenant households spend more than half their income on housing, leaving them with too little money for food, healthcare and other necessities. Black, Latino, or Hispanic and Native American families are more likely to live in areas more prone to floods, fires, extreme heat, and other climate hazards, reflecting longstanding discrimination in markets real estate.

While land use regulations are the most obvious factor in our dysfunctional housing system, a number of other policies interact to reinforce poor outcomes. Reflecting federal tax code subsidies, home equity is the primary financial asset of middle-income households; these owners are therefore financially and personally motivated to fight against changes in their neighborhood that they perceive as threats to the value of their properties. And local governments rely heavily on property taxes to pay for public services like schools and parks; many localities are therefore reluctant to approve small, moderately priced houses that they believe will create greater demand for services than the tax revenue they generate (although the actual tax impacts are often more complicated).

The flip side of our failing housing system is that the United States has built — and continues to build — too many homes in the wrong places, environmentally. People who have jobs in downtown Los Angeles but can’t move to nearby neighborhoods like Hancock Park are being pushed to distant but cheaper neighborhoods like Pacoima or Riverside. This isn’t just a problem for overpriced households – longer journeys lead to increased greenhouse gas emissions and environmental damage for the entire region. Expanding housing supply through sprawling single-family subdivisions on the urban periphery rather than through infill development within existing neighborhoods has increased the number of people and homes living in environmentally risky locations, including areas prone to wildfires in the West.

What can be done to fix this broken housing system and increase housing availability and affordability in high-demand locations, mitigate climate impacts, and expand access to economic opportunities? The poor results result from complex interactions between federal, state and local policies. Therefore, achieving better results will require substantial policy changes at all levels of government.

Local governments should reform the rules governing housing production, to allow various types of housing at a wider price range in each community. State governments play a vital role in overseeing localities and could create financial carrots and sticks that nudge localities toward pro-housing reforms. The federal government should extend direct financial support to low-income households; enabling everyone to live in decent, stable and affordable housing should be a fundamental principle of a strong social safety net.

The main obstacle to fixing our broken housing system is not the absence of good political ideas, but tough, mean politics. Those who benefit from the status quo, including many middle- and upper-income homeowners, are understandably reluctant to allow changes. Those with the most to gain from change (younger households, particularly tenants) are underrepresented among elected officials, often face barriers to political participation, and have yet to build sustainable coalitions around common political goals. The nascent pro-housing movement is beginning to win small but tangible legislative victories at the local and state level, from Minneapolis to Raleigh, North Carolina and from Massachusetts to Utah. However, it remains unclear whether these victories translate into momentum for larger-scale systemic reforms.