Blame local zoning, not Wall Street, for this housing crisis

I’ve been hearing a lot about how Wall Street is primarily to blame for our dramatic rise in housing costs. Yes, it’s easy to blame Wall Street for everything, but in this particular instance, it’s neither productive nor based in fact.

The reality is that there’s been a shortage of housing options for low income households in this country for decades. Nickel and Dimed was written by journalist Barbara Ehrenreich in 1998, and is essentially a book about housing, examining how hard-working, low-wage individuals in multiple U.S. markets struggle to survive,? because there is no access to housing on the wages people are earning.

Sound familiar? It should. And the sad truth is we’re worse off today than we were two decades ago.? Sure, wages have increased recently… but still not nearly enough to catch up or keep up with rent growth.

I also stumbled across this HUD guidance recently:

To increase the production of housing and lower its cost, all State and local legislatures should enact legislation providing that no zoning regulations denying or limiting the development of housing should be deemed valid unless their existence or adoption is necessary to achieve a vital and pressing governmental interest. Unless a locality can demonstrate that there is a vital and pressing governmental interest associated with the density of development, the market mechanism should be allowed to function without density constraints. Only in this manner can the market respond to economic realities and changing household preferences.

Pretty exciting, right!? Considering that 73.5% of households are composed of only 1 and 2 people, while only 12.5% of housing stock are studio and 1 bedroom units, there’s no question that this HUD guidance would unlock new supply and improve affordability. Too bad this notice was actually from Reagan’s commission on housing…39 years ago. Frustrated with the pace of change yet???

Regardless of your political affiliation, anyone willing to look at historical data can see the massive housing supply/demand imbalance that has existed for low-income workers for decades.

Even as I write this, I’m so tired of saying it yet again. I know everyone in the affordable housing industry feels the same way. Let me be clear: discriminatory and nonsensical local zoning is undeniably the root cause of our housing crisis. For the people in the back: don’t blame Wall Street, blame your local zoning.??

Local zoning deliberately limits supply

Let me lay out how local zoning is the root cause of the problem.

Is there a lack of land? No. Are there a lack of builders or housing providers? No. Are these builders having difficulty accessing capital? Definitely not.

Now, if every single family homeowner in the country split their house in half, would that increase the amount of housing available? Yes. If we all built an accessory dwelling unit in our backyards, would there be more supply? Yes. If the guy building the McMansion next door converted that home into a duplex or quad? Yep.

Let’s dig into that last one, since most people don’t. The builder constructing that McMansion next door who most of the neighborhood views as a greedy, nasty developer could actually make more money by dividing it into a duplex or a quad… making housing both more affordable to the end user and more profitable for themselves.? Let that sink in for a second.?

So why doesn’t this happen? Because it’s not allowed to happen.

Current zoning laws, neighborhood covenants and NIMBYs are preventing it from happening. Just about everywhere.

Increasing density equates to increasing supply. It’s really that simple.

We’ve had the same problem for decades. It’s come to a breaking point these last couple of years, contributing to a labor shortage as well. You’d think that would be enough to move the needle. But it’s not. NIMBYism is growing (hello: Dave Chappelle). There are even some jurisdictions banning the idea of unrelated roommates altogether.

So I’ll spell it out. Again. For policymakers: if you want to increase housing supply and affordability, the solution is to increase supply and access. I’m oversimplifying a bit, yes, and changing local zoning may not solve 100 percent of the problem but it’ll get you three-fourths of the way there, and is sure as heck the best place to start.

It makes zero sense how in most jurisdictions, a 10k sf home is limited by the same rules for how many people can live in the home as a 1k sf home. It makes zero sense how a 3k sf home can take up the same amount of land if it was split into a quad but a quad isn’t allowed. The road, the sewer, the public infrastructure already exists and the builders would already have a financial incentive since they’d earn a higher profit margin on more less expensive units rather than fewer large expensive ones.

There aren’t many examples in the U.S. where local zoning policies are unrestrictive. One bright spot, however, is the City of Houston. It’s the fourth-largest U.S. city in terms of population, but its rents have not skyrocketed at the same rate as others. In fact, according to one report, Houston ranks 52nd in terms of the average rent for a one-bedroom apartment. This is partly due to the fact that Houston doesn’t have zoning laws, making it far easier to build than most metropolitan areas. Don’t get me wrong, supply issues exist everywhere, but the market is significantly more affordable compared to other cities of its size.?

Zoning is the main problem

It’s just so mind boggling that we’re still allowing outdated, blatantly discriminatory policies on definitions of “family” to dictate how many people may live legally in a home… in opposition to all the economic and social objectives we supposedly support as American ideals.?

So, if you want to find the source of blame as to why our housing supply is limited and prices are out of control, don’t waste your time on Wall Street. Instead, call your neighbors and your local elected officials about removing barriers to housing production and better using the land and space we already have.