Eight (unlikely and unpopular) policy options for addressing housing issues

After a recent conversation with colleagues prompted by reading together the sociological work Evicted as well as my own thinking about residential segregation, I wanted to put together a blog post summarizing possible policy solutions to housing issues. I am not optimistic but here are the possible options I see at multiple levels:

  1. Provide incentives for developers and builders. This is a common strategy across different government levels: builders and developers are given access to choice properties or are able to build higher-end housing if they build cheaper housing or provide monies that could be used for cheaper housing. A number of major cities, including Chicago, have such incentives. However, it does not seem to have made a major dent in the amount of affordable housing that is needed. I have heard that argument that governments have simply not offered big enough incentives – there is a tipping point where this could really push builders and developers to construct cheaper housing. I don’t think I buy this argument. Even though there is clearly a market right now for cheaper housing, why would builders and developers not try to build the priciest stuff they can to bring in more profit?
  2. Other market-driven solutions beyond incentives. I’m on the record here as skeptical that free markets can address issues of residential segregation and housing. Vouchers have their supporters since they theoretically would allow poorer residents to access areas of the housing market they otherwise could not. At the same time, introducing vouchers leads to other issues such as inflated prices/rents and negative reactions to those with the vouchers.
  3. Local government action. Municipal officials have a good amount of control over what can be built within their boundaries. However, they are constrained by (1) local residents who want to protect their community (examples of NIMBY in action here and here) and (2) limited budgets and revenues so they are typically trying to maximize property and sales taxes while minimizing use of social services. The biggest tool municipalities have are local zoning guidelines that often constrict what can be built (see recent suburban non-housing examples here and here). One way that wealthier areas exclude those who are not so wealthy is to not allow multi-family housing or set guidelines requiring larger lot sizes.
  4. Metropolitan action. Housing is really an issue that spans municipalities as the majority of people live in one place and commute to another for work (plus drive elsewhere for other amenities). Yet, metropolitan governance does not exist on a large-scale in the United States. Outside of a few regions, this is not a viable option: people in different communities do not have ways to collaborate nor would they necessarily want to. This is particularly true of wealthier communities. Residents would argue that this is the purpose of local government: local residents should get to make decisions about their own communities rather than handing off money and/or control to an outside body that wishes to damage their quality of life. See examples of how this can play out regarding affordable housing in one region and another involving transportation across a whole region.
  5. State governments. States could decide to impose regulations and guidelines but then they would have to overrule municipalities. This is difficult. For example, Illinois in 2004 an affordable housing guideline where every community was supposed to have a certain percentage of their housing stock within affordable limits. The guidelines could have been useful but they had no teeth and what counted as affordable was loosely defined. As this 2015 Chicago Tribune article suggests, wealthier communities did not submit to the guidelines and “Lee acknowledged that the agency has no authority to enforce the mandate if municipalities do not submit affordable housing plans.” Nothing really changed – and I’m guessing this was intentional.
  6. Federal government. Even though the United States has public housing, it was difficult to get off the ground and is not viewed favorably by many. That whole single-family homes fights communism thing plus the American ideal is everyone owning a home. Even if public housing had some successes, on the whole federal efforts have promoted white suburbs mortgages for single-family homes are subsidized. Results for federal initiatives involving vouchers, such as Moving to Opportunity, are mixed as many of the residents end up in similar poor neighborhoods and it is not clear if certain long-term outcomes such as education and employment are positively affected. Federal efforts consistently draw negative responses from conservatives. Operators in the housing industry – the National Association of Home Builders, the National Association of Realtors, lenders, and others – mobilize to protect the mortgage interest deduction and single-family homes. American Apartheid suggested we lack the political will to enforce the 1968 Housing Act and thus we still have discrimination in housing (from mortgages to real estate agents to landlords and more).
  7. The court system. Given the relative lack of action by local and state officials, housing and zoning cases do occasionally make it to state and federal courts. I argued a few years back that I could envision the Supreme Court approving inclusionary zoning (I’m not sure I still think this given the current makeup of the court). They can indeed take action and compel other governmental bodies to address issues. Some famous cases include the Gatreaux case in Chicago where a court ordered scattered-site housing and the Mount Laurel cases in New Jersey combating exclusionary zoning. The problem with these is that they require taking legal action in the first place, they can take a long time to litigate, and while the results may be compelling, they are still often viewed unfavorably and putting the changes into action are not easy.
  8. Non-profits and religious groups. Either sets of groups have limited resources – housing is a very expensive proposition on a large scale – or are more interested in other concerns. Groups like Habitat for Humanity may do good things but they can only build so many houses and not all communities or neighborhoods are welcoming to their projects. Churches, particularly big ones, could access a good amount of resources but housing is more of a structural issue that many conservative Christians may not want to get into.

All of these options are difficult to implement. On the whole, many wealthier suburbanites and urban residents do not want any kind of cheaper or subsidized housing in their neighborhoods or community.

If I had to pick two levels that provide the best opportunities, I might go with local government and the courts. Zoning guidelines are often developed by average citizens sitting on local committees. Get named to such committees and you can influence this process. The courts are a way to get around the unpopularity of introducing cheaper housing as such measure are unlikely to find broad support. At the same time, as noted above, the court route has its own challenges.

Perhaps the most daunting option in my mind is trying to influence the federal level. Does any political party talk seriously about housing? After all, one journalist captured this quote:

The former governor of the Bank of England, Mervyn King, told me this: “Most countries have socialized health care and a free market for mortgages. You in the United States do exactly the opposite.”

It will be hard to alter an entire system based on providing socialized mortgages for the middle-class and above.

More (pricey) senior housing units in the (expensive) city

Several developers are constructing luxury senior housing in Manhattan and trying to tap a new market:

Senior housing has traditionally been suburban-focused because land is so much cheaper outside cities, and developers hadn’t seen a big enough market to justify paying more, and charging more, for urban locations near transportation and nightlife, Knott said. The aging members of the massive baby-boom generation helped change their minds. Now, he said, many living in cities have the means to pay a premium to remain in familiar environments.

And many will need special care. In New York state alone, about 460,000 residents aged 65 and older are expected to be living with Alzheimer’s-related dementia in 2025, some 18 percent more than there are today, according to the Alzheimer’s Association.

To serve the wealthiest of them, senior-housing developers are taking cues from their tony-apartment building counterparts and putting extra emphasis on finishes and flourishes, to make their facilities look like the places residents left behind…

It is, of course, a rather small group of any age or mental ability that can handle the monthly rents these kinds of places will command. They’ll start at $12,000 at the complex that Maplewood Senior Living and Omega Healthcare Investors Inc. are putting up on Second Avenue and 93rd Street. Some will top more than $20,000 at the building Welltower Inc. and Hines are about to break ground for on the corner of 56th Street and Lexington Avenue.

The top 10% ages as well.

If this catches on, will it make it even harder to construct senior housing for average Americans (those who lived as adults around the median household income)?

I had a somewhat radical thought: many community leaders suggest that their residents should be able to age in their community, if they so desire. Would it be possible to set aside plots of land to be used for senior housing? The community would not necessarily have to designate what kind of housing is placed there but setting aside or zoning certain land might take away some of the market-rate pressure for land. Communities and developers regularly do this for other important uses such as parks or schools. Why not get out ahead of the aging population and make a tangible contribution to allowing senior residents to stay?

More remodeling, less moving, and uncertainty

Another trend that is the result of the current housing market: fewer people are moving and more homeowners are remodeling what they already have.

Now, according to research, homeowners are eager to hold onto the ultra-low mortgage interest rates they were able to get after the crash, and they are leery about taking a chance on a move. Many also lack the financial wherewithal to upgrade to a larger, pricier home. They own houses that haven’t recovered enough of their value in the wake of the crash to generate the down payment needed to buy a new place.

The percentage of homeowners moving up to their next home is the lowest in 25 years, said Todd Tomalak, vice president of research for John Burns Real Estate Consulting. Instead of moving, people are deciding to make starter homes permanent and are expanding and repairing them for the long term, he said…

From 1987 to 2008, homebuyers stayed in their homes six years on average before selling, according to the National Association of Realtors. The number of years homeowners expected to stay in their homes started increasing during the housing plunge and has been at 15 years since 2010…

Last year, people spent about $320 billion on remodeling — a 5 percent increase over the previous year, Tomalak said. This year, they are expected to spend $350 billion — a 9 percent increase.

Interesting data yet there are some conflicting things going on here. This raises a few questions for me:

  1. If you aren’t moving soon, remodeling can make sense. At the same time, how does the remodeling square with homeowner’s interests in making money on their home? Many remodels do not recoup the money put into them – unless people are hoping that the tight market will keep housing values going up and up.
  2. Does the same animosity some have toward big box retailers like Walmart also carry over to Home Depot and similar stores? I know some things can vary tremendously from retailer to retailer – such as wages and benefits – but all big box stores have some similar effects including knocking out local businesses (who goes to the local hardware store for all their remodeling needs?) and contributing to an automobile culture with massive footprints on commercial stretches.
  3. On one hand, fewer people moving suggests the housing market is sluggish and this may not be good for the housing industry and the economy at large. On the other hand, people staying in the same house longer means they are more rooted in their communities (combats the critique of the soulless suburbs or the image of Americans just wanting to move up) and are avoiding senseless consumerism (just chewing up new house after new house). Is this an example where the consumer driven economy doesn’t really work in the long-run? (Or, maybe enough homeowners can be convinced that they need the newest item for their home – concrete countertops! wi-fi enabled refrigerators! – that the remodeling can pick up some of the slack.)

Why might Americans be interested in the most expensive homes?

Here is one segment of the housing market that is again doing well:

Sale prices of luxury homes in the second quarter of this year were up 7.5 percent from a year ago, the first time luxury gains have outpaced the rest of the market since 2014, according to Redfin, a real estate brokerage which defines luxury as the top 5 percent of the most expensive homes sold in each city in each quarter.

While some point to the recent runup in the stock market, the real reason for the luxury recovery may be a shift in the mind of sellers. They were asking too much, and now that they’re asking less, there is more action in the market, in turn boosting prices again…

Luxury home sales have been rising steadily, causing the supply of those homes for sale to drop. Sales of homes priced above $1 million jumped 19 percent in June compared with a year ago, according to the National Association of Realtors. That was a much larger sales gain than in any of the lower price points.

The sales surge has caused a decline in the supply of luxury homes. Listings at or above $1 million fell 9.4 percent compared with the same period last year, according to Redfin. Those priced at or above $5 million were down about the same. This after five consecutive quarters of double-digit inventory growth.

This change in the luxury market is unlikely to help many Americans though a number of these expensive properties get a lot of media attention. Come to think of it, what exactly is the purpose of media outlets regularly showing expensive homes? Here are a few options:

  1. This could be the curiosity of the masses regarding the practices of the wealthy. How does the other half (or top 10%) live?
  2. Or, is it intended as a critique of the well-resourced by holding up their lavishness up for public display? Look at those wealthy people with their ostentatious homes.
  3. Alternatively, might it encourage class conflict and social change since these expensive homes are out of reach of most Americans? For the many Americans who struggle to find decent housing, highlighting the luxury of the wealthy might serve as a reminder of the distance between groups.
  4. At the least, such regular stories might display the important place real estate and homeownership play in American wealth. It is one thing to own financial instruments but another to purchase more tangible items like property and housing.

This all might be different if the housing market as a whole was booming, particularly if the lower end of the market with smaller homes or starter houses was growing. I suppose this could be a research question: during periods of rising economic boats for all (such as the several decades after World War II), are there fewer media stories on homes and properties of the wealthy compared to homes for the average person?

“Tiny Houses Are Big” – with 10,000 total in the United States

Tiny houses get a lot of attention – including this recent Parade story – but rarely are numbers provided about how big (or small) this trend really is. The Parade story did provide some data (though without any indication of how this was measured) on the number of tiny houses in the US. Ready for the figure?

10,000.

Without much context, it is hard to know what to do with this figure or how accurate it might be. Assuming the figure’s veracity, is that a lot of tiny houses? Not that many? Some comparisons might help:

Between February 2016 and March 2017, there were over 1,000,000 housing starts in each month. (National Association of Home Builders) Within data going back to 1959, the lowest point for housing starts after the 2000s housing bubble burst experienced about 500,000 new housing starts a month. (Census Bureau data at TradingEconomics.com)

The RV industry shipped over 430,000 units in 2016. This follows a low point of shipments in recent years back in 2009 where only 165,000 units were shipped. (Recreation Vehicle Industry Association)

The number of manufactured homes that have shipped in recent years – 2014 to 2016 – has surpassed 60,000 each year. (Census Bureau)

The percent of new homes that are under 1,400 square feet has actually dropped since 1999 to 7% in 2016. (Census Bureau)

Based on these comparisons, 10,000 units is not much at all. They are barely a drop in the bucket within all housing.

Perhaps the trend is sharply on the rise? There is a little evidence of this. I wrote my first post here on tiny houses back in 2010 and it involved how to measure the tiny house trend. The cited article in that post included measures like the number of visitors to a tiny house blog and sales figures from tiny house builders. Would the number of tiny house shows on HGTV and similar networks provide some data? All trends have to start somewhere – with a small number of occurrences – but it doesn’t seem like the tiny house movement is taking off in exponential form.

Ultimately, I would ask for more and better data on tiny houses. Clearly, there is some interest. Yet, calling this a major trend would be misleading.

 

Higher home values may be good for many yet reduce the number of new homeowners

Rising home values are often seen as a good thing as homeowners dream of seeing a strong return on their housing investment. Yet, these higher values may just discourage renters from buying a home:

Renters are avoiding buying a home mainly because house prices are soaring. Just 52 percent of renters surveyed in a National Association of Realtors quarterly report said they feel now is a good time to buy — that is down from 62 percent of those surveyed one year ago…

More owners, 71 percent, think selling is a good idea today, up dramatically from 61 percent a year ago. There is so little supply on the market that homes are selling at the fastest pace on record. Great, if you’re a seller, but it begs the question: Why are so few homeowners listing their homes?

“They’re either content where they are, holding off until they build more equity, or hesitant seeing as it will be difficult to find an affordable home to buy,” said Yun. “As a result, inventory conditions have worsened and are restricting sales from breaking out, while contributing to price appreciation that remains far above income growth.”

Affordability is the culprit for both current renters and homeowners. Less than half of all respondents said homes are affordable for buyers. Of course, there are regional differences, with more saying homes are affordable in the Midwest and less saying so in the West.

The housing market often swings back and forth between buyers and sellers. Yet, we have several longer-term problems at play here:

(1) New homeowners having difficulty entering the market (coming off a burst housing bubble with fewer financial resources, millennials with other financial commitments, etc.).

(2) Perhaps shifts in how many younger Americans want to buy the same kinds of homes that are available (though some of this may be overblown).

(3) Housing prices for starter homes or entry-level properties that are too high in several high-demand metropolitan areas (Bay Area, New York City, southern California).

(4) Available credit and homes for those with more financial resources but fewer options for those with less.

In other words, the normal swing of the pendulum between buyers and sellers might not be enough to put the housing market back to rights.

Relatively few houses to buy

The supply of homes for sale is low:

The national supply of homes for sale hasn’t been this thin in nearly 20 years. And over the past year, the steepest drop in supply has occurred among homes that are typically most affordable for first-time buyers and in markets where prices have risen sharply.

In markets like San Diego, Boston and Seattle, competition for a dwindling supply has escalated along with pressure to offer more money and accept less favorable terms…

About 1.75 million homes were for sale nationally at the end of February, according to the National Association of Realtors. That’s down 6.4 percent from a year earlier and only slightly up from January, when listings reached their lowest point since the association began tracking them in 1999. All told, the supply of homes for sale has fallen on an annual basis for the past 21 months….

Despite the scant supply, U.S. home sales are expected to rise this year, economists say. Fueled by job growth, pay raises and still-low loan rates — and perhaps fearful of being left out as more homes are snapped up and prices rise further — many people are looking to buy.

There are certainly downsides to a low supply of homes, particularly for those with fewer resources. At the same time, the opposite end of the market – a lot of homes on the market – negatively influences sellers. This leads me to a question: (1) how often do we reach an equilibrium in the housing market and (2) how long can such a relatively good balance last once it does occur? In all three cases there is something report on as the pendulum swings between buyers and sellers.