Trump administration pushes housing deregulation

A look at the Trump administration’s approach to homelessness includes this summary of how they view housing more broadly:

Housing deregulation is probably the core of the report outlined by the Council Advisors. That lines up with the Trump administration’s overall position on housing—from Carson’s enthusiasm for breaking up exclusionary zoning to the housing plan that the Domestic Policy Council is drafting. Trump signed an executive order establishing a White House Council on Eliminating Regulatory Barriers to Affordable Housing in June.

While making it easier to build housing could ease the affordability crisis, it may be hard to achieve those reforms, Hanratty says. Several of the Democratic Party primary candidates have outlined housing plans with various strategies to promote new construction, but all of them would require sweeping new legislation. And in practice, deregulation might not produce housing that is affordable to very low-income families or people with substance-abuse or mental-health afflictions without subsidies.

This is a common conservative argument to make these days: the housing market needs to be a more free one with less interference from local governments as well as the federal government. Attempts at more explicit intervention – such as in public housing – have not proved popular. If the law of supply and demand could simply take over, the market would provide housing options for all.

However, this may not work as intended. The suburbs, a space seen as desirable by many Americans was not the result of free markets but rather the result of all sorts of social and government interventions. Would Houston’s growth without zoning look attractive for communities around the country? Without any regulations, developers and builders may have little incentive to build cheaper housing and instead pursue units that provide more profit.

Finding some middle ground where specific and limited interventions actually lead to more affordable housing will prove difficult. Without some negative consequences for communities and housing market actors who do not participate in providing cheaper housing, what can be done?

Rebuilding beachfront McMansions

A journalist argues the construction and reconstruction of large homes near Atlantic beaches is a losing proposition in the long run:

Through federally funded flood insurance, huge appropriations for beach nourishment projects, and generous, well-intended relief aid, government policy allows developers and wealthy investors to build huge houses and hotels on beachfronts and low-lying barrier islands at high risk from coastal flooding as well as hurricanes. Uncle Sam’s generosity makes it all possible…

Writing just as the extensive damage from Hurricane Florence became apparent, Gaul covers the waterfront, so to speak — from Hurricane Katrina to South Florida, to the halls of Congress. In North Carolina, he stops Down East in Columbia, Creswell and other towns of North Carolina’s “Inner Banks,” where rising water levels and flooding are washing away entire communities…

According to Gaul, things began to tip in the 1980s, when multistory “McMansions” began to supplant the simple Cape Cods. (A similar trend has transpired on the north end of our state’s Outer Banks). Disasters such as the Ash Wednesday flood of 1962 did little to discourage development. On the contrary, real estate dealers saw storms as “clearing the market,” blowing down older, ramshackle structures and making way for the new, bigger units that buyers seemed to want.

Real estate prices went up, and increasingly retirees and residents with modest incomes were squeezed out. But there were always more customers in line for resort property.

I wonder if the primary objection is that big homes are being built and someone is profiting from the government money or should there be no homes on these properties? If the goal is to protect the beach and taxpayer dollars, less development in these areas is better. If the problem is profiting with the government’s money, there could be restrictions on the size of the new home or how the money is used.

It would be an interesting thought experiment to consider what this would look like without any government intervention. The argument here is that the government’s funding for rebuilding simply encourages the cycle of building larger and larger homes. If there were no regulations, what would the market bear? Or, as the author seems to suggest, would different regulations be better for the long-term fate of the beach and tese communities?

Manufactured housing to be more popular with fancier features?

Those seeking cheaper housing options may like both the price of manufactured housing and the features they can purchase:

The hope is that more Americans will see the factory units not only as a more-affordable alternative to a traditional single-family house, but also an appealing one, without the old trailer-park stigma. It helps that they’ve been getting fancier.

Scott Richards, a salesman for Rona Homes in Pataskala, Ohio, said that when shoppers come to his lot, he can dazzle them with customization options like hickory cabinets, rainforest showers and built-in entertainment systems coupled with electric fireplaces.

“We’ve got linoleum floors that look just like hardwood floors,” said Richards, who got back into selling factory-made houses after leaving the industry in 2012. “You don’t think about solid granite being in a manufactured home, but we have that as well.”…

The company sells what most people probably picture when they think of manufactured homes — single- and double-wide houses wholly built on a chassis in a factory — as well as modular homes, which are factory-built in sections that are assembled on a lot. While a single- or double-wide is often much cheaper than a modular home, both offer cost advantages that come with putting construction on an assembly line.

The article goes on to talk about some regulations involving the federal government and lenders that could be altered to make manufactured housing more available to house buyers. Theoretically, these changes could open the floodgates to cheaper housing for many.

Yet, I would suggest there is then another hurdle to overcome that might prove even more difficult. This housing may be cheaper than other options and it could even be attractive inside and out. This does not mean that it will be easily accepted by numerous communities, particularly those with higher qualities of life. In many of those places, manufactured housing implies all sorts of things that those communities work hard to keep out through formal and informal means. It will take time to reverse the common image of such housing.

The same issue faces tiny houses. Even if they look nice and are attractive inside, they are not easily accepted in places with more expensive single-family homes. Tiny houses are affordable – though significantly smaller than the manufactured housing options discussed in this article – but not necessarily that popular, either to consumers or neighbors.

Multiple factors behind why younger Americans may purchase fewer homes in their lifetime

A report on the real estate market in the Chicago region hints at a possible trend to watch: Americans will buy fewer homes in their lifetime.

Many first-time buyers share the Joshis’ perspective that it’s smarter to find the right house to grow into than to get a toehold in the market with a starter house, only to see much of that early equity sapped by transaction costs a few years later when moving up to a larger house.

“When we started looking, I had in mind a starter house, but it was so exhausting to look that we thought, no, one and done,” says Vrushank Joshi.

There are numerous societal changes that contribute to this:

  1. People are getting married later and going to school longer. This means they are not buying a home in early adulthood as often and are waiting longer to purchase their first place.
  2. With more education, increasing student loans means it takes longer for potential owners to save money for a down payment.
  3. Fewer starter homes have been constructed in recent years.
  4. Mobility is down in recent years as Americans seem interested in staying in places for longer.
  5. The specter of the late 2000s housing bubble haunts possible buyers.

A system that used to rely on people starting with a smaller product and then working their way up over a lifetime may have to make some major adjustments if Americans buy fewer and different homes compared to before.

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.)