NIMBY has come to sprawling Sun Belt metropolitan areas

Recent research looks at why housing costs have increased so much around numerous Sun Belt cities:

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Although the Sun Belt continues to build far more housing than the coasts in absolute terms, Glaeser and Gyourko find that the rate of building in most Sun Belt cities has fallen by more than half over the past 25 years, in some cases by much more, even as demand to live in those places has surged. “When it comes to new housing production, the Sun Belt cities today are basically at the point that the big coastal cities were 20 years ago,” Gyourko told me. This explains why home prices in the Sun Belt, though still low compared with those in San Francisco and New York, have risen so sharply since the mid-2010s—a trend that accelerated during the pandemic, as the rise of remote work led to a large migration out of high-cost cities…

The Sun Belt, in short, is subject to the same antidevelopment forces as the coasts; it just took longer to trigger them. Cities in the South and Southwest have portrayed themselves as business-friendly, pro-growth metros. In reality, their land-use laws aren’t so different from those in blue-state cities. According to a 2018 research paper, co-authored by Gyourko, that surveyed 44 major U.S. metro areas, land-use regulations in Miami and Phoenix both ranked in the top 10 most restrictive (just behind Washington, D.C., and L.A. and ahead of Boston), and Dallas and Nashville were in the top 25. Because the survey is based on responses from local governments, it might understate just how bad zoning in the Sun Belt is. “When I first opened up the zoning code for Atlanta, I almost spit out my coffee,” Alex Armlovich, a senior housing-policy analyst at the Niskanen Center, a centrist think tank, told me. “It’s almost identical to L.A. in the 1990s.”

These restrictive rules weren’t a problem back when Sun Belt cities could expand by building new single-family homes at their exurban fringes indefinitely. That kind of development is less likely to be subject to zoning laws; even when it is, obtaining exceptions to those laws is relatively easy because neighbors who might oppose new development don’t exist yet. Recently, however, many Sun Belt cities have begun hitting limits to their outward sprawl, either because they’ve run into natural obstacles (such as the Everglades in Miami and tribal lands near Phoenix) or because they’ve already expanded to the edge of reasonable commute distances (as appears to be the case in Atlanta and Dallas). To keep growing, these cities will have to find ways to increase the density of their existing urban cores and suburbs. That is a much more difficult proposition. “This is exactly what happened in many coastal cities in the 1980s and ’90s,” Armlovich told me. “Once you run out of room to sprawl, suddenly your zoning code starts becoming a real limitation.”

Glaeser and Gyourko go one step further. They hypothesize that as Sun Belt cities have become more affluent and highly educated, their residents have become more willing and able to use existing laws and regulations to block new development. They point to two main pieces of evidence. First, for a given city, the slowdown in new housing development strongly correlates with a rising share of college-educated residents. Second, within cities, the neighborhoods where housing production has slowed the most are lower-density, affluent suburbs populated with relatively well-off, highly educated professionals. In other words, anti-growth NIMBYism might be a perverse but natural consequence of growth: As demand to live in a place increases, it attracts the kind of people who are more likely to oppose new development, and who have the time and resources to do so. “We used to think that people in Miami, Dallas, Phoenix behaved differently than people in Boston and San Francisco,” Gyourko told me. “That clearly isn’t the case.”

This is an interesting American phenomenon: people benefit from moving to new development that they can afford and then later they resist efforts to offer some of the same opportunities to others who might want to live in the same places but happened to get there later. The residents would surely talk about changes more development would bring. Countless examples of arguments about changes in character, more traffic, more noise, how those who live in apartments do not contribute to the community in the same way. These residents found suburbia just as they loved it and they often do not want it to change. I have seen this across my research and unless there is a major movement in the other direction, it seems like it is going to continue.

This puts people today in difficult situations. Can sprawl keep going and going beyond what already exists? How many people have the resources to live in places with higher housing costs? Will new places become the Sun Belt of today? How these questions are answered will affect American metropolitan regions in the decades to come.

One presidential candidate: “We should be doing everything we can to make it more affordable to buy a home, not less”

With high housing prices in the United States (see concerns about rents set by algorithm, record rents in New York City, etc.), one presidential candidate has said more about how they might address the issue. From a campaign ad for Kamala Harris:

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We should be doing everything we can to make it more affordable to buy a home, not less.

I imagine at least a few listeners would find this appealing. Paying a mortgage or rent is often the biggest expense among households. Price in many places, particularly after the last few years, leave many feeling they cannot live where they want and/or financially uncertain.

The broad appeal to homeownership is one that political leaders in the United States have made for at least a century. See earlier quotes from Herbert Hoover, George W. Bush, and Barack Obama. Given how much Americans like single-family homes, why shouldn’t every politician consider promoting this?

The details are harder to work out and put into practice. In this particular campaign ad, Harris mentions fighting banks after the foreclosure crisis, addressing the issue of corporate landlords, and constructing 3 million new housing units. I am sure there are a host of opinions about whether these are the best options or doable options or enough options.

Could housing end up being one of the major policy issues of the 2024 elections? There is still time as the campaigns look for winning messages.

Record high rents in NYC

Remember lower rents in New York City during COVID-19? A new report about high rents suggests any price drops in the city are long gone:

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The cost of renting a one-bedroom apartment in New York City reached an all-time high for the second month in a row in August, according to Zumper’s latest National Rent Report.

Residents are paying a median amount of $4,500 for a one-bedroom apartment in the city, up 12.8 percent compared to a year earlier and 3.4 percent compared to July. Those renting out two-bedroom apartments are not doing much better. According to Zumper, the median two-bedroom rent reached a record high of $5,100 in August, up 13.3 percent year-over-year and 3.7 percent month-over-month…

But the rent increases in New York mark a resurgence for the city’s market, after rent dropped to a four-year low in January 2021 during the COVID-19 pandemic. At the time, the median one-bedroom rent was $2,350. Since then, rent has nearly doubled—confirming New York’s rental market to be the most expensive in the nation.

Three quick thoughts in response:

  1. Who can afford such prices?
  2. Is this just supply and demand where the number of housing units is not keeping up with all the people who want to live in NYC? How do public and private actors continue to contribute to such an expensive housing market?
  3. For better or worse, these are the sorts of numbers that people remember when they think about housing prices. Most housing markets in the United States are not Manhattan or San Francisco or Seattle. But people generally know these places are expensive and those costs produce all sorts of reactions. Could a national policy to addressing housing costs, such as hinted at recently by one presidential candidate, address the issue in New York City and in other places?

High housing prices lead to housing pod innovation (?) in California

With the high prices of housing in California these days, one company is offering 3.5 by 4 foot pods:

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With locations in Palo Alto, San Francisco and Bakersfield, Brownstone Shared Housing has converted two homes and an office space into dwellings for dozens of people, with rents ranging from $500 to $900 per month.

The basic pods are a very cozy 3.5 feet wide and 4 feet tall, just big enough to fit a twin mattress. They feature amenities such as charging stations, LED lights and individual climate control systems.

Residents share bathrooms and utilize storage lockers for their belongings, most of which won’t fit into the pods.

And even though $500 to $900 may sound like a lot for such limited space, the rates are far cheaper than most alternatives on the traditional rental market.

In Bakersfield, the median studio apartment rents for $995, according to Zillow. In San Francisco, the figure is $2,200. And in Palo Alto, the median studio rents for $2,300.

Several thoughts in response:

  1. I suspect this kind of housing would appeal to particular audiences and not others.
  2. Is it possible to scale this up? At some point, these might appear to be close to single room occupancy that used to be more common in many cities.
  3. How does zoning work within local municipalities? Would the density levels be acceptable to local officials and residents?
  4. While this might be an innovative way to address the cost of housing, how does this fit with or help spur larger-scale changes that would make affordable housing available to more people?

“August 2023 will become the worst month for housing affordability this century”

Housing in the United States is becoming less affordable than at any point in recent years:

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On Monday, the average 30-year fixed mortgage rate reached 7.48%, marking the highest level since the year 2000. Even prior to this recent surge in mortgage rates, housing affordability, as monitored by the Atlanta Fed, had already deteriorated beyond the levels seen at the housing bubble’s peak in 2006. Once this latest mortgage rate surge is factored in, August 2023 will become the worst month for housing affordability this century.

The journey to this predicament can be traced back to last year’s sharp rise in mortgage rates, which escalated from 3% to over 7%. That rate surge, coupled with the Pandemic Housing Boom pushing U.S. home prices up over 40% in just over two years, deteriorated housing affordability across the nation…

While the current lack of housing affordability echoes the affordability conditions leading up to the 2008 housing crash, there are distinct differences that set the two periods apart. Unlike the years preceding the 2008 crash, the nation is not grappling with an excessive surplus of existing homes for sale. In fact, housing inventory levels are hovering at historic lows, with July 2023 witnessing a staggering 47% decline in homes available for sale compared to July 2019.

Furthermore, the U.S. housing market in 2023 is not plagued by the risky mortgage products that contributed to the 2008 bust. In fact, the Pandemic Housing Boom was the opposite of the boom in the aughts: This boom was primarily led by households with high incomes, who because of low mortgage rates and remote-work policies were seeking out a new home.

I am a little surprised there are not more leaders proposing solutions or calling for addressing this issue. Housing is often the biggest expense in a household budget. People may not be able to find stable, quality housing. They will not be able to develop wealth. It is difficult to move. People will pay more in interest. People can experience anxiety about housing. And so on.

There might be a temptation to sit back and say people should wait for interest rates to stabilize and/or decline. Or, the housing market will have more inventory at some point.

Yet, housing is a complicated issue and there are multiple ways to address it. How can more housing at lower price points be built? How can existing homeowners rally for the need for cheaper housing costs (even as they might benefit from rising home values)? What incentives or sticks are needed to get various actors in the housing industry moving on providing more options?

Responding to the affordability of suburbs outside America’s most expensive cities

A recent analysis looked at how affordable suburban residences were compared to prices in the most expensive cities in the U.S.:

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Buying a house in the suburbs isn’t just a little easier on the wallet for city dwellers. In some parts of the country, bedroom communities offer an entirely different real estate market. Over 600 of the 777 suburbs within 30 miles of the country’s 20 most expensive cities are more affordable in terms of price per square foot — up to 65% cheaper in some places.

The East Coast offers the most suburban alternatives to main cities: 95 of the top 100 suburbs with the biggest price differences are near New York, Washington D.C., Boston, and Miami…

These are the top 10 cities with the most relatively affordable suburbs for home buyers, ranked by the percentage of suburbs with a lower cost per square foot compared to the main city.

  1. Salt Lake City, Utah (100%)
  2. New York, New York (98%)
  3. Washington, D.C. (97%)
  4. Boston, Massachusetts (93%)
  5. Honolulu, Hawaii (90%)
  6. Austin, Texas (89%)
  7. Seattle, Washington (83%)
  8. Boise, Idaho (80%)
  9. Denver, Colorado (80%)
  10. Riverside, California (79%)

A few thoughts in response:

  1. Do people always seek out the cheapest housing and move to the suburbs? Some will move to the suburbs because of lower price points. Others might stay in the city or go to the suburbs for other reasons.
  2. Is 30 miles out from an expensive city a large enough radius? It might be for some of these cities and not for others. Additionally, many commutes are suburb to suburb to being 40 miles out and commuting to a suburb 25 miles from the city is a different comparison than city versus suburban settings.
  3. One reason the expensive cities are so pricey is that they are desirable. If more people move to a region, does this then decrease the affordability of suburbs as well?
  4. Is it safe to assume then that there are metro areas where city and suburb prices do not have much difference?

How many people want to buy the split-levels and Colonial Revivals that need rehabbing in higher-end Chicago suburbs?

A look at women seeking homeownership suggests they might not be interested in many of the homes in more expensive Chicago suburbs:

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“They are not going to sacrifice,” Spaniak said. “They don’t have the time to rehab. And they want something newer, with quality, that expresses who they are.”

That’s a tall order that often isn’t in line with the split-levels and Colonial Revival houses common in higher-end Chicago suburbs. The scarcity of polished, modern houses in established suburbs further drives up the prices of the few houses that do meet that narrow criteria, Spaniak said.

This is an issue facing many suburban communities and potential homebuyers:

  1. Many existing homes do not have the features, finishes, or architecture preferred by homebuyers now.
  2. More mature suburbs have a limited number of newer homes as new construction is limited to small developments or teardowns.
  3. The housing prices in more expensive and mature suburbs are not that low that it will attract people drawn by fixer-uppers. The people who can buy and rehab homes in the wealthier suburbs have enough capital to buy in and fix or teardown the homes for a tidy profit.

Roughly five years ago, we were in a similar position looking for a larger home. Homes within our price range often needed updating or had disagreeable and unchangeable traits. The style of homes available fit into what is described above: split-levels, raised ranches, ranches, Colonials, and a few older structures. We had time and flexibility so it all worked out but I could see how the available options and at the particular prices available would frustrate some homebuyers.

Hot rental market in Phoenix and supplying enough housing

In an article about a large and expanding encampment of the homeless in Phoenix, here are some details about how rental prices in the city have shot up:

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“People say, ‘Are you surprised?’ And I say, ‘No, not really, because all of the housing forces in Phoenix and Maricopa County have been working against us for years,’” said Human Services Campus Executive Director Amy Schwabenlender, who works in the area with the encampment, sometimes referred to as “the Zone.” “We’ve had ongoing population increases in Phoenix and Maricopa County. We haven’t had housing production at all income levels keep up and meet that increase in population.”

Real estate investors are pouring cash into Phoenix and driving up prices. Rents there have spiked 25.6% over the past year, compared to a 15.9% increase in the U.S. from January 2021 to January 2022, according to data analyzed by Zillow. (Other popular Sun Belt cities like Miami and Tampa have also seen dizzyingly fast increases in rent.) Vacancy rates in Phoenix, or the availability of places for people to rent, are also at their lowest in 50 years, according to the Arizona Republic

While much of the rest of the article focuses on addressing housing for the homeless, this sounds like a bigger issue. This is an area with a growing population: Phoenix is now the fifth-largest city in the US and had a little over 100,000 residents in 1950 before experiencing double-digit percentage population growth in all but one decade since. Housing opportunities, particularly in rentals, have not kept up. American sprawl often produces a lot of single-family homes but necessarily cheaper houses or multi-family units for those who cannot secure a sizable mortgage.

What can Phoenix and surrounding communities do? Addressing housing in the United States is a difficult task. It will take concerted effort across communities for years. It may not be popular. But, it is essential for ensuring housing for all who need it.

It would be great to have an example of a city and region in the Sun Belt – roughly Virginia to southern California – that has successfully addressed this even as they have experienced significant growth in recent decades. I do not know if there is a great example, outside of some places not becoming too popular such that it raises demand and housing prices.

Data on how higher housing prices are pushing more people to purchase fixer-uppers

As housing prices rise, one potential option for homebuyers is to purchase a home needing repairs or renovation. Here are some numbers on this option:

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“When everyone else is looking for a move-in ready home, there’s less competition for the fixer-uppers,” said Daryl Fairweather, chief economist at Redfin Corp. “I would not advise it for the faint of heart, but there are a lot of people who are willing to take on that risk because there is such a high reward.”

In 2021, homes in need of renovation sold at a faster pace than the two prior years, according to data from Realtor.com. Fixer-upper sales jumped 13.4% from 2020 to 2021, while the dollar volume of those deals surged 40.8% from 2019 to 2021, reflecting the high growth in sale prices across the broader market. Plus, listings described as “fixer-upper” or using other related terms by agents increased by 8% in December from the previous year…

In a survey by housing research firm Zonda, 33% of respondents said they would buy a fixer-upper for their first or next home but “only if I got a great deal.” Meanwhile, 27% said they would “if the repairs are minor.” Just 20% responded with a “no thanks.”…

On average, fixer-uppers cost 13% less than their move-in ready counterparts, or are about $40,000 less than the typical U.S. home value, according to Zillow. But if that home needs $80,000 to make it livable, that’s not such a great deal, Pendleton said. She recommends that those fixing up homes add an extra 20% onto their budget as a cushion for the unforeseen. 

As the article notes, not everyone has an appetite, resources, or the skills for renovation. But, if the housing options are limited, this appears to be an increasingly attractive option for some. The data cited above suggests a small bump in people selling and buying such homes.

This is also interesting to consider from the other side: the sellers. If someone had a home that needed significant repair, this might be the time to not do those repairs and still get a good price. All those homes needing “TLC” or sold “as-is” now might not linger on the market for months.

More broadly, this hints at how much housing in the United States is eligible for repairs and renovation. The postwar suburban boom started roughly 70 years ago now. Those homes have already likely experienced a lot of repair and change and will undergo more in the upcoming decades. The McMansions of the 1990s and early 2000s will be the fixer-uppers of the future. And since Americans tend to like DIY projects and homeownership, we could be in for more decades of renovations.

The factors affecting housing in the Chicago region in 2022

Several experts suggest housing prices will continue to rise in the Chicago area in 2022 but not at the same rate as they did in 2021:

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Rather, changes in home price growth, the supply of homes for sale and upticks in rock-bottom interest rates are more likely to stabilize the market after an unpredictable 2021, they said. That likely won’t mean an end to competition or high prices — and it doesn’t bode well for first-time homebuyers — but the market could ease up compared with 2021…

In the nine-county Chicago metro area, the median home sale price from January to November was $300,000, up nearly 12% over the same months in 2020, according to the Illinois Association of Realtors…

Prices are likely to rise next year, but won’t continue the exponential growth of 2021, said Daniel McMillen, head of the Stuart Handler Department of Real Estate at the University of Illinois at Chicago. Without an influx of new residents to the area or big increases in incomes, that growth will become unsustainable, he said…

Homebuyers are continuing to look for amenities like home offices and workout areas, Melbourne said. Kitchens are a priority. Condo-buyers are looking for bigger units, rather than one-bedrooms.

The pressure from COVID-19 moves will hopefully subside. Then, the more regular patterns in Chicago area real estate might take over again. There are at least several interrelated factors:

  1. Limited population increases in the Chicago region. This reduces demand.
  2. Uneven development within the region where some neighborhoods and suburbs will be popular and others not. Prices will go up in desirable places.
  3. Construction of new residences has been down. What kind of units will be built? If recent trends hold, it will be housing aimed more at wealthier residents. Additionally, these units will be constructed in some locations and not others.
  4. If there is a long-term shift in what homebuyers and renters want from units, does this significantly shift demand? Continued or more working from home has the potential to affect the individual and collective experience of places.
  5. The particulars of certain communities. Communities understand themselves as having certain characters and prioritize particular goals. Local regulations could incentivize or discourage certain kinds of development.

There are numerous factors affecting housing to pay attention to amid changing conditions.