Competing claims: America has a shortage of housing versus it has plenty of housing (albeit overpriced or inaccessible)

Does the United States have lots of housing units or a shortage? The two sides of the argument:

  1. A few years ago, I had a conversation with a sociologist who studies housing. When I brought up the issue of not enough housing units in connection with a need for more affordable housing, they said the problem was not a lack of units. Rather, more of those units needed to be made available to the people who for a variety of reasons could not easily access them now.
  2. A recent opinion piece states the other side of the argument:

“Stephen, you’ve been proven right on housing, and I think you’re about to be proven even more right. The most important driver of home prices is supply and demand. And right now, there is a chronic undersupply of homes in America.

As I said, the 2008 bust turned a lot of folks off from investing in housing. It shattered the confidence of homebuilders, too. Census Bureau data shows an average of 1.5 million homes were built each year since 1959. Yet since 2009, just 900,000 homes have been built per year. In fact, fewer homes were built in the past decade than in any decade since the ‘50s!

We have a serious housing shortage in America today. It would take less than six months to sell every existing home on the market, as you can see here…

…In the past year or two, the first wave of young homebuyers came into the market. But every year for the next decade, tens of millions of Millennials will hit home-buying age.”

I could see a possibility where both prognosticators could be true: there are many dilapidated or older units that need to be updated and priced in ways that more people can access them and there is a relatively shortage of new homes that meet the demands and tastes of younger buyers.

But, this gets at some bigger questions about housing in the United States:

  1. How many older housing units can be renovated to today’s codes and standards? And who should pay for this?
  2. Should anyone be put in charge of or help set housing prices so that more housing units are within economic reach of more residents?
  3. Should developers and builders primarily focus on profit or do they also have a responsibility to communities (beyond paying a fee for affordable  housing or sprinkling in a few cheaper units)?
  4. Can housing be revitalized in areas without significantly changing the population composition or housing values or other ways that might significantly disrupt what current residents like about the location?

Argument: mass transit service comes before demand

A history of the decline of mass transit in the United States concludes with this claim: there must be transit service in order to generate demand.

The story of American transit didn’t have to turn out this way. Look again at Toronto. It’s much like American cities, with sprawling suburbs and a newer postwar subway system. But instead of relying on park-and-ride, Toronto chose to also provide frequent bus service to all of its new suburbs. (It also is nearly alone in North America in maintaining a well-used legacy streetcar network.) Even Toronto’s suburbanites are heavy transit users, thanks to the good service they enjoy.

Likewise, in Europe, even as urban areas expanded dramatically with the construction of suburbs and new towns, planners designed these communities in ways that made transit use still feasible, building many of them around train stations. When cities like Paris, London, and Berlin eliminated their streetcar networks, they replaced them with comparable bus service.

Service drives demand. When riders started to switch to the car in the early postwar years, American transit systems almost universally cut service to restore their financial viability. But this drove more people away, producing a vicious cycle until just about everybody who could drive, drove. In the fastest-growing areas, little or no transit was provided at all, because it was deemed to be not economically viable. Therefore, new suburbs had to be entirely auto-oriented. As poverty suburbanizes, and as more jobs are located in suburban areas, the inaccessibility of transit on a regional scale is becoming a crisis.

The only way to reverse the vicious cycle in the U.S. is by providing better service up front. The riders might not come on day one, but numerous examples, from cities like Phoenix and Seattle, have shown that better service will attract more riders. This can, in turn, produce a virtuous cycle where more riders justify further improved service—as well as providing a stronger political base of support.

I wonder how much infrastructure – largely paid for by taxpayers and serving the public – differs from other kinds of innovation. Sometimes, new products meet a clear demand. At other times, a new product generates new demand that people did not even know existed.

Furthermore, let’s say for the sake of argument that this claim is true: building more mass transit lines and options would eventually increase demand. Municipalities and governments would still be left with a tricky issue: is there enough will or enough resources to pay what can be massive costs up front with a promised payoff in the future? Long-term thinking is not necessary something Americans have done well in recent decades. (And this does not even include the possibility that the big investment might not pay off.)

Finally, another way to approach this is to start with smaller-scale projects, show people that they work, and then build up to a larger structure. In many American communities, this would mean starting with bus service since plenty of roads already exist. But, many Americans do not like buses. They may be more likely to take trains but these require a lot more work and money.

Can we have both protected open spaces and affordable housing?

Conservatives argue that the affordable housing issue is simple: stop protecting open space and let developers build more housing units.

But, beginning in the 1970s, housing prices in these communities skyrocketed to three or four times the national average.

Why? Because local government laws and policies severely restricted, or banned outright, the building of anything on vast areas of land. This is called preserving “open space,” and “open space” has become almost a cult obsession among self-righteous environmental activists, many of whom are sufficiently affluent that they don’t have to worry about housing prices.

Some others have bought the argument that there is just very little land left in coastal California, on which to build homes. But anyone who drives down Highway 280 for thirty miles or so from San Francisco to Palo Alto, will see mile after mile of vast areas of land with not a building or a house in sight…

Was it just a big coincidence that housing prices in coastal California began skyrocketing in the 1970s, when building bans spread like wildfire under the banner of “open space,” “saving farmland,” or whatever other slogans would impress the gullible?

When more than half the land in San Mateo County is legally off-limits to building, how surprised should we be that housing prices in the city of San Mateo are now so high that politically appointed task forces have to be formed to solve the “complex” question of how things got to be the way they are and what to do about it?

The argument goes that this is an example of supply and demand: open more space for development and housing prices will have to drive as supply increases. Is it really this simple? Here are at least a few other factors that matter in this equation:

  1. The actions of developers. Even if more housing units could be built, there is no guarantee they could build cheap or affordable housing. They want to make money and they argue the money is not in affordable housing.
  2. Is cheap suburban housing (what is typically promoted by conservatives in these scenarios – keep building further out) desirable in the long run? Opponents of sprawl might argue that having a cheap single-family home 30-50 miles out from the big city is worse in the long run than a smaller, more expensive unit close to city amenities and infrastructure.
  3. What exactly is the value of open space? Conservatives sometimes argue this is another sign of the religion of environmentalism but there are realistic limits to how much housing and development land can hold before you end up with major issues. (For example, see the regular flooding issues in the Chicago area.) If green or open space is simply about property values – keep my home values high by not building nearby housing – this is a different issue.
  4. There is a larger issue of social class. I’m guessing there are few Americans of any political persuasion that would choose to live near affordable housing. There is a stigma associated with it even if the housing is badly needed. Lots of people might argue affordable housing is needed but few communities want it in their boundaries and middle and upper class residents don’t want to be near it.
  5. Another option for affordable housing is to have denser urban areas. Think cities like Hong Kong where a lack of land and high demand have led to one of the highest population densities in the world. If a region wants to protect its open and green space, why not build up? Many city residents don’t want this – the single-family home urban neighborhood is a fixture in many American cities – and conservatives fear a government agenda pushing everyone into dense cities.

Opening more land to development might help lead to cheaper housing but it would take a lot more to get to affordable housing that is within a reasonable distance from job and population centers.

Rise in church-to-residence conversions in Chicago?

The Chicago Tribune suggests there is a trend toward more residences created out of church buildings:

The popular trend of church-to-condo conversions began in the 1980s, said Carrie Georgitsis, the Redfin real estate agent who worked with Buera and Babus on their house hunt. Over time, the appeal became more popular, especially in the Lakeview and Lincoln Park neighborhoods…

Church-to-home conversions mirror the ever-changing needs of the community. Very often, a congregation will sell its church building because the congregation dwindled, forcing remaining members to consolidate into a smaller space since they can no longer maintain the large structure, Georgitsis said.Chicago’s increase in church conversions over the years reflects the religious direction of the United States in general. According to a 2014 Pew Research survey, the percentage of adults who described themselves as Christians dropped nearly 8 points from 78.4 percent to 70.6 percent in just seven years. Over the same period, the percentage of Americans who identified as religiously unaffiliated (describing themselves as agnostic, atheist or “nothing in particular”) jumped more than 6 points from 16.1 percent in 2007 to 22.8 percent in 2014.

“Studies show that the long-term church attendance in America is on the decline,” said Bill Skubik, president of Religious Real Estate, a Waterford, Mich.-based real estate agency that specializes in religious properties. “I tell pastors all the time, ‘You may be able to afford to buy the building, but who is going to pay the utility bills? You’ve got maintenance and utilities that are expensive.'” The decline of churchgoers reflects the changing needs of communities, Skubik said. And, as a result, church buildings are left abandoned or sold.

In Chicago, churches in residential areas can be converted into homes without any zoning ramifications. “Generally, many older churches were zoned for residential use, so it’s a relatively seamless process,” said Peter Strazzabosco, a deputy commissioner for Chicago’s Department of Planning and Development. Developers only need to worry about zoning codes in terms of the number of units and parking lots they plan to build, he said.

I find two things interesting about this story. First, this is presented as a story of supply and demand. In neighborhoods with tighter housing markets, developers and buyers are willing to pursue residences made out of former churches. Yet, the opening story in the article presents a couple who like the unique features of the unit. What if church buildings become desirable now just because there are not enough units available but because of their aesthetic charm and/or sacred architecture?

Second, the journalist suggests there is a trend toward more church conversions. But, are there any numbers to back this up? Do we know how many times this has been done? In the past, would developers bulldoze the unused church buildings rather than convert them?

Perhaps we will know if this is really a trend when new condos and single-family residences deliberately incorporate church-like features into their architecture and design.

Homes going off the market at a record pace

Given the reduced supply of homes for sale, Redfin reports that houses for sale are going fast:

New research suggests that not only are typical selling times declining in the current bull market for housing, but they also may have hit record lows. According to realty brokerage Redfin, the median time on market dipped to just 26 days during June — the shortest time on record for its database — with houses in some markets moving from listing to contract in 11 days or less. Denver homes sold in six days or less, according to Redfin; Seattle’s median was nine days; Portland, Ore., 10 days; and Boston, 11 days.

That’s hot. But there are dozens of cities around the country where selling speeds are nowhere near that quick. According to June data from real estate Web portal realtor.com, which uses information from local multiple-listing services nationwide, the median time on market for homes in Chicago was 54 days. In the Washington, D.C., area it was 45 days; Miami, 75 days; metropolitan New York, 68 days; Oklahoma City, 53 days. At the laggard end of the spectrum, the median house in Brownsville, Texas, took 122 days to sell; Myrtle Beach, S.C., 105 days.

Why such apparently wide variations from area to area, and what can a typical seller expect? Some basics: Part of selling speed depends on matters that you can control. But there are factors you can’t control — the strength of your local economy, employment and income growth. If the economy is on fire and there’s a low inventory of homes for sale to serve market demand, you’re going to see houses rapidly zipping from listing to contract.

Regional variation is to be expected but it may also suggest that certain housing markets are getting overheated again – not necessarily by high prices and a lot of new construction (like the mid 2000s sprawl of Las Vegas) but by having high demand yet few homes for sale.

The article goes on to talk about how sellers can slow down the process by pricing their homes a bit higher and leaving room for negotiation. But, there is little discussion about who benefits or is hurt by these quick sales times. Doesn’t this suggest that more housing is needed in the market, particularly in the lower ends of the market, either through some new construction or through continuing to help people get out from underneath their mortgages?

Which drives McMansions: supply or demand?

Thomas Frank argued last week that America has a system that enables McMansions but another commentator suggests McMansions reflect the desires of Americans:

Still, it fascinates — are not horror films and comedies blockbusters too? — and, lest we snark too much, in this case on McMansions, let us remember these objects reflect consumers’ demand — our collective taste — not the other way around.

And just as soon as I try and boast of some superlative insight or immunity to things and stuff myself, I will have thrown a stone at a glass house — even if it is a two-story Palladian window, even if it’s draped in Pepto-mauve and installed over an entry door — and I bet a crumpled buck you will have too. I say we observe, look for the humor reflected therein (it’s there) and continue to try and learn from our own selves.

Classic question: do Americans buy McMansions because the system supplies them and makes them possible or do they exist because the demand is there from American residents?

This question is not a new one in the field of studying suburbs. On one hand, some argue that suburbs (and McMansions by proxy) exist because this is what Americans want. Joel Kotkin argues that Americans vote with their feet and when given the opportunity, will tend to choose more space and freedom in the suburbs (and the Sunbelt). Jon Teaford says in his book The American Suburb: The Basics that Americans tend to desire more local control and space to be individuals, traits that work well in suburbs. In contrast, some would argue the other side. Suburbs had to be sold to Americans; compare this to European desires to be closer to the central city. Suburbs were constructed by developers who wanted to make money and had to drum up demand. Frank’s argument echoes those of James Howard Kunstler who suggests the suburbs are a subsidized project – often through government action and money – that hollowed out our cities.

As a sociologist, I would argue both sides of the equation are present though we tend to emphasize the demand side in American discourse without realizing how the supply side is shaped. Sure, some Americans may want McMansions but where do these desires come from? Why would they choose to spend their money on a certain kind of large home rather than buying a smaller place in a more urban area or spending more on other luxury goods? Take the example of highways: Americans did take to the automobile quickly but major systems of roads and highways also arose in part because of lobbying efforts from motorist and industry groups, governments decided to spend relatively more money on roads than mass transit, and certain restrictions made it difficult for streetcars and other mass transit to compete (see Kenneth Jackson in Crabgrass Frontiers for more details). Consumer desires don’t simply come out of nowhere; they are shaped by social forces.

Some wealthy US zip codes don’t have enough mansions to sell

This may be related to a supposed McMansion comeback: some wealthy US communities have a limited inventory of big homes available for purchase.

While housing inventory is falling throughout the country, it’s falling especially fast in some of the country’s richest ZIP codes. A study from Altos Research, the Mountain View, Ca., real-estate research firm, found that inventory in the nation’s 90 wealthiest ZIP codes fell 15 percent over the past year, slightly faster than the broader market.

But in the richest ZIP codes, inventory is down more than 50 percent. In a ZIP code in Carmel, Calif., inventory fell 76 percent over the past year. There were only four homes left on the market priced at $1 million or more as of the end of May, according to Altos.

In Palm Beach, Fla., the number of $1 million-plus homes has plunged by 70 percent, falling from 89 to 26. And in the Old Greenwich, Conn. ZIP code, there are only 10 homes left priced at $1 million or more, down 58 percent, according to Altos.

“I don’t recall seeing the market like this, and it’s come so quickly,” said Cristina Condon of Sotheby’s International Real Estate in Palm Beach. She said buyers have poured into the market in recent months, many from overseas. American buyers are also piling in—some from higher-tax states like California, lured by low taxes and still-low prices in Florida.

The phrase “mansion shortage” sounds funny. It may be true in a business supply and demand sense but shortage is a term often reserved for more essential commodities, not luxurious homes.

This is more evidence that there is a bifurcated housing market: the wealthy, whether Americans or residents of other countries, seem to be doing fine with their real estate.