Is the housing shortage merely awful, or jaw-droppingly catastrophic? Depends on who you ask. The Harvard Joint Center for Housing Studies estimates that there\u2019s a deficit of 1.5 million dwellings. Realtor.com says that we\u2019re 2.3 million units short. Zillow says it\u2019s 4.3 million, and the National Association of Realtors (NAR) guesses we\u2019re shy 5 million to 6 million homes.<\/p>\n
The Biden administration recently announced several programs to goose the construction of affordable housing. The efforts won\u2019t situate everyone into a decent place that they can afford to rent or buy. But over the next few years, the programs could ease housing burdens for hundreds and maybe thousands of households.<\/p>\n
The problem is that the federal government is engaging the situation with a polite nudge when true progress requires a rude shove. If Congress would increase funding and the White House would apply more imagination, the impact could be bigger.<\/p>\n
In five years, the median resale price of an existing home went up 51%, to $406,700 in July 2023, according to the NAR. Prices are too high for many would-be buyers. In early 2022, Freddie Mac More:<\/strong> Mortgage rates reach highest level since 2001 and are likely to go higher, Freddie Mac says<\/p>\n Housing experts blame the shortage of low-cost housing on two primary factors: the cost of land and the expense of borrowing money to build. High lumber prices and a scarcity of construction workers are problems, too, but land costs and financing are the biggies that the\u00a0Biden Housing Supply Action Plan\u00a0addresses.<\/p>\n When builders talk of land costs, they mean more than the price of vacant acreage. They also refer to costs imposed by local governments: impact fees, zoning rules that limit the size and spacing of\u00a0new homes, and wasted time while projects are delayed by legal challenges and political opposition.<\/p>\n It\u2019s often a long, costly slog to get approval for housing, especially for dwellings for low-income households, apartments and other multifamily units. As the Harvard Joint Center puts it in its 2023 report on the nation\u2019s housing: \u201cThe national housing shortage is also the product of local restrictive zoning policies and other regulatory barriers that make it difficult to build a range of housing types at different price points.\u201d<\/p>\n Cities overwhelmingly zone land for single-family houses, effectively banning duplexes and apartments. Minimum lot sizes mean builders can construct only so many houses on a block, so they build expensive homes to maximize profits.<\/p>\n \u201cConsidering everything, they are saying, \u2018Well, only way to make the numbers work, we are focusing on this larger-size home,\u2019\u201d the NAR\u2019s chief economist, Lawrence Yun, said in a C-SPAN interview in early August.<\/p>\n Related: <\/strong>\u2018I lost bidding war after bidding war\u2019: If interest rates are so high, why have house prices not declined?<\/p>\n Elected local leaders set the rules that drive up the\u00a0cost of housing\u00a0in communities blue and red. Several states, from California to Connecticut and Montana to Maine, have responded by restricting local governments\u2019 land-use powers in order to promote multifamily and affordable housing.<\/p>\n Some housing advocates think the federal government should step in and compel local governments to make room for less expensive housing, such as apartments. In a March 2021 paper, Overcoming the Nation\u2019s Daunting Housing Supply Shortage, Jim Parrott of the Urban Institute and Mark Zandi of Moody\u2019s Analytics wrote that \u201cfederal policymakers should push communities to reorganize their approach to development from the ground up.\u201d<\/p>\n The Biden administration adopted this approach. Its flagship program, Pathways to Removing Obstacles to Housing, dangles an $85 million pot of money. Local governments can receive grants from it to implement reforms that allow for denser housing, to plan transit-oriented development, to streamline permitting and to address gaps in financing, among other things.<\/p>\n It\u2019s a well-meaning effort, with two problems: It lacks bite and it\u2019s stingy. (The administration requested $10 billion and Congress appropriated $85 million.)<\/p>\n \u201cIt\u2019s a nice idea, but, you know, we need some stick with the carrot,\u201d says David Dworkin, president and CEO of the National Housing Conference. He means that the effort would be more effective if the federal government would withhold money from cities that refuse to relax zoning. Such an approach worked in the 1980s, when the feds threatened to deny highway funding to states that refused to raise the drinking age to 21. That was a shove, not a nudge \u2014 and it worked.<\/p>\n Playing hardball might yield results with housing, Dworkin says. \u201cThis is about having apartment buildings in communities, and duplexes or quadplexes, and the failure of communities to address the political pressure of residents who say, \u2018I\u2019ve got mine, no one else gets theirs,\u2019\u201d he says.<\/p>\n Listen: Best New Ideas in Money podcast:<\/strong> Solutions to help ease the housing shortage<\/p>\n As for the amount of money that Congress approved: In their paper, Parrott and Zandi imagined a federal program that would hand out $50 billion per year for 10 years to cities that \u201cease regulations and other building restrictions.\u201d The generous program would increase affordable housing by 275,000 units per year, they estimated.<\/p>\n If $50 billion per year for 10 years would help solve the affordable housing shortage, the $85 million Pathways to Removing Obstacles to Housing program is laughably small. It\u2019s as if Parrott and Zandi presented a $500 repair estimate, and Congress fished three quarters and a dime out of its pocket. If $50 billion in funding would result in 275,000 affordable homes, as Parrott and Zandi estimate, then $85 million would be good for 468 affordable homes.<\/p>\n The Department of Housing and Urban Development (HUD) said it will ask Congress for more funding.<\/p>\n Other programs address the housing shortage indirectly. The Department of Transportation will chip in money to local governments that extend public transportation to and from affordable housing, partly through zoning reform. The Commerce Department, when handing out Economic Development Administration grants, will favor development projects that allow people to live closer to work.<\/p>\n Read<\/strong>: Lawmakers are banning single-family zoning. But are apartment buildings the \u2018silver bullet\u2019 for America\u2019s housing shortage?<\/p>\n The other major way to stimulate the construction of affordable apartments is by making it easier and faster for builders to borrow money to fund their projects. HUD has come up with two solutions.<\/p>\n First, it has increased the threshold of what constitutes a \u201clarge loan\u201d to build or rehabilitate apartments. The increase from $75 million to $120 million will reduce paperwork and costs to build or rehab large apartment complexes.<\/p>\n Second, HUD removed a $25 million cap on the size of FHA-insured loans on apartment construction that uses a streamlined Low-Income Housing Tax Credit (LIHTC). This means more apartment complexes will be eligible for the LIHTC, which reduces investors\u2019 tax bills.<\/p>\n These tactics \u2014 loosening the purse strings to boost apartment building \u2014 might hasten construction for projects that have already won approval. But in the long term, this country can\u2019t solve its housing shortage if cities and towns continue to use regulations to restrict new construction. If paying them to cut red tape doesn\u2019t work, then state and local governments might have to withhold funding.<\/p>\n
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\n polled Gen Z adults (ages 18 to 25 at the time), and 34% of them agreed that \u201chomeownership at any point seems out of reach financially.\u201d\u00a0Mortgage rates\u00a0have zoomed since that poll was conducted, making homes even more unaffordable.<\/p>\nIt\u2019s expensive to develop and build<\/strong><\/h2>\n
Feds need to be firmer with local governments<\/strong><\/h2>\n
A miserly response to an expensive problem<\/strong><\/h2>\n
Making borrowing easier for developers<\/strong><\/h2>\n