In many rural tourist areas in the West the issue most affecting housing availability is AirBnB, VRBO, etc. Why would an owner rent a property at $1500/month to a local when they could get $3500-$7000/month renting it to tourists? In some places like Sedona, Flagstaff, Prescott all in Arizona a large percentage of the housing is used for short term rentals. The city of Sedona has been asking the State to allow it to limit the number of short term rentals so they can increase the available housing for local workers. In Aspen/Snowmass it was the Hollywood crowd that bought much of the houses, which then sit vacant for most of the year, only to be used by the owners during peak ski season. Aspen/Snowmass in Colorado dealt with their housing crisis by designating certain housing units for local workers with rents and purchase prices limited to rising only with general inflation. They also have a lottery to determine who among interested buyers or renters gets a property, and to qualify the person must be a local who has worked in Aspen for at least 1 year before they can sign up for a lottery. There is very little available land to build in these narrow valleys. In cities such as Phoenix and L.A. the prices of houses and rentals are the big issue, wages simply haven’t kept up. Investors buy properties and jack up the prices, willing to sit on unsold units until the market comes to them. In Arizona cities water is now a big constraint on development. Some developments are built without water access and then sold to uneducated buyers who truck in water thinking that the cities will extend water to them eventually. But there are limits in a climate-change drying desert as to how much water can go to places. Right now we also have data centers that are sucking up water (and electricity which drives up rates) that could go to homes. Another area using water are almond and other nut farms, for all of the alternative milk products that are so popular. And alfalfa farms that ship overseas are driving up prices of feed for livestock owners and also using up 10,000 year old aquifers that houses in those rural areas depend on. The water is literally being exported in the alfalfa that goes to China or Saudi Arabia. Without water it’s hard to build houses in the desert. If a well goes dry a house can lose half of its value instantly. In addition individuals wanting to build their own homes are finding it very expensive (I know as I have done this) a single family home in my region costs between $400-$600 per square foot to build, that’s not including the land. And the trades have just been attacked by ICE. Nearly every roofing employee in the southwest is undocumented. Who wants to work in the sun in 115 degree temps during the exceedingly long hot summers here? Skilled trades people are hard to find and have jacked their rates up because of demand. In some cases building a home can take over two years because you are waiting on good tradespeople. The tariffs have affected prices too, a well that in 2017 would cost $17k to drill now costs over $60k because of materials costs. So there are plenty of other reasons besides zoning restrictions and regulations on building safe affordable housing that make it hard to build.
Zoning issues may slow down the rate of development but as a builder in Maine, I find that it is the high cost of labor (it’s seldom possible to get two quotes !), the lack of skilled labor, and the lack of sewage and public water. A serious issue in our mill towns away from the coast is the high poverty rate. It’s impossible to build anything that the average wage earner in those towns can afford. Where the state is trying to convince more ADUs in these communities there is no more room. They are already densely built and any building that could be chopped up into apartments has already been done. These towns need parks and playgrounds ! Of course they also need better paying jobs.
Honest question, what size of house would your market normally see as median? In our area (central BC, Canada) the average market seems to be about 2000sf. The place I grew up in (think 1958 when i was 6) was probably 700sf with a garage. 2 bed, 1 bath. Well and septic. Is there a market for that anymore? If people had the opportunity to get a place with 2 bed, 1.5 bath and 700sf, would it even sell? Don't know the cost per sf, but seems that it would lead to better outcomes. Thanks for the comment.
Not all land use restrictions are the same, nor may all fall on the same side of the ledger. Restrictions on sprawl, where that sprawl causes serious ecological damage, can be positive in the long term. Consider the destruction of wetlands. Wetlands buffer the flooding that can wipe out housing.
The obvious problem of housing affordability is the greed of investors who own too large a share of the market. Saying that local building regulation is the problem is propaganda.
Talking about housing affordability without including population growth make as much sense as talking about 'border security' without including illegal employers role in attracting undocumented workers.
We renovate houses and if they can’t be subdivided into condos, then we keep them as single-family. Two of our houses were about 1500 ft.². Our current duplex,each unit is about 1000 ft.² each. I agree that there is a need for starter homes, which can easily be two bedrooms with maybe a place for a small office for those who are working from home. For our single families we try to to include one and a half baths, which means that we are usually adding a half bath to that house. For our duplex they are just one bathroom each. We are using low step up showers so that they could be purchased by retired seniors. We are using the suggestions that AARP provides for people who want to age-in- place. We also have extras such as air heat exchangers.
In 2023, 70% of the benefits from the home mortgage interest deduction, HMID, went to households making over $200,000 and 94% of the benefits went to households making over $100,000. In FY2024, an estimated $25.4 billion of revenue was lost because of the HMID. The vast bulk of the HMID is wasted on households that don't need government assistance to afford a home. If Congress eliminated the HMID and instead directed that revenue into increasing the supply of rentals with matching funds for adding units to existing homes either by chopping McMansions into pieces or building mother-in-law suites or backyard apartments, we would get a lot more bang for our bucks. Federal law trumps local law so Congress could override all local ordinances to put this idea in place. Thomas Jefferson changed John Locke's Life, Liberty, and Property to Life, Liberty and the Pursuit of Happiness, so allowing property rights to rule over government regulation is part of our founding principles.
I have a few questions about the idea that the supply of affordable housing can easily be increased: 1. Is the figure in the article for overall construction productivity or just for single family houses? I have a hard time believing productivity for the construction of high rise buildings hasn't increased at all. I can see it for stick built houses.
2. Is the abundance thing just hand waving or has anyone done an analysis of what would happen in NY or SF if land use restrictions were eased? These places are already quite dense. Where does the build out happen? Is it practical and how does it impact cost. I see lots of high rises going up in Manhattan and the prices still go up. What and where will they build and how much will it cost? Can we provide services to these new housing units? I'm skeptical and am concerned with density limiting what we can do.
Do most seniors who own their now too large houses still have mortgages? If they don't do they want a new mortgage? For most, I think that is no and no.
You are correct. 40%of homeowners have no mortgage and I’m sure a large portion of that is seniors. But really these folks don’t want ANY mortgage. But because the prices of even much smaller homes are high, it is nearly impossible to purchase another property at the same or less than the value of an existing home.
"If consumers’ overall spending power grows at a normal pace, should we still worry about a particular item being more expensive than usual? We think the answer is yes in the case of housing, "
very much this comes down to the frequent limitation of using an average. That is, there is this cost-of-living index which is some sort of average or weighted average, with some procedure for trying to account for changes in what products are available, and at what costs, and changes in preferences.
Basically, "Sloppy, sloppy, sloppy!". (I have no great alternative in mind, though I'll bet some people have proposed some. The cost-of-living indices are useful, but, really, somewhat the potential problems with such a thing are so obvious, it's almost a case of "garbage in, garbage out"!)
Whatever's going on in the CPI and wage indices, perhaps they will show no particular problems in a few more years, when maybe half of the people under 30, who are not living with parents, will be living in 250 square-foot tiny apartments or tiny houses! (Compensated, for, yes, by several 70-inch led-TVs mounted on the walls, connected to YouTube, giving the 250 square foot apartment a roomier feeling with spacious views of the Alps!)
--
As well, some time in the past, I commented suspicion of all of these CPI and average wage numbers you economists are using, in particular for not accounting for the changes in health care since, say, 1960. Maybe 10% or so more of the GDP has to go into that. And, possibly more significantly, a wage has to handle a longer period of non-working, at least for most people.
Where is the consequence of that shown in wage- and cost- indices, I wonder?
--
Otherwise, in prior comment here, I've already commented I'm very much on the we-need-supply side of this argument as to housing costs. (With many liberals like myself, such as Ezra Klein and Mr. Bernstein, but contra some other liberals.)
I will throw in, just for the pleasure of more completeness, that we can't have population going up and up forever, and I'm not even sure we want it going up, in this country, now.
Back in the sixties there was a notion of "Zero Population Growth", and a "Population Bomb", which I think was very fashionable among us liberals.
Though the "Population Bomb" didn't quite happen as predicted, sometimes attributed to the single person food productivity advances of Norman Borlaug, I find the effects of excessive population still a concern. (I suspect it has left Democratic politics largely because of a pro-immigration platform in the Democratic party.)
Here in NC we have cities like mine that have been growing rapidly for years. Most of the construction has been done by immigrants, mostly from Mexico. It was the same when I lived in Texas. Trump is making sure that major source of construction workers is destroyed.
All too true. The world we senior citizens knew and the world our grandchildren know is totally different. When we rented our first apartment in the nineteen fifties it was for a small percentage of our income: ninety five dollars a month for the first floor of a brownstone in Manhattan's upper East side. One young couple we know recently rented a small apartment on the West Side of Manhattan for five thousand a month. When they bought an apartment it was for over a million and they will be paying for that for years to come. New York City is out of control when it comes to ownership or rentals. Do they have to live in NYC? For this young couple, yes. The husband goes to Medical School there and the wife's job is there. Nurses, police, firefighters, restaurant help and many others who work in NYC cannot possibly afford to live there or near there. In the nineteen sixties a group of New York City unions banded together and built affordable housing for union members in the Chelsea district of Manhattan. It was a godsend for many city workers. That is not happening today. Nurses are on strike because they cannot afford to live near their hospitals. Sanitation workers spend hours commuting. A middle class life seems unattainable to large numbers of young people starting out today.
I’m skeptical. Homeownership as both “American Dream” and wealth-building has long been bankers’ propaganda. Building more houses may get more people to buy, but it erodes their wealth-building. And it locks people in geographically so they can’t move to get better jobs and pay. Finally, much of the time, in segregated neighborhoods, minorities suffer house depreciation because many there can’t afford repairs. “Red Vienna” is a better model than Volkshaus.
Thanks for what is a very helpful article. Could we get just one more graph to compare construction productivity in the USA and other G10 countries? A sorting out among the other G9 in this graph could point the way forward to better productivity recommendations if those nine countries get their productivity improvements differently.
Find the investors before you start talking to local governments. Talk to the primary builders and get realistic feedback. Tell the middle class they have a new tax bill. This plan is structured to solve a multitude of problems which are basically one: capital. Go to the market and discuss it because politics will evade and probably shift the economic costs of fairness to someone else whose just risen above the tidewater.
I'm not an economist but I have this hunch/theory that if you have a stable market with a certain distribution of incomes, renters and owners, housing prices, and construction/destruction rates, average property hold times, and it's all in equilibrium. Now if X% (X=10%, 20%?) of the population suddenly sees their incomes double or triple, housing prices will shoot up and a the bottom Y percentile will never be able to afford to live there unless they already own homes and homelessness can never be reduced. Are there any models of this type of situation? Specifically I'm thinking of the dotcom/AI bubbles in Silicon Valley. Very ordinary homes are at $1,000-$3,000 per square foot.
Serious topic, but I chuckled at your difficulties with your current landlord. I’ve lodged multiple complaints against mine, but he doesn’t seem too interested in doing anything about it.
In many rural tourist areas in the West the issue most affecting housing availability is AirBnB, VRBO, etc. Why would an owner rent a property at $1500/month to a local when they could get $3500-$7000/month renting it to tourists? In some places like Sedona, Flagstaff, Prescott all in Arizona a large percentage of the housing is used for short term rentals. The city of Sedona has been asking the State to allow it to limit the number of short term rentals so they can increase the available housing for local workers. In Aspen/Snowmass it was the Hollywood crowd that bought much of the houses, which then sit vacant for most of the year, only to be used by the owners during peak ski season. Aspen/Snowmass in Colorado dealt with their housing crisis by designating certain housing units for local workers with rents and purchase prices limited to rising only with general inflation. They also have a lottery to determine who among interested buyers or renters gets a property, and to qualify the person must be a local who has worked in Aspen for at least 1 year before they can sign up for a lottery. There is very little available land to build in these narrow valleys. In cities such as Phoenix and L.A. the prices of houses and rentals are the big issue, wages simply haven’t kept up. Investors buy properties and jack up the prices, willing to sit on unsold units until the market comes to them. In Arizona cities water is now a big constraint on development. Some developments are built without water access and then sold to uneducated buyers who truck in water thinking that the cities will extend water to them eventually. But there are limits in a climate-change drying desert as to how much water can go to places. Right now we also have data centers that are sucking up water (and electricity which drives up rates) that could go to homes. Another area using water are almond and other nut farms, for all of the alternative milk products that are so popular. And alfalfa farms that ship overseas are driving up prices of feed for livestock owners and also using up 10,000 year old aquifers that houses in those rural areas depend on. The water is literally being exported in the alfalfa that goes to China or Saudi Arabia. Without water it’s hard to build houses in the desert. If a well goes dry a house can lose half of its value instantly. In addition individuals wanting to build their own homes are finding it very expensive (I know as I have done this) a single family home in my region costs between $400-$600 per square foot to build, that’s not including the land. And the trades have just been attacked by ICE. Nearly every roofing employee in the southwest is undocumented. Who wants to work in the sun in 115 degree temps during the exceedingly long hot summers here? Skilled trades people are hard to find and have jacked their rates up because of demand. In some cases building a home can take over two years because you are waiting on good tradespeople. The tariffs have affected prices too, a well that in 2017 would cost $17k to drill now costs over $60k because of materials costs. So there are plenty of other reasons besides zoning restrictions and regulations on building safe affordable housing that make it hard to build.
Zoning issues may slow down the rate of development but as a builder in Maine, I find that it is the high cost of labor (it’s seldom possible to get two quotes !), the lack of skilled labor, and the lack of sewage and public water. A serious issue in our mill towns away from the coast is the high poverty rate. It’s impossible to build anything that the average wage earner in those towns can afford. Where the state is trying to convince more ADUs in these communities there is no more room. They are already densely built and any building that could be chopped up into apartments has already been done. These towns need parks and playgrounds ! Of course they also need better paying jobs.
Honest question, what size of house would your market normally see as median? In our area (central BC, Canada) the average market seems to be about 2000sf. The place I grew up in (think 1958 when i was 6) was probably 700sf with a garage. 2 bed, 1 bath. Well and septic. Is there a market for that anymore? If people had the opportunity to get a place with 2 bed, 1.5 bath and 700sf, would it even sell? Don't know the cost per sf, but seems that it would lead to better outcomes. Thanks for the comment.
Not all land use restrictions are the same, nor may all fall on the same side of the ledger. Restrictions on sprawl, where that sprawl causes serious ecological damage, can be positive in the long term. Consider the destruction of wetlands. Wetlands buffer the flooding that can wipe out housing.
The obvious problem of housing affordability is the greed of investors who own too large a share of the market. Saying that local building regulation is the problem is propaganda.
Talking about housing affordability without including population growth make as much sense as talking about 'border security' without including illegal employers role in attracting undocumented workers.
We renovate houses and if they can’t be subdivided into condos, then we keep them as single-family. Two of our houses were about 1500 ft.². Our current duplex,each unit is about 1000 ft.² each. I agree that there is a need for starter homes, which can easily be two bedrooms with maybe a place for a small office for those who are working from home. For our single families we try to to include one and a half baths, which means that we are usually adding a half bath to that house. For our duplex they are just one bathroom each. We are using low step up showers so that they could be purchased by retired seniors. We are using the suggestions that AARP provides for people who want to age-in- place. We also have extras such as air heat exchangers.
In 2023, 70% of the benefits from the home mortgage interest deduction, HMID, went to households making over $200,000 and 94% of the benefits went to households making over $100,000. In FY2024, an estimated $25.4 billion of revenue was lost because of the HMID. The vast bulk of the HMID is wasted on households that don't need government assistance to afford a home. If Congress eliminated the HMID and instead directed that revenue into increasing the supply of rentals with matching funds for adding units to existing homes either by chopping McMansions into pieces or building mother-in-law suites or backyard apartments, we would get a lot more bang for our bucks. Federal law trumps local law so Congress could override all local ordinances to put this idea in place. Thomas Jefferson changed John Locke's Life, Liberty, and Property to Life, Liberty and the Pursuit of Happiness, so allowing property rights to rule over government regulation is part of our founding principles.
https://www.congress.gov/crs_external_products/IF/PDF/IF12789/IF12789.3.pdf
https://www.historynewsnetwork.org/article/why-did-jefferson-change-property-to-the-pursuit-o
I have a few questions about the idea that the supply of affordable housing can easily be increased: 1. Is the figure in the article for overall construction productivity or just for single family houses? I have a hard time believing productivity for the construction of high rise buildings hasn't increased at all. I can see it for stick built houses.
2. Is the abundance thing just hand waving or has anyone done an analysis of what would happen in NY or SF if land use restrictions were eased? These places are already quite dense. Where does the build out happen? Is it practical and how does it impact cost. I see lots of high rises going up in Manhattan and the prices still go up. What and where will they build and how much will it cost? Can we provide services to these new housing units? I'm skeptical and am concerned with density limiting what we can do.
Do most seniors who own their now too large houses still have mortgages? If they don't do they want a new mortgage? For most, I think that is no and no.
You are correct. 40%of homeowners have no mortgage and I’m sure a large portion of that is seniors. But really these folks don’t want ANY mortgage. But because the prices of even much smaller homes are high, it is nearly impossible to purchase another property at the same or less than the value of an existing home.
On the point around the bit quoted:
"If consumers’ overall spending power grows at a normal pace, should we still worry about a particular item being more expensive than usual? We think the answer is yes in the case of housing, "
very much this comes down to the frequent limitation of using an average. That is, there is this cost-of-living index which is some sort of average or weighted average, with some procedure for trying to account for changes in what products are available, and at what costs, and changes in preferences.
Basically, "Sloppy, sloppy, sloppy!". (I have no great alternative in mind, though I'll bet some people have proposed some. The cost-of-living indices are useful, but, really, somewhat the potential problems with such a thing are so obvious, it's almost a case of "garbage in, garbage out"!)
Whatever's going on in the CPI and wage indices, perhaps they will show no particular problems in a few more years, when maybe half of the people under 30, who are not living with parents, will be living in 250 square-foot tiny apartments or tiny houses! (Compensated, for, yes, by several 70-inch led-TVs mounted on the walls, connected to YouTube, giving the 250 square foot apartment a roomier feeling with spacious views of the Alps!)
--
As well, some time in the past, I commented suspicion of all of these CPI and average wage numbers you economists are using, in particular for not accounting for the changes in health care since, say, 1960. Maybe 10% or so more of the GDP has to go into that. And, possibly more significantly, a wage has to handle a longer period of non-working, at least for most people.
Where is the consequence of that shown in wage- and cost- indices, I wonder?
--
Otherwise, in prior comment here, I've already commented I'm very much on the we-need-supply side of this argument as to housing costs. (With many liberals like myself, such as Ezra Klein and Mr. Bernstein, but contra some other liberals.)
I will throw in, just for the pleasure of more completeness, that we can't have population going up and up forever, and I'm not even sure we want it going up, in this country, now.
Back in the sixties there was a notion of "Zero Population Growth", and a "Population Bomb", which I think was very fashionable among us liberals.
Though the "Population Bomb" didn't quite happen as predicted, sometimes attributed to the single person food productivity advances of Norman Borlaug, I find the effects of excessive population still a concern. (I suspect it has left Democratic politics largely because of a pro-immigration platform in the Democratic party.)
the tariffs on steel are not helping build taller multifamily housing in convenuent locations.
Last I looked, Trump's tariff were adding well north of $10K to the price of building a unit.
Here in NC we have cities like mine that have been growing rapidly for years. Most of the construction has been done by immigrants, mostly from Mexico. It was the same when I lived in Texas. Trump is making sure that major source of construction workers is destroyed.
All too true. The world we senior citizens knew and the world our grandchildren know is totally different. When we rented our first apartment in the nineteen fifties it was for a small percentage of our income: ninety five dollars a month for the first floor of a brownstone in Manhattan's upper East side. One young couple we know recently rented a small apartment on the West Side of Manhattan for five thousand a month. When they bought an apartment it was for over a million and they will be paying for that for years to come. New York City is out of control when it comes to ownership or rentals. Do they have to live in NYC? For this young couple, yes. The husband goes to Medical School there and the wife's job is there. Nurses, police, firefighters, restaurant help and many others who work in NYC cannot possibly afford to live there or near there. In the nineteen sixties a group of New York City unions banded together and built affordable housing for union members in the Chelsea district of Manhattan. It was a godsend for many city workers. That is not happening today. Nurses are on strike because they cannot afford to live near their hospitals. Sanitation workers spend hours commuting. A middle class life seems unattainable to large numbers of young people starting out today.
I’m skeptical. Homeownership as both “American Dream” and wealth-building has long been bankers’ propaganda. Building more houses may get more people to buy, but it erodes their wealth-building. And it locks people in geographically so they can’t move to get better jobs and pay. Finally, much of the time, in segregated neighborhoods, minorities suffer house depreciation because many there can’t afford repairs. “Red Vienna” is a better model than Volkshaus.
Thanks for what is a very helpful article. Could we get just one more graph to compare construction productivity in the USA and other G10 countries? A sorting out among the other G9 in this graph could point the way forward to better productivity recommendations if those nine countries get their productivity improvements differently.
Find the investors before you start talking to local governments. Talk to the primary builders and get realistic feedback. Tell the middle class they have a new tax bill. This plan is structured to solve a multitude of problems which are basically one: capital. Go to the market and discuss it because politics will evade and probably shift the economic costs of fairness to someone else whose just risen above the tidewater.
I'm not an economist but I have this hunch/theory that if you have a stable market with a certain distribution of incomes, renters and owners, housing prices, and construction/destruction rates, average property hold times, and it's all in equilibrium. Now if X% (X=10%, 20%?) of the population suddenly sees their incomes double or triple, housing prices will shoot up and a the bottom Y percentile will never be able to afford to live there unless they already own homes and homelessness can never be reduced. Are there any models of this type of situation? Specifically I'm thinking of the dotcom/AI bubbles in Silicon Valley. Very ordinary homes are at $1,000-$3,000 per square foot.
Serious topic, but I chuckled at your difficulties with your current landlord. I’ve lodged multiple complaints against mine, but he doesn’t seem too interested in doing anything about it.