Many residents of Burlington, Vermont who earn the median salary cannot afford to buy or rent a median-priced house or apartment -- and the disparity continues to grow with the housing market boom. What does this mean on a national level? Housing experts Wendell Cox and Susan Popkin answer your questions.
The Online NewsHour asks:
Why is there such a disconnect between wages in a particular area and housing prices? If prices are driven by demand, someone must be buying at the high prices -- who are they?
Is this related to low interest rates at banks, making it more profitable for banks to loan higher and higher amounts of money for home loans?
Dr. Susan Popkin responds:
I can't speak to the issue of banks, but many cities have deliberately targeted higher-income households to help revitalize older neighborhoods.
For example, in Chicago, there has been an influx of higher-income renters and homeowners from suburban areas while the suburban areas have actually grown poorer. Zoning laws that attempt to control growth have also contributed to the problem, limiting developers ability to build higher-density developments.
Wendell Cox responds:
The affordability crisis can largely be traced to the very governments and urban planners that naively wring their hands in despair. "It's the regulations, dummy."
The regional disconnect between household income and housing prices has little if anything to do with demand. Where demand for new housing is the greatest, housing affordability has improved. According to the National Association of Home Builders Housing Opportunity Index, housing affordability (the percentage of households able to afford the median priced house) improved in fast-growing Las Vegas, Phoenix, Atlanta and other areas over the last decade. The worst housing affordability exists in three areas -- Portland, Oregon, the Boston area and California, especially San Francisco-San Jose. Not coincidentally, these areas also have some of the most restrictive development and zoning regulations.
In Portland the rationale behind these regulations is to curb urban sprawl. Going under the misleading moniker of "smart growth," Portland's policies include an urban growth boundary beyond which development is not permitted. This rations the land available for development. Economics tells us that rationing raises prices. So it is not surprising that Portland (and Oregon, with its comprehensive smart growth laws) experienced the nation's worst housing affordability declines in the past ten years.
California communities have imposed development impact fees on new housing construction, which, of course raises prices. These fees can be more than $60,000 for single-family houses and $40,000 for individual apartment units. Some communities have also followed Portland's example, "green-lining" new middle income buyers out of the market with urban growth boundaries. Many middle-income households find affordable housing 60 to 80 miles away in the San Joaquin Valley. And, if middle-income households are encountering difficulty, things are that much worse for renters, especially with low incomes.
In the Boston area, higher than market density zoning precludes development of lower-cost houses and apartments. The practice is spreading, such as to the northern Virginia suburbs of Washington, D.C.
These strategies taken together are best understood as "exclusionary planning," because they deny housing opportunity by artificially raising prices. This, of course, means that fewer households can afford new homes and fewer renters can afford acceptable housing -- and all of this for no reason.
Part of the problem is the "NIMBY" ("not in my back yard") syndrome, which allows people who already have their homes to make it more difficult, if not impossible, to build nearby housing for new households. The net effect is that the "haves" (those who already live in the neighborhood) can say "no" to the "have-nots" (those who would like to move in), in exercise of extra-territorial rights conveyed by a regulatory regime gone mad.
It is time to return to basics. The next lot is not "your back yard," much less the next block. "Your back yard" ends at the property line, pure and simple. People who already live in an area have no moral right to keep others from moving into the housing they choose to buy. Equality under the law extends to all, not just the already propertied. New households should have same opportunities as those who came before.
More subsidies are not the answer, nor are government affordability programs. For 65 years the nation has fulfilled, according to some estimates, barely one-third of the housing subsidy need. This will not soon change. And, while there is rhetoric about affordable housing programs to neutralize smart growth-induced cost increases, virtually nothing has been done. For example, Oregon spends little more on affordable housing than it did a decade ago, yet smart growth housing cost increases could easily exceed $500 million annually. Pious proposals for improbable affordability programs may assuage the some guilt, but leaves lower and middle income households out in the cold.
Both the national and international evidence is clear. Excessive land regulation raises prices, reduces home ownership and makes renting more expensive. At the same time, contrary to the claims of smart growth proponents, it brings more traffic congestion, more intense air pollution and a higher cost of living.
For at least seven decades, expansion of home ownership --- the American Dream --- has been a principal national objective. There is good reason for this. Higher levels of home ownership are associated with more stable neighborhoods. Homeowners accumulate capital to start businesses or send the kids to college. Home ownership gives people a stake in the community. A home-owning America is a more cohesive America.
During the 1950s, household growth was nearly double the rate of the last ten years. Yet the nation, not nearly so affluent then, provided the necessary housing, as suburban developments were built around the aging cities. The new schools, roads, sewers and water systems were, in relative terms, much more costly than today, yet there were no development impact fees. If smart growth had been in place, our parents and grandparents would have been denied the "move to Levittown" (and other suburban developments), because it never would have been built. And, America would be a poorer place and necessarily less inclusive place today.
We must no longer pretend that the inescapable can be ignored -- as development becomes more regulated, it becomes more expensive, and housing affordability declines. The best strategy for mitigating the regional housing affordability crisis is to sensibly loosen development regulations and outlaw land rationing.