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More Housing Could Increase Affordability—But Only If You Build It in the Right Places

More Housing Could Increase Affordability—But Only If You Build It in the Right Places

Focusing on zoning in hot-market urban centers misses economic realities—and major opportunities.

By: Alan Mallach, Shelterforce, June 19, 2020. Available Here. 

For the past couple of years, there have been a growing number of voices saying that to address the housing affordability problem, what we need to do is build more housing— not necessarily more affordable housing, but more housing, period. Sound bites like “yes, you can build your way to affordable housing” are showing up more and more.

A key part of that case is that what’s needed to make that happen is changing zoning ground rules. The poster child for this argument is San Francisco, which, as everyone points out, has mind-bogglingly high housing prices, a desperate shortage of affordable housing, and a metastasizing homelessness problem.

There’s a decent argument that, under some conditions, building more housing for the market will moderate some prices to some degree, and that zoning has something to do with it. But ultimately it will take a lot more than building more expensive market housing in downtown San Francisco or Seattle to begin to tackle those cities’ housing crises. In fact, the realities of building in high-demand, already built up urban areas mean that zoning changes in those areas will have relatively little effect.

Most of the zoning conversation is missing if not the entire point, a big part of it. Spoiler alert: The real zoning issue is what happens in the suburbs. While that gets periodically acknowledged, too few people are talking about it and even fewer are focusing on making change in specifically those places.

The Tangled Relationship Between Supply and Demand

A lot of the people who argue that regulations are causing inadequate supply don’t appear to have looked at the numbers. One of them is HUD Secretary Ben Carson, who, on a trip to San Francisco last fall, pronounced that “Evidence shows us quite clearly that the places that have the most regulation also have the highest prices and the most homelessness. Therefore, it would seem only logical to attack those things that seem to be driving the issues.” Evidence also shows that the places that are closest to the Pacific Ocean have the highest prices and the most homelessness, but no one, so far, has suggested draining the ocean as a solution to homelessness.

And besides, the evidence doesn’t actually support Carson’s statement.

The basic assumption of the market is that where the demand is highest, builders will build more. Thus, if the market is working, you’d expect it to show up in the numbers. And it does. I looked at how many building permits each of a number of either hot-market or struggling cities had issued in the past six years and calculated the annual average relative to each city’s existing housing stock, as shown in the table. Nationally, during six fairly good years for the housing market overall, average annual building permits amounted to a little less than 1 percent of the nation’s housing stock. But in Austin and Seattle, they amounted to nearly 3 percent of each city’s stock—or three times the national average. Conversely, in Pittsburgh and St. Louis, where demand is weak, permits were less than one-half of 1 percent of the housing stock. Clearly, builders build where the demand is.

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