America’s Exceptional Housing Crisis

“The United States may be facing the most severe housing crisis in its history.” So begins a memo, published by a group of U.S. housing policy experts last month, about a looming eviction emergency. Between 30 million and 40 million Americans could soon be forced from their homes, the authors warn, after COVID-19 protections and aid packages expire. But the housing crisis in the United States isn’t a product of the pandemic alone. Rather, it has been quietly building for half a century. Restrictive zoning and building laws have produced an acute shortage of housing, pushing real estate prices ever higher—and out of reach for a growing number of Americans. 

The lack of affordable housing has ramifications for the entire U.S. economy. It prevents people not only from renting or buying homes in the localities where they live but also from moving to places of greater economic opportunity. In so doing, it reinforces inequality among regions and stunts overall economic growth. Restrictions on high-density development in urban areas also lead to sprawl, which contributes to climate change.

But housing shortages are not inevitable, and neither are their consequences. The United States’ rivals have had relatively little trouble increasing housing supply. Russia has more than doubled its annual rate of house building over the past 20 years. In the decade leading up to 2010, China built the housing equivalent of two Spains or one Japan. Other wealthy democracies, such as Japan, Germany, and Switzerland, have avoided many of the issues the United States currently confronts.

The United Kingdom is one of the only other developed countries with a housing problem that rivals that of the United States. But last month the British government announced that it is planning the most substantial reforms in a generation—an attempt to override the local planning regulations that inhibit new residential construction and boost housing supply across the country. American policymakers should take note. If Washington wishes to promote faster economic growth, or even just drag itself out of the current coronavirus–induced recession, it needs to get serious about housing policy. And it should start by looking abroad.

THE COSTS OF RUNAWAY APPRECIATION

Over the last half century, housing prices in many of the United States’ most productive cities have soared. In New York City and Los Angeles, they have doubled after adjusting for inflation. In San Francisco, they have tripled. Nationwide, the median rent payment increased 61 percent in real terms between 1960 and 2016—a period in which the median renter’s income grew by just five percent. Today, one in four American renters spends more than half of his or her income on housing. And even before the pandemic, some 200,000 Americans were sleeping in parks, abandoned buildings, or cars every night. That number is surely higher now.

Sky-high housing prices might be a boon to homeowners, but they exact broader costs from society. They deter lower-income workers from migrating to the places with the most opportunity, pushing them into poorer locales where they are likely to be less productive. According to the economists Chang-Tai Hsieh and Enrico Moretti, this lack of mobility lowered aggregate U.S. growth by more than a third between 1964 and 2009. Incomes across states stopped converging, and regional inequalities hardened. If building restrictions in just three U.S. cities—New York City, San Francisco, and San Jose—were relaxed to the level of those of the median U.S. city, Hsieh and Moretti calculate that U.S. GDP would increase by as much as nine percent. Put another way, housing regulations in high-productivity cities cost the United States the equivalent of New York State’s GDP every year.

Housing regulations in high-productivity cities cost the United States the equivalent of New York State’s GDP every year.

Excessive housing regulation has noneconomic costs as well. When cities can’t grow taller, they expand outward, threatening ecosystems. Building restrictions are most stringent—and housing prices highest—in the parts of the United States with the lowest greenhouse gas emissions per capita. By restricting new development, areas of the country with the lowest emissions drive new development toward areas with higher emissions. And as rising house prices force people to live farther away from their jobs, longer commutes and rising traffic generate still more emissions. In the absence of land-use reform, house prices will continue to soar, with consequences that extend far beyond the nation’s most affluent cities.

RACE AND “HOMEVOTING”

The housing crisis in the United States is partly a product of the country’s vexed racial history. Communities have long wielded land-use regulation to maintain racial segregation, often with the active backing of the federal government. Nowhere was this truer than in the suburbs that sprang up around American cities after World War II. Locally sanctioned residential racial segregation, coupled with discrimination by mortgage lenders and real estate agents, kept these communities almost exclusively white—a legacy that lingers to this day. A similar dynamic was at play in cities. The political scientist Jessica Trounstine has shown that cities that were predominantly white in 1970 have tended to lock in that demographic profile with land-use restrictions that are not racially explicit but have a segregating effect—limits on multifamily or affordable housing, for instance. As a result, cities that were whiter than their respective metropolitan areas in 1970 are likely to have restrictive land-use patterns today—and also likely to have experienced exorbitant increases in housing costs.

Racial animus is still a factor in excessive building restrictions. But so is economic self-interest. Americans tend to support building more houses—but not near their own. Homeowners of both major political parties often oppose local development, and they do so regardless of their professed ideological commitments. Even when researchers show liberal homeowners messages extolling the benefits of building new housing for low- and middle-income families, these homeowners continue to oppose new developments. Conservatives, who theoretically back free markets and deregulation, are no more enthusiastic about new housing development near their homes. The reason is simple: homeowners of all political persuasions fear threats to the value of their property—often their principal asset—and are motivated to use their influence at the ballot box to protect it.

The central cleavage in housing policy is between people who own homes and those who do not.

The central cleavage in housing policy, in other words, is not partisan: it is between people who own homes and those who do not. In California and Texas, “homevoters,” to use the term coined by the economist William Fischel, are more likely to participate in city council meetings and donate to candidates, according to a new paper by the political scientist Jesse Yoder. Another working paper by Yoder and Andrew B. Hall shows that homeownership leads to higher rates of participation in local elections—and the more expensive the home, the more likely the owner is to vote. The homeowner turnout boost is almost twice as large when zoning issues are on the ballot.

BREAKING THE DEADLOCK

The legacy of racial segregation and the political power of “homevoters” might together seem to make rising house prices inevitable in coastal U.S. cities. But the experience of other countries suggests other possibilities. Ultimately, housing affordability is a political choice. Although housing policy tends to be local—especially in the United States—there are ways for national governments to influence it.

In the 1980s, Japan faced a similar predicament to the one the United States faces today. Housing prices were rising rapidly in the capital, Tokyo. But in the early 2000s, the national government passed a series of reforms assuming control over land use and reducing the ability of local opponents to block new housing construction. The government then eased planning restrictions in Tokyo, allowing taller and denser buildings. Since then, the city’s rate of housing construction has risen by 30 percent. In 2014, construction started on more new houses in Tokyo than in the entire state of California or in all of England. While the average price of a home in San Francisco and London increased by 231 percent and 441 percent, respectively, between 1995 and 2015, in Tokyo it remained essentially unchanged.

Other advanced democracies such as Switzerland and Germany have avoided runaway appreciation by keeping homeownership rates lower—thereby reducing the political power of “homevoters” who might oppose new developments. In Switzerland, where the homeownership rate is just 40 percent (compared with around 68 percent in the United States), almost twice as many houses are built per person every year as in the United States. Swiss house prices have risen by less than those in any other developed country over the past century. In Germany, which has a similar homeownership rate to Switzerland’s, average real house prices have not increased since 1980.

But perhaps the most relevant parallel for U.S. policymakers is the United Kingdom. After World War II, the British government restricted housing development, creating “green belts” around cities, within which building was constrained. It also adopted a planning system that gave local councils substantial power to veto development plans on a case-by-case basis. (Much of continental Europe, by contrast, permits construction so long as developers meet certain standards—even if local residents object.) Perhaps unsurprisingly, demand for housing in the United Kingdom has far outstripped supply. Over the past half century, the United Kingdom has built half as many houses as Germany, and house prices—but not incomes—have grown faster than in any other country in the Organization for Economic Cooperation and Development. London, meanwhile, has become one of the most expensive cities in the world for renters.

British Prime Minister Boris Johnson entered office promising to “build, build, build,” and last month his government announced the biggest shakeup of the planning system in decades. The government’s proposed reforms would make the United Kingdom’s planning system more like Europe’s, affording local residents less control over development. Local governments would have to divide land into plots designated for either development or protection. Proposals to build on plots designated for development would receive automatic permission, so long as they meet certain standards. Johnson’s proposals would also strip local councils of some of their planning powers and set binding house-building targets. Johnson’s reforms have not yet become law, and they will face a tough reception in Parliament: local Conservative politicians, as well as the opposition Labour Party, are expected to mount fierce opposition.

Given the similarities between the housing crises in the United Kingdom and the United States, American politicians should pay close attention to this unfolding battle over land use. Above all, they should note the importance of national intervention to deal with ostensibly local housing problems. To overcome housing deadlocks, national governments sometimes need to act—or to incentivize local governments to act, through carrots or sticks.

Unfortunately, the administration of U.S. President Donald Trump has moved the United States in the wrong direction. In the early years of his administration, Secretary of Housing and Urban Development Ben Carson echoed the previous administration’s criticisms of regulatory barriers to housing construction and suggested withholding federal funds from suburbs that failed to reform their land-use regulations to permit more development. But Trump has since changed tack—promising to “protect America’s suburbs” and telling residents “living their Suburban Lifestyle Dream” that “you will no longer be bothered or financially hurt by having low income housing built in your neighborhood.” Should Trump win reelection in November, the prospects for sensible land-use reform are bleak.

Democratic presidential nominee Joe Biden, by contrast, has announced that he will make some federal grants for transportation and community development contingent on plans to allow more housing development. Biden also wants to expand Section 8 housing vouchers, which provide housing funds to low-income renters, and extend $300 million in grants for technical assistance to states and localities to help them eliminate exclusionary zoning regulations.

The Biden campaign’s proposals are a good start. But regardless of who wins in November, the federal government should make sure that land-use reform doesn’t end up on the back burner. The pandemic has exacerbated the problem of affordable housing in the United States, but it has also given the federal government an extraordinary opportunity to address a long-standing issue. The federal government should offer cash-strapped local authorities extra funds in exchange for zoning reforms. By doing so, Washington can choose to help alleviate the national crisis in affordable housing.