0. Why I’m interested
Growing up I moved 11 times before turning 16. So, I’ve always been interested in where people live and why. This page is a working summary of what I’m learning about housing, mostly focused on the U.S.
1. Is there a problem? Sure seems like it
Pew Research finds that about half (49%) of Americans say that housing availability in their community is a major problem. And that’s up 10 percentage points over the last few years (More Americans See Affordable Housing as a Major Issue| Housing Finance Magazine).
Many households pay a lot of money towards housing. One standard measure is “cost burden” — whether a household pays more than 30% (moderate) or 50% (severe) of gross income on housing costs. In 2019, ~30% of all households were cost burdened, ~54% of renters and ~21% of owners (JCHS). This metric has flaws (for example, when calculated from Census data as the JCHS does, it does not reflect non-cash benefits), but at least it looks at the household budget level.
What about government programs? Unlike medical care and food assistance, housing assistance in the U.S. is not an entitlement. Only one in four households eligible for housing assistance receive it. If a household is eligible to receive assistance, they usually end up on a long waitlist — if the waitlist is even open — often for years.
2. The root challenge is that there isn’t enough housing where people want to live
To be a bit pedantic, it’s not strictly a supply issue because there are more houses than households. Census Bureau estimates 142M housing units compared to 124M households (U.S. Census Bureau QuickFacts: United States).
While there are people who are homeless, and supporting them is an important policy issue, in terms of numbers that’s a small group relative to the number of households (NAEH estimated 580K people experiencing homelessness on it’s annual point-in-time count in January 2020).
But that means it’s also not strictly a demand issue, because people live somewhere. It’s not that most people can’t pay for housing, it’s that they pay more than (a) they want to (from their perspective) and/or (b) they should (from some outside perspective).
So the root challenge is that there is a mismatch between where the homes are and where people want to live.
3. This mismatch is exacerbated by policy choices
Is this just the market clearing price in different places? No, because there are policies that disturb supply and demand.
Residential zoning in many cities restricts what types of buildings can be where — whether that’s through zoning classes that exclusively allow single-family homes, height limits, minimum lot sizes, floor area ratio, etc.
Permitting and review processes can have a lot of steps and cost a lot of money. For instance, Goggin (2018) shows that San Francisco’s permitting process in required dozens of steps and hundreds of thousands of dollars, sometimes slowing development down for years.
Regulation of materials and construction techniques can limit the impact of technological innovation. For instance, mass timber hasn’t reached it’s potential. It can be used for much taller buildings than is typically allowed with building codes.
In practice these policy choices — and they are choices — result in fewer housing units available in high-demand areas and in a slower market response to in-demand growing areas, because building the units is either not allowed or too hard.
Oh, and some of these policies were intentionally and explicitly racist — see The Color of Law.
4. You should care because it causes bad outcomes for all of us
Would you like to have $20K+ more per year, every year? Hsieh & Moretti (2019) estimated that with looser housing constraints US GDP in 2009 would have been 14 to 36% higher — that’s $13.8K to $35.5K more, per year, per worker. (The original paper actually understated this result in some places due to some text errors, which Bryan Caplan identified in 2021)
- TODO link note claiming coding errors reduce this effect by 2 orders of magnitude, last seen here: HM_Comment.pdf - Google Drive
How is that possible? The primary economic argument is that (a) cities tend to be high productivity areas due to agglomeration effects, and (b) high housing costs limit the number of workers who can move to these high productivity areas, therefore (c) productivity would be higher if housing were less expensive (as in, closer to the true market clearing price). One way to describe this is that the hidden victims of housing regulation are those who stay in low productivity areas.
It gets worse than leaving trillions of dollars on the sidewalk through stunted labor productivity. Call it “the housing theory of everything” — “Western housing shortages do not just prevent many from ever affording their own home. They also drive inequality, climate change, low productivity growth, obesity, and even falling fertility rates.”
5. Moving towards housing abundance is possible
Some cities and states are ending exclusive single-family zoning. For example, in 2018 (final vote in 2019) Minneapolis became the first U.S. city to end single-family zoning city-wide, allowing at least duplexes and triplexes everywhere. In 2021 the state of California followed suit, allowing up to four homes on residential lots statewide. In March 2023 Arlington County VA ended exclusively single-family zoning (though there’s a quite low cap on permits per year until 2028). Also Oregon and Charlotte NC.
Some states are using other zoning policy levers to push localities to reach housing goals. Some like Massachusetts are encouraging “transit-oriented development” by requiring cities and towns to allow multifamiliy buildings near public transit. In California, a combination of updated target requirements and old but extant laws have given the state housing department more teeth — some Bay Area cities might lose all local control of zoning if housing targets aren’t reached.
Zoning, permitting, development and financing rules all interact in complex ways. It’s likely that a combination of reforms are necessary, and it might take a while for results to appear. The meager results in CA so far show zoning changes are not an immediate silver bullet
If you had a policy magic wand, you could also consider demand-side reforms like fully funding the federal government’s Housing Choice Voucher (HCV) program (sometimes referred to as “Section 8”) so there aren’t years-long waitlists — just one in four eligible renter-households receive housing assistance. And perhaps rolling disparate unit-based programs into primarily the household-based HCV — because vouchers are more cost-effective to the government (taxpayer), switching from unit-based programs to an entitlement voucher program could serve another 2 million households at no additional cost
Technology advances could accelerate the impact of policy adjustments. It’s conceivable that robots could build most houses in one day. And 3D printing printing buildings with concrete might pan out over the next couple decades.
There are more and more researchers and pundits talking about housing — at least relative to 2016 when I became interested — as part of an “abundance agenda” which could also be ”progress studies,” “state capacity libertarianism,” “innovation nation,” or “supply side progressivism” depending on your preference.
6. In some ways those are relatively easy solutions, but incentives aren’t aligned
The loudest arguments are probably against upzoning (as opposed to say permitting reform, updating building codes, or increasing voucher funding). You can find basically every critique out there — too much profit for developers, overwhelming local infrastructure, “neighborhood character,” and so on.
Existing and entrenched homeowners probably have the strongest incentives (and opinions!) — while it’s true that all else equal, upzoning a given property would increase its value, it’s not clear what the equilibrium effect on home values would be from broad or narrow upzoning, especially on specific properties in specific cities. Concerns about property values might explain why incremental approaches have had the most success.
Some people think that new, fancy apartment buildings would raise nearby rents (induced demand) instead of lower them (increased supply). [But that’s like saying umbrellas cause rain](.
There are also strong opinions around “gentrification” — the critical perspective being that low-income neighborhoods and residents (especially low-income renters) are harmed by market-rate development. Whether this is true generally, and in which ways specifically, is debatable (though ardent YIMBYs should take care to distinguish long-run vs. short-run effects), but protections are possible in practice, such as proposing low-income neighborhoods can opt out of upzoning for a period.
7. Some more reading
Books:
- The Color of Law: A Forgotten History of How Our Government Segregated America by RIchard Rothstein “Without our government’s purposeful imposition of racial segregation, the other causes—private prejudice, white flight, real estate steering, bank redlining, income differences, and self-segregation—still would have existed but with far less opportunity for expression. Segregation by intentional government action is not de facto. Rather, it is what courts call de jure: segregation by law and public policy.”
- One Billion Americans: The Case for Thinking Bigger by Matthew Yglesias“Modern technology ought to make it broadly possible for a middle-class person to afford a decent-sized home in any city in America. But it doesn’t. Even though the technology exists to make housing abundant wherever it is in demand, the technology is not used very widely. Indeed, across the bulk of America’s land area, it’s illegal. The restriction is the same as if only a handful of big planes were allowed to fly into Chicago, leaving the rest of the slots for small regional jets and thus creating systemic shortages and high prices.”
- Chocolate City: A History of Race and Democracy in the Nation’s Capital by Chris Myers Asch
- Golden Gates: Fighting for Housing in America by Conor Dougherty
- Evicted: Poverty and Profit in the American City by Matthew Desmond
Writers:
- Brian Potter | Construction Physics
- Jason Crawford | The Roots of Progress
- Darrell Ownes | The Discourse Lounge
Academic articles:
- Housing Constraints and Spatial Misallocation by Hsieh and Moretti (2019)
- The Effects of Exposure to Better Neighborhoods on Children: New Evidence from the Moving to Opportunity Experiment by Chetty, Hendren, and Katz (2016)
- Creating Moves to Opportunity: Experimental Evidence on Barriers to Neighborhood Choice by Chetty et al. (2019 working paper)
- The Wealth of Cities: Agglomeration Economies and Spatial Equilibrium in the United States by Glaeser and Gottlieb (2009)
- Why Have Housing Prices Gone Up? by Glaeser, Gyourko, and Saks (2005)