Joe Biden has unveiled five new policies to alleviate America’s housing shortage.
Two are related to financing, which I’m not qualified to assess. The goal is to make it easier for low-income Americans to build and buy homes. I just hope that doesn’t lead to a repeat of the subprime mortgage crisis, which was at least partly caused by the federal government underwriting mortgage loans homeowners could not afford.
A third seeks to make it more difficult for investors to buy family homes. I don’t know if that’s worth the tradeoff, but there is one. The left-wing city government of Amsterdam has done the same, arguing all investors do is buy properties, renovate them and raise rents. But that renovation part is important! Maintaining buildings that are centuries old is expensive. Investors raise rents to recuperate the costs, but at least they can spread out those costs over multiple renters and multiple years. Banning property investment could cause monumental buildings to either become unaffordable to all but the wealthy or fall into disrepair, which happened in Amsterdam during the 1930s and 40s, and is why entire neighborhoods, like the Jewish Quarter, were demolished after the Second World War.
Biden’s last two policies are the most interesting to me: ending discrimination against prefabricated and modular homes and encouraging local zoning reform.
Why reform is needed
Home building has not kept up with demand. Estimates of the shortage range from 1.5 to 5 million.
Housing prices rose 21 percent in the last year and are projected to increase another 6 percent this year.
Young Americans are one-third less likely to own a home than their parents and grandparents at the same point in their lives, delaying the accumulation of wealth and the formation of families. Among young black Americans, homeownership has fallen to its lowest in over sixty years. Americans of all ages are less likely to move, which has contributed to a decline in social mobility and an increase in regional inequality.
Works in Progress has more on how the dearth of affordable housing makes every other problem worse: the cost-of-living crisis, inequality between classes and generations, even climate change (people live in energy-inefficient homes and too far away from their work to walk or bike).
The pandemic hasn’t helped. Strained supply chains caused shortages of building materials. Before COVID-19, the American construction industry had only just recovered from a long slump that followed the 2008 collapse of the housing market. At its peak, in 2007, the industry employed 7.7 million Americans. That fell to a low of 5.4 million in 2011. The number returned to 7.6 million in April.
Stigma against prefab
Prefabricated or modular homes are cheaper and require far less work to put together. Yet the United States built just 106,000 such homes in 2021, Timothy B. Lee points out, down from 362,000 a quarter-century ago.
The reason is that prefabs are stigmatized as mobile homes, which are ineligible for government-backed mortgages. A federal rule requires prefabricated homes to have a chassis even when they are placed on permanent foundations, which allows trailer park-wary local governments to classify and (over)regulate them as mobile homes.
Biden hasn’t repealed the rule, but he has vowed to “assess hurdles to modular and panelized housing posed by inconsistent state and local inspection requirements and standards.” Hopefully the outcome of that assessment will be repeal.
He is allowing federal entities to underwrite mortgages for manufactured houses, ending a discrepancy that has long made it more difficult for the poorest Americans to buy the cheapest homes.
Loosening up zoning
Local regulations against mobile homes are no exception. Restrictive zoning laws make it hard to build anything anywhere. Suburbs typically allow only (expensive) single-family homes for fear of attracting lower-income residents. Even non-central districts in cities can have regulations against high-rise. Allowing more backyard cottages (or “accessory dwelling units”), duplexes and small apartment buildings would go a long way to reducing the cost of living.
It would also make neighborhoods more diverse (in terms of housing as well as residents) and blur the distinction between “urban” and “suburban” (which is a good thing: there should be more in-between options).
Biden’s plan is to reward those jurisdictions that loosen up their zoning rules with extra money from the Department of Transportation and the Economic Development Administration (EDA).
Lee argues the former makes the most sense: denser neighborhoods require more public transit. The department also has the most money with a budget request of $142 billion this year.
The EDA’s regular budget is just $373 million (with an “m”), but it got a $4.5 billion boost during the pandemic. It was founded in the 1960s to promote economic development in poor neighborhoods but has been chronically underfunded.
Don’t forget renters
Biden’s policies should make it easier for Americans to buy a home. But 36 percent of households rent. They tend to be browner, poorer and younger than homeowners.
In 2019, 45 percent of those households paid more than 30 percent of their income in rent: the usual threshold for what counts as “affordable”. Those with the lowest incomes can seldom afford to live close to where they work. In large metro areas, like Los Angeles and New York, it’s not unusual for low-paid workers to commute multiple hours per day, which is time they can’t spend with their kids and in their neighborhoods.
The United States has a program to support renters: housing choice vouchers, also known as Section 8 vouchers after Section 8 of the Housing Act. It caps recipients’ rent at 30 procent of their income and covers the balance to landlords. The typical monthly voucher is in the range of $500, but it can reach up to $1,500 in expensive cities.
The problem is that not everybody who qualifies for a voucher can get one, because funding is capped by Congress at $26 billion per year. Currently the program serves 2.2 million households. At least four times that many qualify. The solution is obvious: remove the cap and let every renter who deserves a voucher have one.