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US Housing Affordability: The Obstacles to Building Lower-Cost Homes

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US Housing Affordability: The Obstacles to Building Lower-Cost Homes
4 min. read

Photo: pbk-pg/Shutterstock

A lack of lower-cost accommodation in US cities means many struggle to pay for housing. Several factors contribute to such properties not becoming available, one of the most important being the problems encountered when building them.

The US Affordability Crisis

Housing costs are a serious problem for many homebuyers and renters in the US. Lack of inventory is a major issue—competition for a few properties tends to keep prices high. And so city workers with merely average salaries face longer commutes as they are priced out of town, or they have to move away, and that also negatively impacts local economies.

At the end of 2018, the National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index stated that housing affordability was at a 10-year low, with just 56% of home sales affordable, a drop from a high of 78% in 2012. And this figure is expected to fall below 50% in 2019. Increases in housing costs simply outstrip salary increases.

Increased Building Costs and Shortages

Building more low-cost housing would seem to be a way forward, but that is easier said than done for a number of reasons. For example, a recent article about the affordability crisis points to the rising cost of labor and raw materials and the problems created by labor shortages.

Factors such as these raise the prices of even the least expensive properties. They also encourage the tendency among many home builders to focus on the luxury end of the market, which returns higher profits. This further exacerbates the affordability issue by using land and resources that could have been utilized for lower-cost housing.

Accelerating Regulatory Costs

2016 NAHB study claimed that for new single-family properties regulations imposed by all levels of government accounted for, on average, no less than 24.3% of a home’s final price. Regulatory costs include ‘permit,’ ‘hook-up,’ ‘impact,’ other builder’s fees, building code requirements, and so on.

And the share of regulatory costs appears to be increasing. In a recent article, Robert Dietz, chief economist of the NAHB, highlights the contribution they make to overall expenditure. He makes the case that, over the period 2011-2016, their increase has easily outpaced other factors.

 Change over 2011-2016
Regulatory Burdens29.8%
Inflation6.1%
Material Pricing10.3%
GDP Growth14.9%

With regard to affordability, Dietz is clear that:

“Excessive regulations often prevent the construction of sorely needed housing at lower price points.”

Costs Not the Only Factor

It also takes time to build housing, which can both limit supply and put builders off from starting in the first place. Getting approval and cutting through red tape is a major headache, with developing land a notoriously long process that is subject to bureaucratic delays.

Then there’s the anti-development sentiment of ‘NIMBYs’—meaning Not In My Back Yard. Local pressure groups can be a very real obstacle when permission to develop a site is sought, and this can also add to overall costs.

Actions Being Taken to Increase Supply

Some US cities and states are considering legislation aimed at creating more lower-cost housing, and the approaches are varied.

The California real estate market, the “poster child of the US housing crisis,” is currently promoting Senate Bill 50, which aims to allow building of more and denser housing near transit options, and may see single-family homes replaced with duplexes, triplexes and other property types. Detractors say, however, that this would undermine local government authority and change neighborhoods adversely.

A slightly different route has been taken to address the substantial affordability problems of Seattle’s real estate market, for example. A recent ruling there should lessen restrictions to creating ‘accessory-dwelling’ units—e.g., backyard cottages and ‘mother-in-law apartments’. Similar attempts have been made at state level, with varying levels of success.

The Houston real estate market, meanwhile, has been well-known for its affordability. But a recent article reports that it is now questioning its laissez-faire attitude to expansion and development. CLTs have a proven track record in other parts of the country, and the newly established Houston Community Land Trust is hoping to “make affordable homeownership achievable for limited-income households.”

 

Some will say that housing markets should be left to find their own levels while others will suggest that authorities ought to intervene. But the recent pro-active initiatives taken by states and councils across the US, despite the difficulties involved, indicate how serious the country’s lack of affordability housing is considered to be and also how it might be tackled.

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