On this week’s Top Of Mind podcast, altos research corp. President Mike Simonson discusses the housing affordability and supply crisis facing the United States and its major cities.
Salim Furth joins Simonson to share his expert opinion on the current housing crisis and the various factors affecting new development in some cities. Furth is a researcher and director of the Urbanity Project market center at George Mason University. His research focuses on housing production and land use at the local level.
The conversation began with questions about housing policy and its impact on certain areas of California. Simonson asked Fiers to compare California’s housing policies to other states and highlight how those policies impact Americans’ lives.
Felt said housing policy can affect every aspect of a person’s life, including family formation, friends, travel, entertainment and more. The industry calls this principle the “housing theory of everything,” he said.
Next, Fiers dives deeper into the major issues facing the real estate market. He believes that U.S. housing policy makes it more difficult to build new homes in some areas due to overly strict zoning restrictions.
But turning the market around will require more than zoning adjustments. Fiers urged viewers to approach housing from a new listing perspective rather than a market price perspective. Higher construction costs can lead to a shortage of listings, and vice versa. To solve this problem, solving development issues is the key.
“To me, the really fundamental, long-term mistake is that we’ve made it very difficult to build new housing primarily through geographic restrictions, what we commonly call zoning,” Firth said.
Simonson then raised another question about construction activity on an international scale. It was further pointed out that although some countries have reduced prices by eliminating local authorities to reduce development opportunities, underbuilding is most common in English-speaking countries. In other words, international governments are taking decision-making power away from local governments when it comes to building new homes.
A few examples cited by Fiers include Canada, New Zealand and the United Kingdom. Stateside, cities like Memphis and Austin are turning to short-term supply growth compared to cities like San Francisco to accommodate people interested in moving there.
Felt explained that new construction in high-demand areas can overcome housing deficits and retain homebuyers, rather than forcing them to move to lower-demand areas where prices are lower.
Next, the topic turns to affordable housing solutions. Furth highlighted Austin as a notable example of a city that has improved housing affordability through policy changes, including reducing minimum lot size requirements from nearly 6,000 square feet to 1,800 square feet.
Other cities have slashed compatibility requirements and parking guidelines when upzoning. Single-stair buildings, designed with a single staircase and fire exit, are also becoming increasingly popular as an alternative for middle-class buyers and are cheaper to build.
Next, Simonson mentioned another factor affecting housing development: reduced immigration. Firth noted that immigration drives the growth of the construction workforce and that developers often employ ruthless tactics to bring immigrants into the states.
Simonson noted that some economists believe that bringing in more immigrants will actually drive up housing costs. Fiers disagreed, pointing out that immigrants often save on housing costs by living with family. As a result, housing costs are largely unaffected by immigrant workers.
Simonson and Felt end the episode with a broader look at the future of the housing market. Fiers divides his predictions into good and bad possibilities.
In a negative scenario, he said, the U.S. could face a prolonged recession, forcing the government to ignore housing reform and focus on other issues. Cities may become even more exclusive of high-income workers, while the working class is pushed further into remote areas. In turn, these once affordable areas can become oversaturated with working-class homebuyers, causing home prices to rise.
A more positive scenario is that U.S. growth will slow down in the coming years. But major cities will continue to grow, and California will continue to reverse its recent population decline.
