Regulatory policy

We may need to rethink how housing policy works

It is no secret that there is a housing shortage in this country. The National Association of Realtors said in a report on metro housing on Thursday that a lack of homes for sale made homeownership even less affordable in the last quarter of 2021. The median home price rose to $361,700, an annual increase of almost 15%. Prices rose even more in coastal cities like San Francisco and Portland, Oregon.

What can be done? Jenny Schuetz, a senior fellow at the Brookings Institution, considers some possibilities in her book, “Fixer Upper: How to Repair America’s Broken Housing System.” Schuetz spoke with “Marketplace” host Amy Scott about possible solutions. The following is a transcript of their conversation.

Amy Scott: I want to focus on two of the solutions you offered because they sound so simple and they look great, but in practice they are really, really difficult. And the first is that we need to build more houses where people want to live. So let’s start there. What do you mean? And how do we do it?

Jenny Schutz: We just need to build more houses in places where the labor market is strong. So that includes a lot of our major metropolitan areas, most of the West Coast, New York, DC, Boston. And even in metropolitan areas, if we look through neighborhoods, some of the neighborhoods that have, for example, the best public schools, that have great access to public transit, those neighborhoods are in high demand but they hardly build additional accommodation. And this is not a reflection of the market. The market really wants to build more homes in these high-demand locations, but we have a whole set of policies that make it nearly impossible to add homes in many of these locations.

Scott: And where do these policies come from? They are mostly local, right? And they’re driven by existing residents who really don’t want to see their communities change.

Schutz: Exactly. There is a whole system of land use regulations that are passed by cities and counties that set rules about where you can build housing, [and] what types of structures you can build. And another element of that is that local governments give current residents broad access to the development process. So if a developer wants to build a new apartment building or a few new houses, they have to come to a community meeting where the existing neighbors can come up and say, I don’t want any more houses, I don’t want any more cars in my neighborhood, I don’t want any more children in my children’s school. And existing neighbors essentially have veto power to block new housing in those places where many new residents would like to live.

Scott: One of the fundamental challenges you talk about is this perverse incentive for landlords to fight new housing in their communities because they’re taking advantage of scarcity through higher property values. Is it a question of changing this state of mind? Or is it basically to force them and have the government intervene?

Schutz: Well, we could alter their financial incentives in a number of ways. The first is that home equity is the most important financial asset for most middle-income households, which makes them very protective and they resist anything that they think could lower the value of their properties. And other countries have invested more, for example, in public pensions that would make people less sensitive to the value of their assets. The other financial incentive is that property taxes on people’s homes are used to pay for things like schools, parks, and roads. Thus, the local governments themselves are only incentivized to allow high-value houses to be built. Essentially what we need to do is change the financial incentives and think a bit more at the regional level, or at the city level, because it turns out that some of the policies that are really popular with local voters are in terrible facts for the region, for the State, even for the country.

Scott: I want to go back to solution number two that I mentioned earlier, which is not just building houses where people want to live, but building fewer houses where we shouldn’t. And that gets into the perils of climate change, which we’ve seen play out across the country. Can you explain how the federal government incentivizes building in the wrong places and how we fix that?

Schutz: Yes, we have a very complicated and difficult to understand housing finance system and insurance systems. And all of that spreads the incentive, spreads the financial risk of climate change, so that nobody has an incentive to avoid building in high-risk places. If someone buys a house on the beach and it gets hit by a hurricane, some of the losses are borne by the owner, some of them go to the mortgage lender, but a lot of mortgage lenders have sold the mortgage to investors. And it turns out that many of them were actually backed by the government-sponsored companies Fannie Mae and Freddie Mac. It turns out that taxpayers actually bear some of the cost of that damage.

Scott: Are there enough good places to build?

Schutz: It’s a good question. I mean, some of the safest places to build, for example in California, we shouldn’t be building on what they call the wildlife-urban interface, in the most fire-prone hills. We should build in places like downtown San Francisco, because it’s all concrete and there’s a lot less chance of a wildfire. Think of all the surface parking lots that exist in cities. If you build apartments, on top of that, you could accommodate a lot more people rather than constantly pushing to the suburbs, where we have much larger carbon footprints, and pushing to the outskirts of cities where we are at risk fire and flood. much more often.

Scott: You write that reforming our current housing and land use systems is going to shake up groups of winners and losers, which is a hard sell politically, forcing anyone to give up something, right? What do you think it will take?

Schutz: Well, we’re seeing a lot more interest across the country at the state and local levels to do some sort of reform of zoning and land use regulations. Part of that comes, I think, from a generational push. Many millennials think they’ll never be able to buy a home because it’s getting too expensive and getting more and more out of reach. But part of the reason, and also the reason I wrote the book, is that I want financially well off suburban homeowners to realize that the system isn’t working well for them as it is. They pay these costs through climate change, through the cost of not providing a decent living environment for many children. So, you know, while you personally feel you benefit from the system, it’s not really as rosy a picture as you think. And there are results that could make things better for many of us.