Housing Affordability, Elections, Governing Authorities Oh My

By Ashley Fahey – Editor, The National Observer: Real Estate Edition, The Business Journals

Restrictions around building new housing is a commonly cited hurdle to affordability in many U.S. markets. 

 Housing affordability is becoming a bigger issue for U.S. voters, spurring policymakers — especially at the state and local levels — to consider new measures aimed at easing the burden facing both renters and prospective homeowners. 

 While every city, county or region thinks about housing affordability (and potential solutions) differently, several common policy changes are being pursued, especially to ease restrictions around building new housing. New research from the Mercatus Center at George Mason University in Arlington, Virginia, outlines some of the biggest reforms being adopted across the U.S. today and offers a menu of potential options for policymakers to consider. Emily Hamilton, senior research fellow and director of the Urbanity Project at the Mercatus Center, said even though housing affordability has been a concern for voters since the 1970s, when modern land-use regulations still largely in place today were widely adopted, the cost of housing has become a more pressing political issue in recent years. 

 "Within the last several years, and even more so since the pandemic, this has bubbled up to become an issue that, I think, lots of governors and state legislators are hearing about and putting on their policy agendas as more of their constituents are struggling with housing affordability," she said. 

 In 237 U.S. cities, the typical starter home — defined as inventory in the lowest third of home values in a given region — now costs $1 million or more, according to a recent analysis by Zillow Group Inc. (Nasdaq: ZG). Five years ago, only 84 cities fit that criteria. The Mercatus Center research focused primarily on land-use regulations, which have proven restrictive to building new housing in many places. That subsequent lack of new inventory has contributed to higher prices in both rental and for-sale housing in many markets. The research listed several policy reform options for lawmakers to consider ahead of 2025 legislative sessions, aimed largely at reducing regulations around housing production. 

 Hamilton said while most land-use regulations and zoning ordinances come from localities, the Mercatus Center focused primarily on how state policymakers could set limits on a local authority to implement zoning regulations.

 "Localities get their authority to pass zoning ordinances and other land-use regulations from their states," she said. 

"That’s why, as housing affordability is becoming a bigger problem and is affecting more households, we’re seeing more state policymakers step in and set some limits on that authority." 

 Some of the proposed land-use changes in the Mercatus Center research include permitting accessory dwelling units in more places — a measure many states have already adopted — limiting parking mandates, capping minimum lot-size requirements and allowing residential uses in commercial zones. 

 The research also suggests ways to streamline procedures, including a reformation of protest petitions — which are still allowed in 20 states — and improvement of legal frameworks, such as simplifying homeowners association laws and limiting objectors' standing to sue against new housing proposals. 

It also says reform is needed in construction standards, such as allowing single-stair multifamily design, a hurdle commonly cited by infill housing developers. 

 Hamilton said there are about 100 years of regulations that have built up in states and municipalities that've made it tough to build housing today in many places. 

Even after cities pass sweeping measures to their zoning codes — allowing denser housing on lots once zoned exclusively for single-family homes, for example — there often are other contradictions in building requirements that make actually building those projects tough, she said.  

For example, some local governments make changes that legalize small apartment buildings in more places, but state building-code rules — completely separate from local zoning ordinances — can make it impossible to actually build those buildings. 

Or, Hamilton said, a locality might change its minimum lot-size regulations with the intention of allowing smaller starter homes on small pieces of land, only to then realize their subdivision ordinance process is too time-consuming and expensive for small projects to feasibly go through that review period. 

 "It’s a long process of peeling back those rules to identify the barriers," Hamilton said. Beyond regulation, other factors are contributing to housing affordability challenges, including construction labor shortages and interest rates currently at their highest in about a decade. 

But, Hamilton said, those issues are likely surmountable if land-use and permit-approval processes are addressed. And as the 2024 presidential election draws near, questions have bubbled around what role the federal government should play in addressing housing affordability. 

Beyond U.S. Department of Housing and Urban Development building-code regulations around manufacturing housing, the federal government is somewhat limited in its ability to affect land-use and policy around housing, Hamilton said. "I would say it’s too removed from the issues on the ground to be very effective," she said.