Policy

What's Missing In The Housing Debate In The United States?

If you study your local planning documents, you are unlikely to find an analysis of how much we can reasonably build even in a pro-growth scenario. But we’re betting our future around the idea that it will be enough.

Policy

What's Missing In The Housing Debate In The United States?

If you study your local planning documents, you are unlikely to find an analysis of how much we can reasonably build even in a pro-growth scenario. But we’re betting our future around the idea that it will be enough.

Scott Cox
April 20th, 2021
What's Missing In The Housing Debate In The United States?
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In short, Data and Analysis.

Housing policy is being driven by agendas and narratives, not data and analysis. While there are some budding pro-housing movements with notable achievements, they are city, not regional, in scope and entirely driven by a belief that transit-oriented, urban infill is the only appropriate solution to climate change and our housing shortage. Further, as this is the only “right” approach, there is no need for analysis of capacity, building type costs, price points and, in short, feasibility.

Unfortunately, if you study your local planning documents, you are unlikely to find an analysis of how much we can reasonably build even in a pro-growth scenario.  But we’re betting our future around the idea that it will be enough. If it’s not, and we find that out the hard way, years from now when our housing market is even more unaffordable, what then? A lost decade and a bigger problem?  Wouldn’t it be better to analyze that now?

As the charts here amply demonstrate, there is no correlation between a reliance on high-density housing and affordability. In fact, it’s quite the opposite. There is no evidence that we are going to achieve affordable housing without both infill and smart suburban housing.  Useful dialog and effective solutions begin with facts.

With an actual analysis of what is needed to achieve measurable goals, we can then at least intelligently discuss the trade-offs in achieving our objectives. We could, in theory, build sufficient housing on an infill-only basis if a housing czar was elected who allowed basically any housing to be built anywhere.

Likely?

It seems not – and as we’ll demonstrate, it would not produce the levels of affordability that are desired. Similarly, could we allow unlimited suburban development and meet our needs? Again, if you’re suggesting all environmentalists will be silenced and an unlimited amount of infrastructure will be built by the government, sure.

Again, likely?  No.

We’ll use Denver as an example city, both because it has been experiencing rapidly increasing home prices and it’s neither as expensive as the coastal markets nor as affordable as the sunbelt.

In recent years, the city of Denver has undertaken a massive effort to update its general plan for growth.  The foundational document is BluePrint Denver, which was years in the making.  It’s 348 pages and if you were so inclined to read it, what you would not find is the following:

  • What’s is Denver’s numerical goal for home prices and rents – whether new or existing?
  • What does it even mean to be affordable going forward? Build enough supply to actually get existing prices to fall to prior affordability levels in the metro area. Not many will admit that’s the goal. So, what is it? To achieve what house price or rent to income ratios? Just maintain the status quo – but not get worse?
  • How many units of what type are they planning for or trying to achieve – high-rise, mid-rise, townhomes, single family, ADUs?As an example, the city has a goal of expanding ADUs. Yet, there is no analysis of ADU policies across the country and what various limitations on development of them do to production (or what it would take to create a “boom” in them).

How do you devise a plan without a specific goal? If there are no specific goals in a vision document, then what is its use?

Some basic facts regarding housing production in the Denver area:

  • How much infill will the City tolerate?  Simplistically, the Denver MSA is producing around 22K units per year, vs. 40K added jobs a year.
  • Roughly half of those units are single family and half multi-family. As a rough approximation, the MF is largely infill. The 22,000 units a year has been insufficient to meet demand and hold down prices (a 2:1 job to housing ratio vs a historical ratio of 1.2:1). How much housing would it take to limit price growth (let alone return to past affordability ratios)? Thirty-thousand units per year? How likely is it Denver would be able to build 30,000 infill units per year (+/- 3 x current production)? The existing level of infill production was routinely referred to as “unconstrained growth” in the most recent city council elections.
  • What is the average and median prices of infill high-density housing and so will this provide the entry level housing we need? Urban wood frame apartments cost approximately $300,000 per unit for 1-2-bedroom units. High-rise construction costs $500 psf or more to build. So how will we solve our affordability problems with this being the primary solution? Look at the graphs on the following pages – note that those cities with the highest percent of multi-family housing relative to total building are the highest cost housing markets in the country. It’s not a coincidence. Like it or not, infill housing construction is more expensive than suburban housing.
  • No one city on the front range can “fix” housing. Where is the analysis and debate regarding how individual city and county actions add up?

In short, we’re developing policies based on what feels right to certain groups, not what we’ve calculated will work.

What analysis do we need?

  • How much housing will be needed going forward to stabilize pricing (or reduce it, if that is your goal)? Do the various cities’ plans across the metro area “add up”?
  • The capacity for urban infill building. This would be a complex effort that would combine economics of current and future uses, carrying capacity of infrastructure, and zoning.
  • How much incremental supply various local proposals might be expected to produce, based on other cities’ experience. Higher density zoning near Transit, ADUs, etc.
  • Has any city/region heavily restricted suburban development and kept prices from rising rapidly? Lessons learned?

Can this be fixed by government alone?

If we assumed a need in the Denver region for approximately 30,000 units per year, if we could somehow get the average unit cost down to $333,000 per unit, that requires $10 billion (yes, with a B) of investment per year – just in the Denver MSA. The entire state budget is $32 billion. There is no solution to this problem that does not involve the private sector as the primary participant. Which brings us to the last thing your elected leaders do not want you to know.

If you think the building industry mostly builds single family homes on large lots and expensive infill projects because that’s all they want to, or because its wildly profitable, you should know they build what they are allowed to build, not what they want to build, and not what the market is demanding.  Time and again in the approval process they are asked to make lots bigger, put more expensive finishes on homes and provide more parking.  It makes the neighbors happy.  In addition, fees (water, sewer, traffic, schools, etc.) are per unit, not per square foot (and in the suburbs are often more than $50,000 per unit).  You can imagine how hard it is to buy land, build a small residence, pay $50,000 in government fees and break even, let alone make a modest profit.

We are not suggesting we need to build large lots in the suburbs with big houses. That’s a poor use of land and is ultimately unsustainable. We are suggesting that to increase affordability we need a higher volume of housing than can be built through purely infill development and housing types that are less expensive to build – small single-family homes (6-12 to the acre, not big lots at 2.5 to the acre) and small scale attached housing – duplexes, townhomes, small condominiums at 8-20 acre. Let’s use land wisely. Plus, these densities will lend themselves ultimately to bus routes, ride sharing, etc.

So, the next time your elected officials are discussing their plans to fix housing, demand they support both infill housing and smart suburban growth.  Demand they support small lots.  Demand they make fees proportional to home size.  And especially, demand real numbers and a real plan.

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ABOUT THE AUTHOR

Scott Cox

Scott Cox

Principal, SLC Advisors