3 minute readStifled supply – we agree — lies at the very crux of a historical flashpoint in American housing’s affordability crisis. The crisis, whether or not the economy weakens, shakes off its challenges, or rebounds over the next 12 to 24 months, is on pace to get worse for those in its clutches.
Solutions that would reverse this course are only possible via a grand bargain that would slash away needless costs to produce homes, capture those savings – in money, time, land, political will, etc. – and return them in the form of widened and deepened access to rental and owner-occupied homes.
Likely, we’re six to 10 years from a reasonable facsimile of such a grand bargain. Here’s an important factor to integrate into it:
We need to leverage the successes of American capitalism by encouraging private investment in the housing sector and eliminating needless barriers that artificially restrict supply. And most importantly, we should remember that effective housing policy is driven by communities—it is critically important the federal government encourages local solutions to uniquely local problems.”
Endangered Species: Entry-Level Home
Robert Dietz, Chief Economist, NAHB
The overall housing market is starved for the homes that became the hardest to build in the 2010s due to supply-side headwinds: entry-level, single-family detached homes.
In 2010, 59% of new single-family homes were smaller than 2,400 square feet, per Census data. By 2018, that share declined to 51%. The numbers are starker at smaller sizes. In 2010, 32% of new homes were smaller than 1,800 square feet. That share fell to just 24% by 2021, the latest year for which there is data.
Where National Policy Action Can Help
Robert Dietz, Chief Economist, NAHB
Improving housing affordability for renters and home buyers will help to fight inflation. With this goal in mind, Congress should pass legislation that will help the home building industry increase much needed housing supply. The lack of skilled labor, the high cost of building materials, challenging access to affordable construction financing, burdensome federal regulations, and local land use policies that restrict home and apartment construction are the main drivers of low housing supply and high housing costs. Passing legislation to alleviate these supply-side bottlenecks would increase home construction, expand housing inventory, and lower inflation. If action on these issues is delayed however, housing costs, which are roughly 40% of the Consumer Price Index, will continue to be persistent drivers of inflation, as well remain as a burden on American families.”
Part of the process of the Long Recovery is rebuilding the industry’s infrastructure: its labor force and reliable sources of lending and building materials. Policy improvement is needed at all levels of government. Federal and state regulations should be examined for their impact on housing affordability. Communities need to reduce the cost of producing new housing by fighting impact fee increases and enabling building with density where the market demands it. These actions will allow more construction of housing affordable to entry level home buyers and create more equitable housing market.”
Regulatory Burden
Robert Dietz, Chief Economist, NAHB
Regulatory burdens increased during the 2010s. NAHB analysis finds that approximately 24% of the price of a typical newly-built single-family home is due to the broad set of regulatory burdens imposed by state, local and federal governments11. Moreover, between 2011 and 2016, such costs increased by 29%, faster than inflation and economic growth. Such burdens are high for apartment construction as well, as an updated joint study by NAHB and the National Multifamily Housing Council found that up to 41% of apartment costs are due to regulatory costs.
Next Steps
Robert Dietz, Chief Economist, NAHB
This hearing set the stage for future Congressional debates and action. That is where the rubber meets the road. Congress can help by reviewing regulations for cost effectiveness and pursuing legislation that will help younger households attain homeownership. And of course, it is critical for the industry to be engaged and speak with one voice on the need to bend the cost curve.”
As a reminder, that very abstract cost curve has a stack of very specific areas where opportunity lies in rigorously unpacking – and compromising – where the inefficiencies trap resources, and returning them to people who want, need, and pay for access to homes.
