California State
David M. Greenwald | Contributed
A piece this week in the Atlantic lays out why housing is so expensive, pinning the blame on things like material costs, anti-building rules, NIMBY attitudes and other barriers.
This isn’t just about buying a housing—the cost of housing is at an all-time high both for home buying and rental. And as Derek Thompson notes, part of the driver for that is the “inventory of available homes plunged to a record low” and the rental costs were related to the fact that “new housing construction relative to the total population was lower in the 2010s than in any decade on record.”
There are a lot of nuggets in this piece which combine to drive up the cost of housing.
For example, the cost of labor. No, I’m not talking about union workers.
Thompson notes, “The construction sector hasn’t hired enough people to keep up with housing demand in this century.”
One problem—one third of construction laborers are immigrants, and “thanks to anti-immigration policies and the pandemic, annual immigration to the U.S. has fallen from about 1 million to 250,000 in the past five years.”
The housing crash in 2008 also wiped out all sorts of specialists.
He notes, “Since 2006 in California, the number of tile installers, carpenters, and rebar workers has declined by 23 percent, 30 percent, and 52 percent, respectively.”
Then there are onerous rules for building.
He cites the Terner Study which found, “The most significant and pointless factor driving up construction costs was the length of time it takes for a project to get through the city permitting and development.”
Thompson notes that the average project in San Francisco takes about four years to be permitted. We know what it takes in Davis to get a project through to completion. That doesn’t even take into account Measure J denials. Take Bretton Woods in Davis, it PASSED a Measure J vote in November 2018 and will finally break ground… today. Three and a half years later.
Never mind that it took a few years to get the project to a Measure J vote and never mind all of the projects that fall at the point of the vote.
The length of time it takes to get a project through drives up the cost.
As Thompson points out, each rule “has its reasons.” There are also things like development fees and “local governments can directly benefit from new construction by collecting funds to be used for things like sewers, schools, or roads.
“These rules might not sound utterly diabolical,” Thompson writes. “Who’s against money for schools? Who’s against safe low-income housing? No one, perhaps. But when you add them up, defensible rules can become indefensible barriers to new construction.”
He points out, “This is especially true for affordable-housing projects, which depend on many different financing sources and government agencies.”
Terner estimates that affordable housing projects cost about $48 more per square foot than market rate projects.
That means each apartment costs about $48,000 more to build (assuming 1000 square feet) or perhaps $4 million extra for an eight-apartment building.
“What happens when affordable housing isn’t affordable to build?” he asks. “You get less of it.”
Recent estimates are that affordable housing now costs about $1 million per unit to build. That’s a lot less housing that gets built because of it.
Then you have the NIMBYs.
Thompson cites “one angry, litigious neighbor. By filing an environmental lawsuit, this single person can delay construction for years by demanding that the planners conduct expensive and time-consuming research on the ecological impact of new development.”
Thompson calls this a vetocracy—“rule by veto.”
“Local vetocracy is expensive in two ways. It not only limits the supply of housing but also raises the cost of building,” he adds. “When you turn over governance to the most litigious shouters, you implicitly allow older and richer homeowners to block construction for younger, poorer renters. That’s not a recipe for housing abundance. It’s a recipe for the status quo.”
Finally, Thompson laments the lack of innovation. His comparison is fascinating.
He writes, “In the past half century, prices for TVs, electronics, computers, toys, clothes, and even cars have fallen in inflation-adjusted terms. But housing prices haven’t. Nobody has figured out how to do for housing what Henry Ford did for cars or Samsung did for flat-screen TVs.”
Indeed, he argues, “Around the world, construction appears to be one of the only commodity-producing industries that isn’t getting more productive.”
Why is innovation in housing construction lacking?
“I think the simplest, high-level way of explaining the lack of productivity [is] it’s hard to make money trying new ideas in construction, and strategies that improve productivity in other industries don’t really seem to work in construction very well,” he quotes Brian Potter of the Construction Physics newsletter.
The basic problem is, “Innovation thrives when entrepreneurs can experiment cheaply and fail without too much catastrophe. In housing, experimentation is expensive, and design failures can be fatal.”
So what are the solutions?
First, he suggests a change to immigration policy. Second, ending single-family zoning, which makes building duplexes and larger apartments illegal. Further, streamline the permitting process to make “development faster and easier.” Third, “don’t let loud, angry neighbors demand infinite environmental reviews.” He notes, “When construction policy is left to the loudest neighbor, the common answer to new units is no. But when the state is in control, it can serve the broad public’s need for more housing.”
Finally he looks at ways to innovate.
He concludes: “the short answer to the question “Why is it so expensive to build a house in America?” is: There is no short answer. Housing costs are complex because nearly half the cost comes from local rules and preferences rather than just materials and labor.”
He adds “the failures of U.S. housing policy aren’t mysterious error codes. They’re design flaws. This is what happens when a bad blueprint is built to plan.”
While I like this piece and agree with a lot of it, I would argue that the reason housing is so expensive is that, implicitly, too many people want it that way and too many people are advantaged by the status quo.
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