Over the past two years, news from the housing industry has not been good.  Housing starts are down – way down.  New home sales are way down.  Resales are down (I don’t know how many friends have told me they cannot buy a new house until their old house sells).  And of course prices are down.  Builders tell me they have to suspend construction because the few buyers in the market can buy last year’s houses out of foreclosure for less than the cost of building this year’s house.  And of course there is “jingle mail” – where homeowners simply mail the house keys back to the bank in hopes of minimizing the time and expense of foreclosure.

So with prices falling, the housing affordability crisis must now be behind us – right?  Wrong.  In A Better Way to Zone I describe the housing affordability crisis as a structural problem of the U.S. economy and that is still true.  Business cycles come and go, and this recession will in time bottom out and the housing economy will rebound.  The long term effects may be a slight lowering of average housing prices – but not much, and not over the long haul.  The key problem remains – the U.S. economy is simply not creating jobs that pay (on average) what it costs to build new housing (on average) and that gap continues to widen. 

In fact, that difficult fact is what fed the desire to create sub-prime mortgages – since we could not increase average wages and we could not lower the costs of building a house, the home finance industry found a way to bridge that gap by letting less money buy more house (temporarily).  The recession may narrow that the gap by deflating home sale prices and bringing them a little closer to the buying power of some households, but it doesn’t change the basic mismatch between wages and housing construction costs.  And the problem will get worse, because global economic pressures will continue to push wages down and the burgeoning demand (especially from the exploding middle classes in China, India, and elsewhere) will keep driving the price of housing inputs up.

I see the results of this pressure in my consulting practice, where cities are asking for broader and more powerful tools to address housing affordability.  What can local government do?  It cannot solve the macro-economic problem, but it can remove barriers that drive housing prices even higher than they need to be.   Minimum lot size and minimum house size requirements are two of the main culprits.  Artificially low multi-family densities are another, and narrow definitions of allowable housing types are a third.  The simple fact is that economic pressures are going to force many American households into smaller single-family units and sometimes into multi-family housing even if they would prefer to buy something larger.  Responsible cities will find ways and places where that can happen and will revise their zoning to allow it to happen in ways that strengthen the community.  Local governments can also remove barriers to modern modular homes, co-housing, live-work products, cottage housing, and a variety of innovative smaller home options emerging to serve our aging population.  Other innovative products are described in more detail in A Better Way to Zone.  These are not just “quick fixes” — they can result in long-term changes in the American housing stock that responds to changing economic realities. 

The long-term housing affordability crisis is not going away, and responsible local government will use this “breather” from development pressure to rethink their approach to the issue and to re-evaluate the housing barriers embedded in their zoning and subdivision controls.