Just saw another article on some studies about housing supply and housing affordability (I really seem to be into the finding of “studies” lately) that in the end, puts the primary responsibility for the crisis back on the shoulders of local governments and how they exercise land use authority.

The article is in the November-December 2024 issue of Harvard Magazine, and was written by the publication’s managing editor, Jonathan Shaw, which sort of indicates the perceived magnitude of this issue.  The article, Home Unaffordable Home: America’s housing problem—and what to do about it, starts out by illustrating the timeline and magnitude of the crisis.  It notes particularly that as the country’s two coasts (California, New York, and Boston initially, then more areas) became stronger economic hubs as the Rust Belt’s economic role diminished, housing did not keep up with the influx of people relocating to these areas and became the early “victims” of housing shortages.

In a Notes appendix to the main story, Shaw says,

At the outset, I thought the focus of the article would be on finding ways to reduce construction costs. But it turns out that the single most important factor driving up the cost of housing is instead the price of land, which increases dramatically the closer it is to the centers of the country’s most economically productive cities.

Harvard professor of economics Edward Glaeser did a study on what seemed to be the main factor behind the variation in housing costs in different locations, and his conclusion:

By comparing housing affordability in various U.S. cities, Glaeser has found that those with the most restrictive zoning also tend to have the most expensive housing.

The story notes that the problem is exacerbated by the desirability of living in these economically productive areas as people are attracted to them but then have a hard time finding affordable housing (does this sound familiar?  Utah’s economic growth has been leading the nation for several years now, and our population growth has been greater due to move-ins rather than through natural increase).

That problem has been building for more than a decade, and even if interest rates and home prices fall, there will still be a shortage of housing in the most economically vibrant areas where it’s most needed.

Among economists and housing experts, there is a broad consensus about the reason for the fundamental problem of insufficient supply: mostly, local land-use regulation and zoning. Adjusting for inflation, the cost to build a house today is about the same as it was 40 years ago. But inflation-adjusted prices have nearly doubled because there is not enough buildable land to satisfy demand.

So what’s the solution, according to Shaw?

“We can’t make more land,” (Harvard Joint Center for Housing Studies managing director Chris) Herbert points out, “but we can make better use of it by increasing the density of housing…putting four units on a lot instead of one. So zoning reform gets a lot of attention as a means of increasing housing production.”

To me, this kind of falls into the category of, yeah we know there’s lots of reasons for this problem, but there’s only a couple of areas we can actually try to do something about it.

Glaeser and Joseph Gyourko, a professor at the University of Pennsylvania’s Wharton School, identify restrictive regulations as the primary driver of constrained housing affordability and availability in urban areas. Cities with fewer land-use regulations, they showed in a 2017 paper, tend to have more elastic housing supplies, and consequently lower housing prices. Conversely, areas that have adopted more stringent regulations have experienced higher and more volatile prices.

“When a town allows only single-family housing on minimum one-acre lots, it does not take a real estate expert to understand that low-income families will not be able to live there.”

The story cites the example of Minneapolis taking on this issue by eliminating exclusive single-family residential zoning in the city, but then facing an intense backlash from citizens.  Other places are experiencing the same.  The story notes that this happens because, while the benefit of increasing housing supply is good for the region overall, the impacts of doing so are felt very locally.

(Rebecca Diamond, professor of economics at Stanford Business School) explains, … “the downsides of building more housing—in terms of congestion, too many kids in your schools, too many cars on your streets, and expanded infrastructure—are borne at the local level. But the benefits are diffuse. If you build more housing in Palo Alto, … it’s probably going to make housing prices a little bit cheaper in many parts of the Bay Area, not just in Palo Alto. So, Palo Alto gets all of the negatives, and only a tiny share of the benefits. Palo Alto has no incentive to build more housing.”

So how to tackle this problem?

States, on the other hand, can “internalize the benefits,” she says, “because they care about housing prices in Palo Alto, San Jose, San Francisco, and Oakland.”

In other words, state action to override local zoning prominence.

Another interesting finding cited in Shaw’s story is about streamlining land use entitlement processes.  That is often cited as one of the ways to make housing more affordable, by reducing the time (and thus money) it takes to get through the approval process, and making outcomes more certain.  However,

The empirical results, as yet unpublished, were striking. They found that streamlined permitting had a negligible effect on generating new supply. Deregulating zoning, on the other hand, to allow triplexes on formerly single-family lots, led to more housing over time because the per-unit construction and development costs are vastly lower than for a single-family home.

Well, okay then, if we go the direction indicated by these studies, can we expect a quick resolution to the problems?  Not so fast!

Adopting triplex zoning will not lead to massive new supply in the first decade, (Diamond) cautions, because on many lots the value of existing single-family homes is too high to make replacement with multiple housing units cost-effective. But over time, as the current housing stock degrades, such a policy would help increase the supply.

Such a perplexing problem, with so many moving parts.  I’m kind of reminded of the game of whack-a-mole – you think you’ve got it, and then it pops up somewhere else.  Heaven help us!