In many ways, the housing market in the United States is epically screwed up.
There are around 20 million households that spend more than a third of their income on housing. There is an estimated shortage of 6.8 million homes across the housing stock, an insufficient supply that reinforces these affordability issues. There are zoning laws that prohibit density in places where demand could easily support it. There are the powerful voices of landlords lobbying local authorities to block affordable housing development. There are the decades-long ramifications of racist housing policies.
Brookings Institution housing expert Jenny Schuetz dives headfirst into this snake pit in her new book Fixer-Upper: How to Fix Broken Housing Systems in the United States. As the name suggests, Schuetz knows the magnitude of the challenges facing housing in the United States. She also has an idea on how to solve them: stop building housing where it shouldn’t be and start building more housing where people really want it.
Stop building in the wrong places
Too many homes are being built in unsustainable places, says Schuetz. Climate change makes this all the more clear, “whether it’s Florida’s coastline awaiting sea level rise and hurricanes, or wildfire-prone areas across much of the ‘West,” says Schuetz. “We build houses in places that year after year are hit by climatic disasters, houses are destroyed and rebuilt in the same place.”
This cycle is not sustainable. And yet, insurance schemes, government-subsidized infrastructure, and short-sighted land use planning mean that building and rebuilding in these places is often done without considering the inherent risks.
“Households, developers, and mortgage lenders don’t pay the cost of the climate damage they create or the risk they incur,” Schuetz says. “The cost of all this climate damage caused by building in the wrong place is spread over many people, including a large portion that falls on the taxpayers of the United States.” A recent report by the Center for American Progress gives some raw numbers: in 2020, extreme weather events cost US taxpayers an estimated $99 billion.
Government-subsidized disaster recovery becomes tacit approval for building climate-risk homes in places that may be or have already been destroyed by extreme weather events. Homebuilders and homeowners see that even if a seemingly unlikely disaster were to occur, government stimulus funds would be there to help.
Similar government subsidies also signal to the market that developers can build homes in places where costs and labor are cheaper, but which are just as linked to climate change. As a result, development focused on exurban cars flourished in the United States.
“Part of that is driven by the demand for a low-density lifestyle. But it’s also something that we subsidize in a way that’s not easy to observe,” she says. The development of the peri-urban fringe is supported by these subsidies, and encouraged by peri-urban municipalities eager for a broader tax base. “The cost of building roads and all the other infrastructure that comes with houses, including water and sewer extension, is much more expensive to build in the suburbs, but that’s not borne by owners or developers.”
But Schuetz sees some signs that those conditions could change, especially when it comes to places that are at risk of a climate-related disaster. It could lead to more people choosing not to live in places they probably shouldn’t.
“Because the financial costs of issuing mortgages in these high-risk places show up on balance sheets, the financial industry is taking notice,” Schuetz said. “In places like California, the private insurance industry will at some point stop insuring homes in places that catch fire every year, and that will make people make decisions.”
Respond to demand where it is
The flip side is that while it’s easy to build in remote or at-risk locations where housing demand isn’t naturally high, it’s difficult to build in the kind of in-demand urban areas that many people would like to live. It is sometimes a problem of expensive land, which makes it difficult for finances to work on all but the most expensive dwellings. It is also a question of financing local authorities. With schools and parks relying on property taxes, cities have an incentive to approve larger homes that will bring in more money for taxpayers.
Even more pernicious, according to Schuetz, is the power cities give existing landlords to veto new developments. “Over the past 30 to 40 years, we’ve gone for a very discretionary development process,” she says. “Each proposal is evaluated on its merits on a case-by-case basis.” For homeowners sensitive to any impact on their home’s value, it’s easy to find an argument against a new affordable housing project or even a slightly higher density.
Schuetz says there are small signs of change that could shake that kind of filibuster that is not in my backyard. Zoning reform in cities like Minneapolis has made it much easier to approve multi-family housing projects, and other places are taking similar steps. “There’s definitely more political momentum for zoning reform than there’s ever been,” Schuetz says.
States can help, she argues, by using their power over local governments to set standards for how they manage growth and development. A high-profile effort to effect such change narrowly failed in California, but Schuetz says places like Idaho and Virginia could be close to success.
“We don’t need all 50 states to do zoning reform, we need maybe six to eight where it’s the biggest problem,” she says. “If a few large states succeed and start making progress, it will actually reduce our national housing shortage.”