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Affordable HousingPolitics & Money

Opinion: 5 policy changes that can improve housing affordability

Housing affordability won’t improve on its own

The median price of a home in America is rapidly becoming out of reach for most first-time homebuyers. This is especially true for minority families who on average have less wealth than non-minority families. Like most things in our economy, home prices are influenced by supply and demand principles. An abundance of housing supply will diminish home prices while a shortage of homes available for sale will escalate prices. It is fair to say that the current shortage of housing supply is at crisis levels, which is the primary reason home prices have soared in recent years. It’s basic math, but how we got to this point is more complex. 

Residential zoning laws are designed to promote orderly development, control traffic flow, and ensure that noise and activity levels are appropriate to each specific neighborhood. That’s all good, but they also exist to keep property values high and to constrain growth, in part by establishing minimum lot sizes and limiting density. Decades ago, zoning laws were used to legally segregate local communities based on race. The Fair Housing Act made the explicit segregation of communities by race illegal. 

However, zoning laws today can still result in the segregation of communities by affluence. Housing affordability, which is a factor of housing supply, is the most significant barrier to minority homeownership, and no issue is a greater deterrent to increasing housing supply than restrictive zoning laws.

1. Launch a government-funded affordable housing awareness campaign 

Home equity is the primary source of wealth for most Americans. So of course, all homeowners want the value of their property to be stable and even increase over time. This dynamic is the reason homeowners often want their politicians to suppress the building of new housing in their neighborhoods. While most people believe that everyone deserves a decent place in which to live, many homeowners simply don’t want people of lesser affluence living in their neighborhoods. This is referred to as NIMBYism, an acronym for the phrase “Not In My BackYard.” But much of NIMBYism is rooted in ignorance. Elected officials establish zoning and land use policies, and if those policies are going to become less restrictive, homeowners are going to have to embrace the idea of increasing the amount of affordable housing.

This will only happen if homeowners believe that an influx of affordable housing won’t negatively impact their property values, but will make their communities stronger. Data shows that affordable housing improves communities by expanding a healthy workforce and increasing tax revenues, which can be used to improve local infrastructure. A national awareness campaign regarding the virtues of increasing affordable housing is necessary to break the slow-growth or no-growth mindset that most American homeowners possess.  

2. Reform zoning and land use policies

Zoning laws across the country need to become less restrictive and allow for greater density. Smaller lot sizes mean more units can be built, and legalizing accessory dwelling units (ADUs) makes more efficient use of already-existing homes. Multigenerational families are more common among Hispanic and other minority communities. Homes with ADUs can be a perfect option for multigenerational families to pool their money to purchase a home. California recently passed SB 9: The California HOME Act, which makes it much easier for existing homeowners to build a second unit or an ADU on their property. 

Even when zoning allows for more affordable housing, homebuilders complain about the time it takes to get new projects approved. In many communities, local planning commissions and boards can reject proposed projects even if they meet zoning requirements. Streamlining the permitting process can significantly increase the supply of affordable housing.  

3. Reform immigration policies to address labor shortages 

Along with regulatory expenses, the price of land, lumber, and labor are the biggest factors associated with the overall cost of building more housing. The cost of labor has skyrocketed in recent years, driven by shortages in the construction workforce. More than 30% of the three million construction workers in America are immigrants, and in Texas, California, and Florida it’s closer to 60%. The National Association of Home Builders has been advocating for reforms in our immigration policies that “… allows employers to recruit legal immigrant workers when there is a shortage of domestic workers”. There are more than 11 million unfilled jobs in America today. The nation’s growing labor shortages are slowing economic growth, contributing to inflation, rising interest rates, and a shortage of housing supply. 

4. Require government-owned homes to be sold to non-profits or owners who will live in them

Foreclosures have been low in recent years, but in downcycles, foreclosed real estate owned by the federal government has been a more substantial percentage of the overall market. Currently, more than 80% of the mortgage market is government-controlled, which means in the next down cycle there will be many more homes owned by the government. These homes are far too often sold to investors who can pay cash and close quickly, but the unintended consequence of this is a lower national homeownership rate. During the Great Recession, nearly six million homes were lost to foreclosure. During that time the national homeownership rate dropped nearly six percentage points.

Government-owned homes are an excellent opportunity for first-time homebuyers, and an important chance to improve minority homeownership in particular. The government should sell homes exclusively to people and families who will live in them and should sell homes in need of repair to non-profits, who will rehab them and in turn sell them to owner-occupants. 

5. Reduce or eliminate capital gains taxes when homes are sold to owner-occupants

An idea that has been floating around housing circles is based on the theory that there are millions of would-be sellers of existing homes who, because of capital gains taxes, simply cannot afford to sell their homes. Older homeowners may not need as large a home as they once did. Empty nesters, who would be better off living in smaller dwellings or retirement communities, face huge tax bills if they sell their homes that are probably worth six times what they paid for them 40 or more years ago. Eliminating capital gains taxes for sellers who sell their home to an owner-occupant could add a few million homes available for new homeowners over the next two decades. 

Housing affordability won’t improve on its own, and unfortunately, there is no single lever or policy that can solve the problem altogether. It is going to require a concerted effort by a legion of stakeholders and policymakers at the local and national levels to make it happen. It won’t be easy, but it is imperative if we want our country to be a nation of stakeholders who are vested in the well-being of our communities and our nation. 

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