America’s (Avoidable) Housing Crisis

Let’s say you come into big money. What do you buy first?

For a lot of people, priority one … might be a nice piece of real estate.

And, depending on your budget, you’ve got options.

For just $427,000 we could get you into this gem in Seattle.ⁱ Although, fair warning: The air is toxic. And there’s five feet of standing water. And the roof’s about to collapse.

In the market for something a little pricier? You could land this beauty outside of Boston for $2.3 million.ⁱⁱ Although it was built before the Civil War. And needs to be demolished.

And for the real high rollers — are you ready for this? — $15 million … will get you this acre of dirt in Silicon Valley. ⁱⁱⁱ

Those are all real listings from recent years. And while it’s easy to laugh at how difficult it’s become to afford a house in those places … your neighborhood might be next.

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Time was, there was a pretty simple formula for chasing the American dream: Get yourself a good job, maybe start a family — or at least, y’know, get a dog — and buy yourself a home.

These days? Well … two out of three ain’t bad, right?

Government data shows that in recent years, homeownership amongst people between the ages of 25-34 — the age range in which people normally buy their first house — has fallen to its lowest level in decades.^iv And while there are a lot of factors at play there, research shows that the single biggest one is the decline in the construction of new homes.^v

Here's the deal: Factors like restrictive zoning, costly and time-consuming permit approvals, and even activists opposed to their neighborhoods changing has made it incredibly difficult for some cities to build enough homes for the people who want to live there.

And if you look at a map of the parts of America with the biggest housing shortages^vi and then a map of the ones that have the highest housing costs,^vii you’ll see that fewer homes means much higher prices. And as a result of those shortages, renters see price increases too.

Now, there’s a few lessons you could take from this.

First, if you’re on a budget, stay away from the coasts, try to avoid New York City, and whatever you do, for the love of God, do not go near California.

Second, if you’re already in one of those places but trying to get into your starter home … consider a move. You wouldn’t be alone.

New York City is the leading supplier of people moving to Miami. Los Angeles is the leading supplier of people moving to Phoenix. And San Francisco is the leading supplier of people moving to Sacramento^viii — which is a place that only seems affordable if you’ve been living in San Francisco.

But here’s the bad news — and you may see this one coming — when you look at the housing markets that have seen the most dramatic increases in price over the last decade, you’ll find places like … Phoenix, and Miami, and Sacramento.^ix

Because here’s the most important lesson: If you don’t build enough houses for the people who want to live somewhere, the nice, affordable city you want to live in today … may just be another smothering, expensive one tomorrow.

In Phoenix, for instance, the metro area had nearly two percent more housing than it needed as recently as 2012. By 2019, however, with the influx of new residents, it had nearly six percent less than it needed.^x And that number may sound small … but it’s a shortage of about 100,000 homes.

So, how do we break this cycle? After all, most of us don’t want to spend the rest of our lives moving from city to city just to have a lower mortgage. We have jobs and families. Many of us like the places we live. How can we make our own cities more affordable?

Well, one huge step would be easing restrictive zoning regulations. Because, while any given city only has so much space, zoning often limits how much you can do with that space.

In Los Angeles, for instance, it’s been estimated that 93 percent of the city’s capacity to house people has already been taken up.^xi Part of the reason? Because 74 percent of L.A.’s residential land is zoned only for single-family homes.^xii You can’t build condos or an apartment building, let alone a high-rise. Which is part of the reason the Manhattan skyline looks like this while the Los Angeles skyline looks like this.

Not that your city has to look like Manhattan to thrive, by the way. Adding more housing can mean relaxing zoning to allow things like duplexes or “granny flats” (small, apartment-style structures that can be built next to an existing home). A few years ago, when California loosened its laws to allow more granny flats, their construction increased tenfold.^xiii

Beyond zoning, there’s also lots of housing that doesn’t get built because the permitting process makes it too expensive and time-consuming. One report, for instance, found that getting approval to build apartments or other multi-family housing in San Francisco takes an average of over two and a half years^xiv — which is such a burden that many people won’t even bother … because, even after all that time, the city may still just tell you “nope.”

And one other problem, of course, is that, in many communities, neighbors can block new development simply because they don’t want their neighborhoods to change — which, in practice, often means they have the power to keep younger generations from buying a house at all ... even if that’s not their intention.

So, yes, America has a housing problem. But the good news is we know how to fix it.

And if we’re successful, who knows how much we can bring down prices. There may even come a day when you can get a dirt lot in Silicon Valley for 10 million ... tops.