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Why Is Housing So Expensive?

The lack of affordable housing in the U.S. has reached a crisis point.

March 2021


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Ever look at real estate listings and think, “What the hell?”

The lack of affordable housing in many parts of the United States has reached a crisis point.

In some areas, even the most unlivable homes are out of reach.

This property in San Jose, California had literally been set on fire before being listed at $800,000. Which, of course, is crazy. No one would pay that much for this burned-out shell of a house. And they didn’t ... it sold for over $900,000.i

Now, the Bay Area is far and away the country’s most expensive housing market.

But this is a problem in many American cities.

In San Diego, Los Angeles, Seattle, Boston, and New York City, you need to pull in around $100,000 a year to even think about buying a fairly basic home.ii And this isn’t just about home ownership.

In all of those cities, a typical one-bedroom apartment rents for about $2,000 a month or more.iii

How does this happen?

Sometimes you’ll hear that these cities are where all the good jobs are, so they’re destined to be expensive. But actually, the places with the most new jobs are almost all where housing is more affordable. A 2018 study on the best cities in America for job growth was dominated by places like ... Dallas, Austin, Nashville, and Charlotte.iv

In Austin, you can buy a median-priced home — that means a house priced in the middle of the market — on a salary of under $80,000 a year.

In Dallas, about $62,000.

Nashville and Charlotte?

Barely over fifty grand.v

So how do we explain why some cities with lots of good jobs are expensive while others stay affordable?

Here’s the most important thing you need to know: if prices are through the roof, it’s probably because there’s a shortage of housing available. And if there’s a shortage, it’s usually because people aren’t allowed to build enough.

This happens for a variety of reasons: zoning restrictions, complicated building regulations , or residents who just don’t want their neighborhoods to change.

In Seattle and Los Angeles, it’s illegal to build apartments on 75 percent of the land in the

And there are also many cases where building isn’t technically forbidden, but the process is so complicated that it might as well be.

Take Patrick Quinlan, a 77-year-old who got approval from San Francisco to build four new duplexes in the city’s Bernal Heights neighborhood in 2019. Now, you’d think he’d feel lucky to get through the city’s permitting process, which is the most restrictive in the country. And he probably would have — had he not been attempting to develop this land ... since 1978.vii

Good rule of thumb: if pandas can reproduce quicker than your city can build housing, you’ve got a problem.

One other thing worth knowing: there’s no alternative to building. If your population grows, but new housing does not, you’ll have higher prices.

Some cities try to solve this problem through rent control, but when apartment owners can’t make enough money on their units, they’ll often buy renters out, move into the unit themselves, or convert it to something else, further reducing available housing.

A study in San Francisco found that rent control dropped the supply of housing in affected buildings by 15 percentage points, which means ... higher prices for everyone else. viii

Bottom line: if we want affordable housing, we have to build enough to keep prices down.

Otherwise, we’ll end up living in a world where this backyard shed ... rents for over $1,000 a month.ix

Yes, that really happened.

Yes, it was in California.

And yes, it will happen in your neighborhood too — if your city doesn’t build enough.

You know actually the place looks kinda cozy. But, I don’t know, it’s missing something.

Ah, now that’s more like it.

Hello, resale value!





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