Build more houses, you cowards

The worldwide housing shortage is a colossal policy failure.

In "Should you buy a home?" I wrote about how to navigate the tremendous expense of housing as individuals. Here we explore why housing is so expensive and what we should do about that as a society.

Inside this issue:

• The cost of housing is a genuine crisis

• Housing doesn’t have to be expensive

• The unholy alliance of the landed gentry

• Bad ways to solve the housing crisis

• Good ways to solve the housing crisis

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The cost of housing is a genuine crisis

In 1985, the median household income in America was ~$22.4k/year and the median home price was ~$78.2k, meaning the median home cost ~3.5 years of work. By 2022 the median household income had risen to ~$74.6k/year — but the price of the median home had risen even faster to ~$433.1k. Buying a home now took ~5.8 years of work.

Here’s what that looked like:

At time of writing the median home price in America is ~4.5x the median annual income, down from the peak a few years ago but still higher than any point since the mid-1950s. I’m mostly focused on America here, but this problem isn’t exclusive or especially specific to America. Housing costs are a significant source of pain for people throughout the western world.

The rising cost of housing is a huge social problem, even for people who can afford that cost for themselves. First and most obviously a lack of affordable housing means more homelessness, poverty and crime. But it also weakens communities in more subtle ways: gentrification drains neighborhoods of vibrancy, longer commutes fill streets with congestion, and essential service providers like teachers, nurses and firefighters are driven out by high prices.

A society where only the rich can afford to live is not a healthy society.

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Housing doesn’t have to be expensive

The companion post to this one opens with this observation:

According to the Bureau of Labor Statistics (BLS) the typical American household spends ~1/3 of their annual budget on housing — roughly double the next largest category (transportation).

It is true that housing is the single largest expense of any American household but there is no reason that it has to be. Everyone needs housing to live, but everyone also needs air to live and air isn’t expensive. There is no inherent law of the universe that dictates that precious things have to be expensive.

The reason housing in America has gotten more expensive is because the number of home buyers has been growing faster than the number of homes for sale. That doesn’t happen for most things Americans buy! It would be weird to see a widespread shortage of vehicles, household appliances, televisions, computers, cell phones, or any of the other staples of median American life. We don’t run out of cars, we simply build more cars until people have as many as they want.

It is strange and aberrant that housing does not work the same way. There is plenty of space in America and we are very capable of building cost-efficient housing. We could easily build enough housing to meet rising demand. It’s not impossible to build enough housing for everyone — it’s just not allowed. The housing shortage in America is not inevitable. It is a policy choice.

More housing would lower the cost of housing. The easiest way to see this is to compare different cities in America. There are cities with slow growing / low cost housing, there are cities with slow growing / high cost housing and there are cities with fast growing / low cost housing. There is nowhere in America that has both rapidly growing housing supply and high housing costs. Every single city that decided to build enough housing to meet demand has been successful.

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The unholy alliance of the landed gentry

The high cost of housing is a problem with a clear cause (not enough housing) and a clear solution (build more housing). We could solve it. Unfortunately, the challenges of our current housing shortage are not evenly distributed. The rising cost of housing is bad news for people who need to rent property but it is good news for anyone who already owns property.

An unstated but ironclad rule of American politics is that absolutely nothing is allowed to threaten the perceived wealth of the median American voter. ~2/3rds of American homes are owner-occupied and home equity represents ~2/3rds of the median household’s wealth. Whether they (wrongly) believe that wealth to be safely invested or (more accurately) understand home ownership to be a luxury expense doesn’t ultimately matter. All property owners are financially motivated to defend the value of the assets they hold.

Homeowners are one of the largest and most reliable voting blocs in America, particularly at the local levels where most housing policy is set. Politicians are extremely reluctant to anger that constituency, which gives homeowners a de facto veto over any change to housing policy they dislike. The problem with the easy and obvious solution to the housing crisis is that anything that lowers the cost of housing will be unpopular with voters who have ~2/3rds of their net worth tied up in housing.

The median voter in America recognizes that drowning is a problem but worries that building more boats might make their own boat less valuable.

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Bad ways to solve the housing crisis

Because the simple and obvious solution to the housing crisis is taboo, our political leaders make empty promises about how they will somehow make housing affordable without making any existing houses cheaper.

Biden for example has proposed giving first time home buyers a ~$10,000 tax credit, but we can’t make housing affordable by spending more money on homes. Home prices are not high because of a shortage of money. Adding more money to the market doesn’t mean more people will end up with homes, it just means more money will be spent on the same outcome. It’s a gift to home owners designed to look like a gift to home buyers. It just makes the cost of housing worse.

Biden has also argued for limiting rent increases, which is even worse. Rent controls lower the quality of rental apartments, decrease the supply, limit mobility and raise the rents on uncontrolled housing in the same market. Rent controls do nothing to help people who need somewhere to live, they just create a strange aristocratic class out of the people who were renting when rent controls were first established — while making things worse for everyone else.

On the opposite side of the aisle, J.D. Vance offered two solutions to the housing crisis in the Vice Presidential debate: deporting immigrants and building new housing on federal land. These are also extremely dumb ideas.

Building houses in the federally owned deserts of the Mountain West would not help address the cost of housing in any American city for the same reason that building houses in Antarctica wouldn’t help address the cost of housing in any American city. The problem is not a shortage of housing in places that nobody wants to live.

Trying to solve the housing crisis by deporting immigrants is both incredibly bleak and incredibly dumb. The total population of undocumented immigrants in America has stayed between ~10-12m since 2005, but during that same time home prices almost doubled. Deporting every undocumented immigrant in America would only reduce the population by ~3.5%, and undocumented immigrants tend to live in smaller houses and with more people so the drop in housing demand would be even smaller than that.

Undocumented immigrants don’t really use very much housing — in fact, they actually build a lot of our housing. We already know that increasing immigration enforcement raises housing prices by creating a supply shock in construction labor. Following through with the threat of mass deportation would actually make housing radically more expensive. It’s not a way to solve the housing crisis. It’s just a way to punish immigrants.

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Good ways to solve the housing crisis

Eagle eyed readers will have already figured out the hidden secret to solving the housing crisis: we need to build more homes. In theory that could literally mean the government building more homes directly, but in practice it is probably easier and more effective to just remove the barriers that are keeping the market from building enough homes for itself. The government just needs to get out of the way.

That means less restrictive zoning, eliminating parking minimums, more apartment buildings and fewer single family homes. It means fewer and faster approval processes and less oversight — especially the kind of oversight designed to subtly sabotage building projects in service of existing property owner’s interests. In a perfect world we could go even further — bring back single-room occupancies, eliminate the mortgage interest deduction, tax land value, expand public housing, etc etc.

Sadly, this is not a perfect world — but we can still make progress. Democratic presidential candidate Kamala Harris inherited some of Biden’s misguided policies around demand subsidy and price controls — but she has also proposed subsidizing new housing construction and cutting down on red tape, both approaches that could genuinely help. In general VP Harris has been a lot more honest and direct about the need to actually increase the supply of housing.

Voters (especially at the local levels) set the agenda for housing policy. If you care about housing policy, then you should vote.¹ At the national level you should vote for Kamala Harris but it’s even more important to find and vote for the pro-housing candidates in your local elections. Let’s build enough homes for everyone.

1. You should probably vote even if you don’t care about housing policy.