Are efforts to challenge local land use rules--you know the ones--that choke off growth, suppress new construction, and set in motion a domino effect of scarcity and spiraling house values to the point of pricing out the next generation of workers an exercise in futility?
Some people think so.
"They don't want to raise taxes on current residents, so local governments make up all of their cost increases by passing those costs along in entitlement fees, impact fees, and other expenses, a burden buyers of new homes shoulder in what they have to pay for their homes."
How many home builders--big, medium, and small firms--can relate to this lament?
Jobs, signs of real income growth, a growing confidence among young adults as they put distance between themselves and the gravity of the Great Recession, and demographics' glacial shift into household and family formation are the fundamental economic, social, and cultural gears now engaged for growth.
Holding growth back now and, unfortunately, capable of disengaging those gears, are regulations and their cost in money and time, layered on top of developers' and builders' direct costs to the tune of one in every four dollars added to the purchase price tag on a new home.
The National Association of Home Builders notes that this 24.3% regulatory burden--which accounts for more than $80,000 of a typical new home cost--prices more than 14 million would-be home buyers out of the new home market altogether.
Florida, for instance, has laws that limit localities' ability to levy higher property taxes on existing house property owners, so those municipalities and counties turn to new residential construction and community development as the source of new needed local revenue.
"That's playing out in one way or another in all but a few of the places we build," says the ceo of a national builder.
Fact is, most of the current housing recovery in new construction--for what it is over the past seven years--has taken place on the back of land deals made when land values were distressed.
As much as labor capacity unpredictability, materials price swings, and the cost and accessibility of capital can be inhibitors to the pace and price of new home deliveries to the market, we think the No. 1 concern among builders who are going to be around through the next housing cycle is the vicious circle of local and regional land use policy.
Here's the rub, as described by New Geography's Joel Kotkin:
In many regions of the country, conscious government planning discourages single-family home construction, a policy often described oddly enough as “smart growth.” Advocates of this approach suggest that most people, particularly millennials, do not want single-family homes, and prefer to live chock-a-bloc in dense multi-family units.
This does not reflect reality. In survey after survey, an overwhelming majority of millennials, including renters, want a home of their own. A Fannie Mae survey of people under 40 found that nearly 80 percent of renters thought owning made more financial sense, a sentiment shared by an even larger number of owners (PDF). They cited such things as asset appreciation, control over the living environment, and a hedge against rent increases. Roughly four in five purchases made by people under 35 are for single-family detached homes (PDF).
The real problem is a growing gap between what people want and what they can afford. Jason Furman (PDF), the former chairman of President Obama’s Council of Economic Advisers, has warned that price escalations associated with strong housing regulation push many people “out of the market entirely.”
These huge price premiums, particularly stark in California, also plague Denver, Miami, New York, Portland, Seattle, Honolulu, and Boston. Where housing prices once closely tracked rents, they now have shot up in many metropolitan areas far past what renters would ever be able to afford.
So, back to the question: is challenge to the voters and the officials in those markets and a growing number of other localities futile?
For the sake of many of those young Americans who are starting to feel more confident that the U.S. economy has a place for them in business, professions, and industries to build a career, let's hope not.
Let's hope that those same young American adults--finding their career paths, shedding their college debt, and forming households and families--can feel the same level of confidence that the U.S. housing economy has a place for them as well.
