Two factors contribute most to a bigger and bigger wedge between household wages and housing costs.
One is local, regional, and national regulation burdens. The other is the lash of counter-productive building, outmoded processes--rigidly hardwired practices, in place due to entrenched interests, laws that date back to the dark ages of community planning, and old-school, quid pro quo business arrangements.
Importantly, remember, both of these issues and their crux--affordable dwellings for multiple economic tiers of households--mean the most to those people who are priced out of housing choices in places they'd like to live. It's worth our making note that affordability may not feel like a critical issue for many, many organizations in our business community right now.
They're selling all the homes they can build. They're leasing up all the units they can develop, with very low vacancy rates. Buying conditions are good; interest rates are low; household balance sheet exposure is relatively low. Job growth is solid. So, repeated clamoring over how unaffordable housing's getting may sound more and more like tinny ideology, not economic guidance.
Still, it's hard not to imagine a group of players not realizing they're in a game of musical chairs until the music stops.
We've learned from our past errors that a broken model--financial, operational, strategic--doesn't always simply cease functioning. Sometimes, it churns on--at times even accelerating, or peaking--although its inner workings are damaged beyond repair, and headed for an inevitable, calamitous demise.
Today, if a release of pent-up demand from the past looks and behaves enough like sustainable demand into the future, could we mistake one for the other? Also, we know that as household counts grow in an absolute number, the self-select households that pair more socially and economically mobile individuals leave a growing number of households that are less socially and economically mobile.
This means that a bigger universe of households priced-out of housing choice in more markets, and a smaller, more finite universe of households for whom housing choices in those markets and submarkets are attainable.
You can interpret this line of thinking one of two ways, as a note of economic caution or as political hogwash. It's offered in the first sense, but often taken as the latter.
A conversation we had this week shed new light on ways that local rules and regulations work as preservers of cost, time, and talent laden, black boxes that become boneyards for land acquisition and development people looking for lot pipelines that pencil profitably for builders and affordably for buyers.
"Local planning and zoning tilts the playing field in favor of a local builder, his pickup truck and dog," the co-founder and senior strategist at one home building enterprise told us. "They're the ones who are out having a beer or two with the head of the planning board or the town supervisor or the chief of the building department. They have the time to work that way, and they're the ones who are going to be able to navigate the rats nest of rules and regulations to get deals green-lighted."
Developers from out of town may have more resources, and may represent the ability to build more attainable housing, but many of them don't have the inside track with local officials that smaller, less well-resourced builders have. The risk of any big change is reduced. The housing that gets done comps in a way to protect existing residents' property values. Nobody gets hurt.
Except the ones who are priced-out, for one. And two, after too many years of pricing people out, those municipalities then have to reckon with diminished workforces, and ultimately diminished value of their properties, since there's no succeeding generation of would-be buyers of those properties around to serve as demand.
It's a vicious circle. Have a look at some of the good work on hard-to-build-in neighborhoods--both metros and zip-level submarkets--that BuildZoom chief economist Issi Romem did at the request of The Wall Street Journal. Romem spotlights four key takeaways from his analysis of where local rules, regulation, and protectionism have both suppressed housing development and fostered environments that price more people out of a market.
- The toughest places to build are not downtown. It is expected and accepted that U.S. downtowns be dense, and once density is accepted in an area it is easy to build more there.
- The toughest-to-build places tend to be in the inner suburbs. Local land use rules typically codify as taboo dense construction outside of downtowns and in the vicinity of transit hubs. Because the inner suburbs have been around longer than more distant suburbs, the inner suburbs are more likely to have depleted their supply of vacant lots, leaving no room for “acceptable” new construction. The three toughest-to-build neighborhoods featured in The Wall Street Journal – Venice Beach in Southern California (90291), Prospect-Lefferts Gardens in Brooklyn (11225) and the Fishtown section of Philadelphia (19125) – all fall into this category.
- The toughest-to-build places are often in gentrifying neighborhoods. While the process of gentrification is in progress, neighborhoods experience sharp housing price appreciation. However, because gentrification is often closely tied to the neighborhood’s physical charm, housing price appreciation is rarely met by equally large increases in the rate of new construction. As a result, gentrifying neighborhoods often elicit an increasing willingness to pay for housing while failing to get more housing built, i.e. they are tough-to-build. The three toughest-to-build neighborhoods featured in The Wall Street Journal fall into the gentrifying neighborhood category as well.
- Another variety of tough-to-build places consists of exclusive and wealthy low-density enclaves. When such enclaves are sufficiently mature that they no longer harbor vacant land eligible for construction, they often fail to produce any new housing. In metro areas that continue to sprawl, gentrification is less common and the sharpest housing price appreciation often occurs in exclusive, wealthy enclaves such as these. The Villages in Houston (77024) and Brookhaven in Atlanta (30319) are good examples.
Being able to partner, align, and benefit from trusting, solid relationships with municipalities is a skillset builders and developers have had in their wheelhouses forever. Even in an increasingly automated, data-driven, and hopefully, far more efficient and productive era of home building design, engineering, construction, and development, the ability to partner, truly collaborate, and sustain relationships with localities is a skill that will only rise in importance as organizations try to expand the universe of demand by kickstarting social and economic mobility in the United States once more.
Tyler Cowen, in his latest book, "The Complacent Class: The Self-Defeating Quest for the American Dream," gives a lot of focus over to why NIMBY-ism is part of the cycle of self-defeat. And, he says, it's "one specific manifestation of a broader mentality of stasis:"
- NIMEY--Not In My Election Year
- NIMTOO--Not In My Term of Office
- LULU--Locally Undesirable Land Use
- NOPE--Not On Planet Earth
- CAVE--Citizens Against Virtually Everything
- BANANA--Build Absolutely Nothing Anywhere Near Anything
At Hive 2017, coming Dec. 6 to the brand new Intercontinental in Los Angeles, our plan is to give participants a practical, real-world, take-back-to-your-office-the-next-day blueprint for how to make trust a core catalyst for growth and transformation in your organization. We'll hope to see you there!