Housing in America is broken. What does that mean? We simply no longer build enough units to meet demand and keep prices affordable for most Americans. The house price-to-median household income ratio in this country was 2.2:1 until the 1970s. Over time the average rose to 2.8:1. We’re now at 3.4:1. The figures are much higher in most of our high-growth MSAs – as much as 10:1 – and are particularly troubling since the last three economic cycles have seen a continuing trend of high-performance MSAs capturing a higher percentage of job growth and company formations. What is truly frightening is that however much of a problem this appears to be today, imagine how harmful it will be if mortgage rates rise to historical averages. Therefore, it’s more critical than ever that we build sufficient housing to keep supply and demand in balance, so safe shelter can be affordable for all.

How did we get here and why is this a problem across so much of America?
A pattern is developing across the country. Job growth in large metro areas draws in employees from other parts of the country. Initially, the growth is cheered fairly universally. If the job growth is taking place after a down period, the newly employed (locally or in migrants) are filling up vacant units and there are few objections.

But traffic begins to increase and soon parents notice there are trailers being installed in their kids’ school yard because enrollment is up. At this point, the benefits of growth are now considered not worth the detriments (at least to those who own homes with stable jobs). And the painful memories of living through an economy not growing or even shrinking begin to fade. Then when a new apartment project or townhouse development is proposed near existing single-family neighborhoods, the protests against additional growth begin in earnest. Or perhaps a new building sparks a renaissance in an older neighborhood, raising rents to levels that are more than some existing residents can afford. The cry “gentrification!” rings out.

Unfortunately, the protests do not focus on the root cause – job growth. All of the attention is focused on limiting housing as if somehow that will eliminate the traffic and school problems (or the price pressure on existing neighborhoods). The equation is simple – jobs become available, people fill them and those people need a place to live. Outside of resort communities, you simply cannot have housing demand without job growth. Housing does not drive job growth – it responds to it. Yet housing ends up in the crosshairs. Few groups who will state they are against job growth. But where is the logic of being for job growth but not for housing? How can we have economic development groups and incentives for employers and be against new housing? The only way this makes sense is if your goal is to raise the price of your own home and exclude others from the housing market. Sadly, this is the motivation of many, hidden behind “maintaining our community’s character” statements.

Once upon a time, the changes growth brought were considered progress. People expected and wanted their city to change over time. Infrastructure was built by government to facilitate growth, much of which happened by expanding the metropolitan regions. But then tax revolts and shifting budget priorities limited available revenues to governments, who then chose to allocate fewer funds to roads, sewers, water, etc. And environmentalists fought bitterly against the traditional suburban growth model. Growth became a dirty word, at least as it relates to residential development.

With each business cycle, the limitations on residential development were ratcheted tighter as this scenario played out over and over again. We now find ourselves at the point where working people with decent jobs are having to spend 40%-50% of their entire income on housing, and young professionals in high-cost metros can’t even afford their own apartment.

While we cannot look into the heart of every homeowner who has protested against a new project in their city, we can say unequivocally that homeowners’ active stifling of housing growth is systematically denying the American dream to young people across the country. It’s morally wrong and is one of the single greatest contributors to the growing income inequality in this country and the lack of mobility between economic classes.Our core challenge is to acknowledge our choices and their ramifications. In concept, we can choose between the following:
1. Little job growth, little housing growth. Our community character won’t change, but many (most) of your young people will move away, as we will not create opportunities for them. But we won’t have to worry about an apartment building being built down the street. Most people who live in communities like this would not recommend it. But it’s a choice that has internal logic.
2. Good job growth, little housing growth. This is the path being followed by most of our high-growth MSAs. It’s a road to growing income inequality and polarization of the community between the “haves” and the “have nots”. Those who are homeowners prosper through rising prices, although the only way they can access that equity is to sell and leave the area – thereby experiencing the ultimate “character change”.
3. Good job growth, good housing growth. The character of the community will evolve. Young people will thrive as they have both opportunities to build careers and can afford to live in, and become attached to, their community. Change will come, and not all will be good. But earning a decent living and living in a decent home by the vast majority seems like a good trade. Houses are where jobs go to sleep at night. Why are we for the jobs, but not for where they sleep?

In Part II we will look at the myths and real reasons why housing so expensive.