Solutions for America’s Housing Crisis
Everybody knows America has a severe housing shortage is worse than most people know. The United States is short 6.5 million homes, Realtor.com estimates. To elaborate, household formation in the United States outpaces home construction. For example, Americans formed 2.06 million new households in 2022.
Yet the number of new single-family homes begun in 2022, fell by 10.6% to one million. Conversely, the gap between home starts and household formation grew to 2.3 million at the end of 2022.
This gap explains why average US rents rose by 0.5% between February and March 2023, Zillow estimates. Typical rents were $1,996 in March 2022, a 6% increase from February 2022. Frighteningly US rents rose by 17% between February 2022 and February 2023.
The housing crisis everywhere from rust-belt Cincinnati where rents rose by 9.2% between February 2022 and February 2023 to Boston. Boston rents rose 8.7% between February 2022 and February 2023. Rents rose in almost all US cities including Salt Lake City where they grew by 2.9%.
How not to Solve the Housing Crisis
One reason America has a housing crisis is that popular political solutions to the problem do not work. For instance, the two most popular solutions to the crisis are increasing housing density and rent control.
Statistics show increasing density and rent do not affect the housing crisis. The two densest large US cities are New York City and San Francisco. New York had 27,748 people per square mile in 2019 and San Francisco had 18.791 people per square mile in 2019, Firebuy estimates.
Both New York and San Francisco have enormous homeless problems. The Coalition for the Homeless estimates there 68,884 homeless New Yorkers, including 21,806 children in December 2022. Disgustingly, New York’s homelessness level is the highest since the Great Depression. Similarly, San Francisco’s homeless population could grow to 20,000 in 2022, the city’s Department of Homelessness and Supportive Housing (HSH) estimates.
Statistics show density does not equal housing. Yet politicians such as Governor Jared Polis (D-Colorado) think density is the “magic bullet for housing costs.” Polis backed a failed effort to require higher density in Colorado cities.
Notably, the monthly rent for a typical one-bedroom apartment in New York City rose from $3,928 in May 2022 to $4,250 in May 2023 an increase of 8.2%, Renthop estimates. Frighteningly, the average rent for a New York studio apartment rose by 11.4% from $3,097 in May 2022 to $3,450 in May 2023.
New York shows high density does not create affordable housing. Both homelessness and rents are skyrocketing in the Big Apple.
Why Rent Control Does Not Work
The other popular rent-control solution in the United States: rent control can help those lucky enough to have housing. However, rent control does not increase the housing supply. Conversely, rent control often decreases the housing supply because it destroys the incentive to build or rent housing.
To explain, landlords cannot make money because of rent control so nobody wants to be a landlord. A related problem is that many landlords stop maintaining buildings turning them into slums.
Disturbingly, slumlords can make money from rent control but responsible landlords cannot. A slumlord can make money from rent-control units because he does not maintain or supervise his properties. The slumlord doesn’t care if the plumbing doesn’t work, or Joe the drug dealer is operating out of Unit 3. Housing shortages benefit the slumlord because people will settle for any place to live.
Rent control can only work when housing supply outstrips demand. Unfortunately, most US cities have housing shortages which make rent control unworkable. Housing shortages give landlords and managers a powerful incentive to ignore rent control and illegally charge higher rents. For example, demanding $100-$500 in cash a month under the table from each tenant. If tenants don’t pay, the manager doesn’t make repairs.
Some solutions for the Housing Crisis
There are potential solutions for the housing crisis, but politicians refuse to discuss them. Here are three potential solutions that could help end the Housing Crisis:
Require Developers to build Affordable Housing
America has an affordable-housing shortage because you can make more money developing expensive homes. Since developers and landlords make money from expensive housing. There is no incentive for a New York or San Francisco developer to build affordable housing.
An obvious solution to this problem is to require luxury home developers to build affordable housing. Many local governments already require developers to build a specific number of affordable homes in each luxury building.
The problem is these requirements do not produce enough units. For example, a 100-unit building could have 10 affordable units.
A better solution is to require developers to build one affordable unit (say something that rents at $1,000 a month) for each luxury unit. Another formula is to require a developer to build two affordable units for each $1 million of housing cost. Hence, a developer who builds 20 condos with a $5 million price tag will have to build or finance 50 affordable housing units.
Furthermore, allow developers to build the affordable housing at other locations away from the luxury units. For example, a developer who builds 100 luxury condos in one part of town will have to build 100 affordable units in a nearby neighborhood.
An interesting formula could be to require the affordable housing to be within walking distance of the luxury homes, or within the city limits. Also allow developers to finance affordable housing built by other developers. Finally, make it illegal to sell or occupy the luxury homes if the affordable housing is not complete.
Allow Manufactured Housing and Mobile Homes
The average mobile or manufactured home cost $125,200 in November 2022, the US Census Bureau estimates. In contrast, the average price to build a traditional home was $400,600 in February 2022, the Federal Reserve Bank of Saint Louis estimates.
Mobile homes can be cheaper in some areas. They cost just $119,200 in the northeast and $113,600 in the Midwest. Smaller mobile homes are even cheaper. The US Census Bureau estimates a single-wide mobile cost $88,000 in November 2022.
Hence allowing or requiring mobile and manufactured homes could provide plenty of cheap housing for many communities. For example, require a luxury condo developer to build a mobile home park in the same community.
Notably, the number of mobile homes in the United States has fallen dramatically. Statista estimates there were 6.8 million mobiles in the United States in 2014 that number fell to 2.88 million in 2020, 2.42 million in 2021, and 2.04 million in 2022. The number of mobile homes nationwide could fall below two million to 1.72 million in 2023, Statista projects.
I think the disappearance of mobile homes is a principal cause of the housing shortage. Hence, allowing mobile homes could alleviate the housing crisis.
Many cities contain land, such as old rail yards and factory sites, they can easily convert into mobile home parks. Mobile homes are superior to tiny homes because they contain more space and contain the amenities people want, such as washing machines and dishwashers.
An advantage to manufactured housing is they can build them fast without high labor costs. For example, all a mobile home park needs is graded lots with water, sewer, gas, and electric utilities. A contractor can prepare such lots in a few days and start moving in units. Conversely, it can take years to build traditional housing.
Unfortunately, many communities ban manufactured homes which raise costs. In particular, realtors and contractors promote mobile home bans to increase construction costs and property values. Cynically, realtors and contractors make more money from higher construction costs and property values.
Landlords want mobile homes banned because they can be a better and cheaper alternative to apartments and low-end rental houses. For example, mobile homes can offer more space and amenities, such as washing machines, dryers, dishwashers, modern bathrooms, and roofs that do not leak.
Moreover, manufactured homes can create higher-paying, and unionized, factory jobs. To explain, they build manufactured homes at a factory and ship them to the building site. For example, unemployed auto workers in Ohio could build mobile homes for working-class people in California or Colorado.
Just allowing manufactured homes can create more housing and drive down expensive rents. Apartment rents are skyrocketing because a cheaper alternative is being driven from the market.
Other solutions include prefabricated or modular apartment buildings and town homes which reduce construction costs. To explain, they build the pieces or modules of a modular apartment building at a factory and ship them to a building site for assembly. Robots could also help, Built Robotics claims its RPD 35 robot can build solar farms. Obviously, such a robot could build apartment houses or townhomes.
An interesting solution is to make cheap federal mortgages available to working-class people to buy mobile and manufactured homes with. Notably, it was cheap Veterans Administration (VA) mortgages that financed mass construction of manufactured homes in communities like Levittown in the 1940s and 1950s.
Require Mixed Use Development
An interesting way to increase the housing supply is to allow mix-used developments that combine residential and commercial uses.
For example, require any new big-box store to have several stories of affordable apartments on top of it, or next to it. Notably, one of the most popular King Soopers (Kroger) supermarkets in Denver is in the parking garage of an apartment building near downtown.
Similarly, require affordable apartments in all new office buildings, malls, and retail developments. Moreover, require high numbers of apartments. For example, one floor of apartments for each floor of offices. Or four floors of apartments for each floor of retail.
Also we can require affordable housing in government buildings such as city halls, office buildings, police stations, schools, museums, recreation centers, fire stations, and libraries. For example, require several stories of apartments on top of a new library, recreation center, museum, or elementary school.
We can require transit agencies to build large numbers of affordable apartments or mobile homes at or near stations. Similarly, we could require universities, hospitals, and companies to build affordable apartment buildings on their campuses.
In many cities, government buildings take enormous amounts of land out of the residential property markets. For example, a library, a police station, a firehouse, or a school cover an entire block. That’s property that cannot contain housing. This drives up building costs while cutting the housing supplies, which increases rents.
An advantage of mixed use is that they can convert department stores, malls, office buildings, and other structures into affordable housing. Another is that mixed use can open large up amounts of land for affordable housing in dense areas such as downtown.
One way to encourage mixed-use development is to offer tax breaks to organizations that build affordable units on their properties.
Replace Public Housing with Social Housing
Anybody who has watched The Wire knows America’s traditional public housing is a failure.
Public housing fails because authorities use means testing to keep out most of the population. For example, anybody with a job. This leads to a horrendous situation in which public housing units sit empty while workers sleep in their cars.
Worse, public housing often becomes a dumping ground for the poor, ex-convicts, the mentally ill, and people of color. In some areas, it becomes an illegal drug supermarket.
An alternative is European-style social housing. In social housing, the government builds or buys housing units and rents them to anybody, regardless of income. The advantage of this system is that it provides cheap housing for the middle and working classes.
Moreover, the government has a powerful incentive to maintain and police social housing because its residents are more likely to vote. One problem with public housing is that it becomes a black hole government officials ignore because its residents do not vote.
For example, police drive by the drug supermarket in the project’s plaza and nobody cleans up the graffiti on the complex’s walls. However, everybody knows cops will quickly arrest a drug dealer or graffiti artist operating at a nearby luxury condo building.
Building large numbers of social housing units can reduce rents by providing competition to private landlords. Moreover, the government can condemn land and build social housing where people need it, such as downtown and inner-city neighborhoods.
Finally, there is no reason social housing has to be apartments. In many rural and suburban areas, government run-mobile home parks are a cheaper alternative they can build fast. A solution in places like Summit County, Colorado, is for the local government to develop several large mobile home parks for workers to live in.
Another is to require local employers to build or finance mobile home parks. For example, make Walmart, hotels, and the ski area develop one mobile home lot within walking distance of their location for each employee.
There are potential solutions to America’s housing crisis. Unfortunately, America’s leaders are not interested in the crisis or its solutions.
If you want to know why America has a housing shortage. Just ask this question: have you ever heard a “reporter” ask President Joe Biden (D-Delaware), or former President Donald J. Trump (R-Florida) a second-generation real estate developer, about the housing crisis? I predict your answer is no. That is why America has a housing crisis.