We Can Make Housing More Affordable

Housing regulations thwart economic mobility.

The smoke from the dumpster fire of the 2016 presidential election has obscured many important issues, not least of them economic mobility. The difficulty of climbing the economic ladder may be overstated, but it also could be reduced.

Some ways to improve economic mobility are notoriously difficult—e.g., improving the public schools in areas where improvement is needed most. But other ways to improve mobility are not nearly so hard. Here's one: making housing more affordable.

Rents and mortgages present barriers to people who want to move for the sake of a better job (or even just a job, period). Reduce housing costs, and you lower the barriers. In the process, you also make it easier for those of modest means to start accumulating capital and building good credit.

Too many minorities are missing out on the chance to lay down those important financial markers. So are many millennials, who are living with their parents at record rates.

Several factors affect housing costs, and there's little to be done about some of them: Nobody is making more land, for instance. On the other hand, governments are making more regulations—and the price of housing would shift dramatically if they would just stop.

You don't have to be a bleeding-heart libertarian to think that, either. Even the Obama administration has come around to that view; in September Politico reported the White House was urging localities "to rethink their zoning laws, saying that antiquated rules on construction, housing and land use are contributing to high rents and income inequality, and dragging down the U.S. economy as a whole."

It has good reason to say so. In recent years new-home prices generally have been at least a third higher than resale prices. This summer The Wall Street Journal cited "several recent studies (that) have documented how increased regulatory and permitting costs" have driven them up. The rules cover everything from impact fees and stormwater runoff to species surveys and architectural mandates.

Even building permits matter. An analysis by the real-estate tracking firm Trulia recently showed that housing prices correlate highly with the length of time it takes to get a permit: the longer the wait, the higher the price.

Planners claim the price of real estate and market swings matter a whole lot more, but it's striking to note two figures: 33.8 percent, which is the growth in new home prices from 2011 to 2016, and 29.8 percent, which is the growth in the regulatory costs of new home construction during the same period.

Those numbers help explain why modestly priced new homes—those that cost under $200,000—now make up only 19 percent of the market. That's precisely half the share of the market they enjoyed just five years ago.

Higher-end homes (those costing up to a half-million) have increased their share of the market from 22 percent to 34 percent during the same period. Little wonder that first-time home buyers make up a smaller share of the housing market than at any time in the past three decades.

The connection between housing regulation and economic mobility shows up again in a recent examination of regional migration patterns. Historically, people from poor parts of the country moved to richer parts of the country in search of better work. Those who moved included both low-skilled workers and high-skilled workers, because migration benefited both.

In the past three decades or so, however, while both blue- and white-collar earners can make more money by moving to New York, the advantage for the blue-collar worker has largely disappeared. Reason? As the Brookings Institution explains, "regulation boosted housing costs in richer states so that migration was no longer an attractive option for low-skill, low-wage workers. But migration remained attractive for high-skilled workers, and they continued to move to wealthy places… This divergence in the migration patterns of skilled and unskilled households contributed to rising income inequality."

You can see the effect of government policies on housing prices—and economic mobility—by looking at regulation-heavy California, where a home now costs, on average, two and a half times more than the national average and rents in the Silicon Valley are double the U.S. average. Two-thirds of California's coastal metro areas have imposed measures to limit growth—i.e., measures to limit supply. Result: Housing prices skyrocket, leaving those of modest means priced out of the market.

California is not an anomaly. A recent article in City Journal by Joel Kotkin and Wendell Cox notes that "restrictive planning policies that slow development" have exacerbated the inflation of housing in places such as New York and Chicago—which also have seen only modest job growth, and even more modest growth (or even contraction) in middle-class and STEM jobs.

By contrast, Houston has been enjoying record growth in jobs overall, middle-class jobs, STEM jobs and population—and may overtake Chicago as the third-largest city in America within two decades.

Kotkin and Cox note that net migration between California, New York, and Texas has all been to Texas' benefit: an influx of young, well-educated and socially diverse people. The most diverse county in America is now Fort Bend, on the edge of Houston. Low home prices have helped make that possible: 52 percent of Latino households own their own home in Houston, which is twice the rate in New York (in L.A., it's 38 percent).

And low regulation has helped make those low housing prices possible. Houston famously has some of the most relaxed zoning and land-use regulations in the country. That doesn't mean hog-rendering plants sit cheek-by-jowl with hospitals, but it does mean developers face fewer roadblocks when they want to knock down old buildings and put up town homes.

Such an absence of restrictions has produced "a mash-up of architectural styles," notes another piece in City Journal. "Everything about Houston screams spontaneous." That no doubt would curl the hair of Virginia's historic preservationist class; Richmond's Commission of Architectural Review claims jurisdiction over everything from porch railings to paint colors.

Houston might not be able to boast hundreds of homes preserved in antebellum splendor like dragonflies encased in amber. But it does boast a median-home price of just $145,000. And more than 60 percent of Houston's housing stock is affordable for a family with a median income—which helps explain why so many young, diverse people are flocking there.

Texas has a reputation for being arch-conservative territory. But on the metrics that matter most to economic and social mobility, it's one of the most progressive places in the country.