Legalizing Incremental Change—Everywhere—To Meet America’s Housing Needs

Thursday

We all need a place to live. We all need shelter. A functioning and responsive housing market should provide adequate amounts of housing at prices people can afford, yet that is not what we experience today.

In cities of all sizes and geographies, we witness housing markets that are broken. The cost of housing is elevated at nearly every income level. Demand seems to vastly outpace supply, especially in our largest cities. Development of new housing is constrained in a marketplace that seems rigged to protect the largest players. It all feels very unfair.

Yet, existing homeowners experience many direct benefits from this unfairness. Housing as an investment constitutes the largest portion of most families’ net worth. When homes appreciate in value, their owners build equity, real wealth that is a source of strength and stability. Many homeowners demand zoning regulations and other market interventions that constrain supply and support elevated home values. For those struggling to find housing, and those forced to pay beyond their means for shelter, this also feels unfair.

Trapped in the tension between housing as shelter and housing as investment is the local government. Cities benefit from a rising tax base, especially those places that rely on the property tax. That’s true even when the gains in value are part of a financial bubble, a dangerous distortion Americans have experienced in the housing market multiple times over the past half century. Most local governments are inclined to support rising home prices, regardless of the cause.

But, when housing bubbles eventually burst, local governments struggle, and they do so at a time when people are hurting, when competence and capacity at city hall is most needed. It is extremely difficult for a local government to provide essential services, let alone support a growing number of people without homes, when their tax base is shrinking. Volatility in the housing market makes local governments unstable. 

When it comes to housing prices, it is stability that is most essential. Over the long term, stability is achieved not through price controls or other artificial interventions, but by having a dynamic local housing market, one that balances supply and demand at prices responsive to the capacity of those living within that market.

How do we create a dynamic local housing market? How do we build the housing we need at the pace we need it? How do we protect local housing from distorting capital flows? And what is the role of local government in all of this? These are difficult questions with no clear-cut or easy answers. When it comes to housing, every policy has a tradeoff. 

At Strong Towns, we believe that housing markets need to be sensitive to neighborhoods and the needs of people living within them, rather than macroeconomic policy goals and the institutions that dominate them. Such a bottom-up orientation requires strong local leadership.

To that end, we have come to rely on a simple truth: No neighborhood should experience radical change, but no neighborhood can be exempt from change. It is not healthy for neighborhoods to radically transform, uprooting people and distorting established price relationships. It is equally unhealthy for neighborhoods to be locked in amber, artificially stagnating despite market demands or the needs of people within the community.

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