Good morning. Today, my colleague Conor Dougherty helps you understand why houses are so expensive. We also have all the latest from the Democratic convention. —David Leonhardt
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The housing crunch has been well documented in high-cost big cities, where rents and mortgages break the bank. Now it has moved into the rest of the country. The culprit is too little housing, and it began two decades ago. In the three years leading up to the Great Recession, homebuilders started about two million homes a year. That number plunged during the crisis and never fully rebounded. Since 2010, builders have started about 1.1 million new homes a year on average — far below the 1.6 million needed to keep up with population growth. America is millions of homes behind, and it gets worse each year.
I spent a week this summer reporting in Kalamazoo, Mich., which isn't an obvious candidate for a housing crisis. But prices exploded as the supply of homes fell behind the need. Now even middle-class families earning six figures struggle to make ends meet there, and Michigan lawmakers are subsidizing developers who build for those residents. The Times published my article about it this morning. In today's newsletter, I'll explain how this happened nationwide, why it could take a long time to fix and what policymakers are doing about it. Skittish buildersCities and states understand they have a housing problem. To increase the pace of construction, many have cut back regulatory barriers — like zoning and environmental rules — that make housing slow and expensive to build. Since 2018, for instance, states including California, Oregon, Montana and Arizona have passed laws to allow duplexes and small apartment buildings in neighborhoods that once contained only single-family homes. But the nation's housing shortage isn't only about zoning in cities. For one thing, developers everywhere find it harder to raise money, and homeowners find it harder to get loans. That's because banks and the government, in a quest to prevent another housing bubble, have raised lending standards and made mortgages harder to get. For another, builders simply aren't putting up subdivisions at the rate they once did. They're cautious about overbuilding after the losses they incurred in the 2008 crisis, and they've become reluctant to invest and expand before they know they have a winning hand. For instance, many homebuilders moved away from off-the-shelf ("on spec") homes; now they prefer customers to prepay for properties before they're built. Land developers — companies that take a piece of dirt and add basic infrastructure like streets, plumbing and power, creating the lots where new homes are built — have also cut back. The number of vacant developed lots, or places where a homebuilder could start construction tomorrow, is still 40 percent below its pre-Great Recession level, said Ali Wolf, chief economist at Zonda, a data and consulting firm.
"The Great Recession broke the U.S. housing market," she told me. A generational problemMost people aren't going to live in new houses. But the entire housing market still benefits from them. That's because new homes tend to get cheaper as they age. Over time, this creates what housing wonks call "naturally occurring affordable housing," which is a polite way of saying places that are older and less nice. They're a huge piece of the affordability puzzle; they helped Kalamazoo remain affordable for middle-class households.
What's happened in Kalamazoo and around the country is that older, cheaper units have either fallen into uninhabitable disrepair or been sold to investors who rehab them and raise the rents. Rehabs like that are necessary, but without a constant pipeline of new construction, there aren't "new old" buildings for the millions of families who need lower rents. To combat this, both Kalamazoo County and Michigan have expanded housing aid to middle-income households that used to be ineligible. The hope is that this and other subsidies will encourage builders to expand if they believe they'll find buyers and renters who can afford the homes they make. It's part of a nationwide shift. Housing assistance used to focus on poverty. Now it's also becoming a middle-class support program. Shades of the same idea are in Vice President Kamala Harris's housing plan, which calls for assistance for both first-time home buyers and developers who build housing for them. Cities and states are changing where and how housing is built; Republicans and Democrats agree on the urgency, and housing was a theme at both political conventions this summer. (Barack Obama and Bill Clinton mentioned it in their speeches this week.) But those changes will be measured in decades because we fell so far behind. In the meantime, millions of Americans are stuck.
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