The Housing Crisis: What’s Holding Us Back and How We Can Move Forward
The United States is facing a housing shortage crisis, with estimates ranging from 1.5 million to 8 million missing homes. The reasons for this gap are complex and cannot be solved overnight. But there’s hope: speakers at the recent U.S. Housing Supply Summit in Washington, D.C. pointed to encouraging signs of political consensus, with lawmakers on both sides of the aisle acknowledging the crisis and beginning to engage in finding solutions.
The Core Causes of the Housing Deficit
At the summit, Robert Deitz, Chief Economist of the National Association of Homebuilders, outlined the “5 Ls” that are at the heart of the housing shortage:
- Labor
- Land
- Lending
- Lumber/Materials
- Legal/Regulatory Expenses
“There’s no single, easy fix to this supply problem,” said Deitz. To truly tackle the shortage, the U.S. needs to build between 1.1 million and 1.5 million units annually for the next decade.
Zoning and Building Codes: A Stumbling Block
One of the key issues slowing down housing construction in the U.S. is outdated and cumbersome regulations. According to summit speakers, other developed nations like the European Union have streamlined their building codes to foster quicker and more efficient construction, but the U.S. lags behind. While Sweden manages with just two building codes, the U.S. has five, which results in slow and uncertain construction processes.
What’s worse, the U.S. has had the ability to simplify these codes for decades but simply hasn’t taken action. Ivan Rupnik, founder of MOD X, noted that regulatory costs alone added an average of $94,000 per new home in 2021.
Tackling NIMBYism and Local Bureaucracy
While the regulatory environment is challenging, some developers are taking action. Chris Gamvroulas, president of Ivory Development in Utah, spoke about working with the state legislature to push through 70 new bills aimed at regulatory reform. Gamvroulas and his team were initially met with resistance, but they’ve been successful in influencing the legislative landscape to ease building restrictions.
One of the biggest challenges at the local level is the complex and inconsistent zoning codes. For example, a city might have hundreds of pages of residential zoning laws compared to just a few for industrial zoning. This discrepancy can cause delays in permitting, a significant roadblock for developers.
Moreover, building codes vary dramatically from state to state, with some places like Colorado having over 300 different codes. In North Carolina, national builders like PulteGroup can’t operate effectively because the state’s codes prevent them from using certain cost-effective building techniques, such as running un-insulated ductwork under floors.
The Cost of Building: A Political and Financial Issue
Mike Kinsella, CEO of Up for Development, highlighted the political nature of the housing crisis. While some states are starting to implement minimum standards and base codes, Kinsella emphasized that relying solely on state legislation won’t break the political gridlock. One potential solution is tying federal infrastructure funds to zoning reforms that encourage development.
On the finance side, there’s agreement that programs like Section 8 and Low Income Housing Tax Credits (LIHTC) provide important liquidity to the market but also face challenges. The mortgage and homebuilding industries are calling for reforms to address these bottlenecks and improve funding for new projects.
A New Era for Financing and Construction
Speakers at the summit discussed potential solutions to help speed up the construction process and increase the housing supply. Jonathan Lawless, former VP of Affordable Housing at Fannie Mae, suggested four initiatives that could make a significant difference:
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Manufactured Housing: The GSEs (Government-Sponsored Enterprises) should loosen restrictions on manufactured homes, which have been unfairly limited over the past decade. This would help make more affordable housing available.
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Accessory Dwelling Units (ADUs): Lawless proposed a program to help unlock the $30 trillion in home equity, allowing homeowners to add units like ADUs in their backyards. This would be a game-changer for housing availability.
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Construction-to-Permanent Loans: Lawless argued for a streamlined loan process that combines construction and permanent financing into one, making it easier for developers to secure funding.
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Construction & Development Financing (AD&C): Lawless suggested shifting some of the subsidies used on the demand side to the construction side, helping developers gain access to cheaper financing for new builds.
A Long Road Ahead, but a Path Forward
There’s no quick fix to the U.S. housing crisis, but the summit provided much-needed optimism. By addressing zoning reform, streamlining building codes, and improving financing mechanisms, there’s potential to start easing the supply shortage. However, it will take concerted efforts from both local and federal authorities, as well as developers and industry leaders, to make a meaningful impact.
As the crisis continues, the need for innovative solutions and bipartisan cooperation has never been clearer. We can’t afford to wait another decade to start solving this problem.
