Housing Needs More Freedom, Innovation, Not More Loans

This post is based upon remarks I made in a panel discussion yesterday, a blogger luncheon on Housing & Opportunity hosted by Housing Opportunities Made Equal. — JAB

Housing policy is badly flawed, the artifact of the-Post World War II era of boundless geographic expansion of our metropolitan regions. Here in Virginia, we must thoroughly re-think our approach to housing as embedded in our zoning policies and comprehensive plans. We need to place less emphasis on expanding the housing stock and making it “affordable” by traditional means (like borrowing more) and put more emphasis on making it affordable by reconfiguring the existing housing stock to meet changing market needs.

The era of mass OverConsumption is over. Bipartisan policy in Washington, D.C., pushed home ownership for more than 60 years: tax deductions on mortgage loans, Fannie and Freddie, the Community Reinvestment Act, the lowering of lending standards and the relentless expansion of credit. The 2000s housing boom was the logical result, and the 2007 crash the inevitable consequence. Consumers are still digging out from under the debt. Households no longer harbor the illusion that home ownership is a sure pathway to wealth accumulation. Chastened lenders have tightened lending standards. There is no going back to the way things were. We have entered a new era for housing.

Consumer demand for housing is undergoing an epochal shift. Baby Boomers are retiring, and most of them haven’t saved enough money to retire comfortably. Many would trade down to smaller houses if they could, but personal market conditions aren’t terribly obliging. One thing we can say for sure, the Boomers, who drove the housing mania for bigger houses, larger lots and vacation homes, are spent as a force for continued expansion of the housing market.

The Millennial Generation (the under 30 crowd) has a very different attitude towards home ownership than their parents. They don’t buy into the American Dream of living in a Single Family Dwelling on a large lot, spending half their spare time maintaining the house and yard, and the other half commuting long distances to work. They value freedom and flexibility. Even if they wanted to buy houses, most of them couldn’t. This generation is weighed down by $1 trillion in student debt.

We’re seeing an increase in demand for multi-generational housing. Boomerang kids are living with their parents longer than anyone expected. And, often, grandpa and grandma are moving in with their Boomer children. One way to cope with hard economic times is to economize on living space, for more people to live under roof together. Perhaps that togetherness will diminish when the economy improves — assuming that it does improve, which can’t be taken for granted — and 20-somethings move out to live on their own. But the trend toward multi-generational living as a means for caring for aging seniors is only likely to increase.

Finally, the country has yet to come to grips with the rising cost of automobile ownership. Gasoline prices get a lot of attention but the media has overlooked the bigger story, that automobiles are getting more expensive as government continues to impose stricter safety, environmental and fuel-economy standards, and as manufacturers convert cars into mobile entertainment and communications centers. The higher cost undermines the logic of “drive until you qualify.” Virginians will be less attracted to communities on the suburban frontier and more drawn to walkable, mixed use communities closer to their jobs and more transportation options.

Supply is seriously out of whack  with demand. Looking ahead, Virginia will need fewer Single Family Dwellings on big lots in the boonies and more apartments, condos, small-lot housing closer to the urban core. It’s impossible for anyone to know the exact mix, and indeed the precise mix will continually change. But it’s safe to say that county comprehensive plans are way behind the curve.

County zoning codes represent adaptations to six decades of growth and development, flight from urban cores and expansion of metropolitan peripheries. These codes, and the comprehensive plans that translated them into real life, created what we call “suburban sprawl”: segregated land uses, low-density development, hop-scotch development and auto-centric community design that virtually eliminated walking, biking and mass transit as transportation options.

Freer markets are the solution. The way to approach Virginia’s housing needs of the 2010s is not to gin up more low-interest loans so people can buy more square footage. Rather, we need to scrape away the regulatory barnacles that impede the ability of real estate markets to adapt to the new realities. For starters, that means giving developers more flexibility to be creative and innovative. Instead of forcing them into cookie-cutter developments, we should give them more freedom. If they use that freedom to build more cul de sac subdivisions in response to demand, so be it. But if they think the market is better served by increasing density, mixing land uses and creating communities reminiscent of what was built in the 1920s or even earlier, we should let them.

Meanwhile, we should allow home owners more flexibility. Instead enshrining the one-family-per-house uniformity, let people do what they want with their own property. Let them generate extra income — and create affordable housing units — by converting excess space into granny flats, basement apartments or garage apartments — or, the gods forbid, even turning single-family dwellings into duplexes.

Finally, recognizing the increasing expense of automobile ownership, we should take a fresh look at shared ridership as a means to connect people between home and work. Traditional models of mass transit are perennial money-losers and we cannot long afford them in times of fiscal austerity. It’s time to bust up the municipal transit monopolies and encourage private competition to serve the growing need.

From zoning, comprehensive plans and transportation, the answer isn’t more government action — to a large extent, ossified government institutions and practices are the problem. The answer is rolling back government and letting developers, entrepreneurs and homeowners the freedom to reinvent the way we live and travel.

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  1. I agree with most of what Jim says here but I can tell you that the exurbs are to young marrieds who want kids what catnip is to cats.

    You can blame it all on women who want kids.

    Once the guy gets on on board with the kid idea, they want a detached single family home on a cul-de-sac with a front and back yard and a safe local school that mom can pick-up and drop-off the kids so they won’t have to wait for a school bus and be vulnerable to kidnappers and the like.

    We are in our area – chock-a-block with two things. subdivisions with families and ridiculously overloaded roads during commute hours.

    I like Jim’s idea of limiting mortgage deductions.

    but we gotta stay away from stuff that sounds like that nasty social engineering, eh?

  2. Sure, limit mortgage deductions, that way only land lords will get them.

    Pretty fair.

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