by James A. Bacon

Governor Glenn Youngkin is rightly concerned about the housing shortage in Virginia, which drives up living costs and throttles economic growth. Yesterday he announced a plan to spend $75 million over five years to catalyze investment of $750 million and build 5,000 units to accommodate a growing workforce. But he acknowledges that massive regulatory reform is needed to bring supply in line with demand.

“With record employer relocations and expansions in the Commonwealth, over $85 billion in capital investment, nearly 250,000 jobs created, and a reversal of recent trends on net-out migration, it is clear that Virginia is growing and we need to make sure the supply of housing can meet our surging demand,” Youngkin said in Executive Order No. 24 issued yesterday.

Resumption of Virginia’s economic growth is very good news indeed. As the executive order notes, “Virginia now ranks among the top ten states for overall job growth, with 250,000 more jobs filled today and more than $85 billion in new capital commitments from employers relocating or expanding operations in the Commonwealth.” In a reversal of recent trends, it adds, more people are moving into Virginia than moving out.

In the Governor’s own analysis, however, Virginia needs to build 550,000 units to match existing demand, plus an additional 30,000 units per year to match the state’s growth. The Workforce Housing Investment Program will create only 1,000 units per year.

“Maintaining Virginia’s economic growth requires increased housing development, yet the market has been constrained by limited supply, burdensome regulation, increasing construction costs, and high interest rates,” the executive order says.

According to analysis from Virginia Housing and the Virginia Economic Development Authority (VEDP), Virginia’s metro areas are building new units at a lower rate compared to metros in economic competitor states. Metro areas outside of Virginia have not only outpaced housing stock growth in Virginia’s metro areas, but they are also outpacing the Commonwealth’s metro areas in issuing permits for new residential units….

We must further our efforts to increase the supply of housing, especially workforce housing, reduce regulatory burdens which drive up the cost of construction, and align housing development with economic growth.

The workforce-housing initiative will provide loans, subsidies and grants up to $3 million to localities and nonprofits to develop housing for workers in the middle-income range. To be eligible, the locality must be within a 30-minute drive of a business adding new jobs.

But that’s a drop in the bucket compared to what’s needed.

Youngkin says that Virginia has made significant strides in bringing down development costs. Unspecified improvements to building codes have reduced the cost of new home construction by roughly $24,000 per unit.

Additionally, the Virginia Permitting Transparency system has sped up the issuance of environmental permits. The Department of Environmental Quality (DEQ) is clearing permits 70 percent faster on average than before the start of the administration.

The executive order acknowledges, however, that localities, which control zoning and planning, exert control over the vast majority of housing development permits and regulation. And there’s the rub. In many localities established homeowners throw up intense resistance to plans to build multi-family housing nearby, especially if it’s geared to lower-income households. Also, additional housing adds to strains on local roads, highways, schools, water, sewer and utilities. Someone has to pay for public improvements, and no satisfactory arrangement has yet been devised to make everyone happy.

Until these intractable issues are addressed at the local level, Virginia is not likely to ever close the gap between supply and demand.