The Housing Affordability Conundrum

The Housing Affordability Conundrum

Local governments are addressing the issue of housing affordability, and in some cases pursuing litigation, while private industry is looking for solutions to ensure workforce availability. Meanwhile, LendingTree offers a glimmer of hope for new homebuyers in 2019.

Housing affordability is receiving much attention in recent days, with the news that California is suing Huntington Beach in Orange County under a new housing law. Earlier in the month, the city had filed suit against the state, calling a state law mandating housing goals unconstitutional.

In announcing the lawsuit, Gov. Gavin Newsom called the lack of housing “an existential threat to our state’s future and demands an urgent and comprehensive response.”

California cities and counties are required by law to create housing plans that meet the needs of the broader region and its economy. Under law, the city’s housing plan must accommodate a fair share of the regional housing needs and provide zoning that encourages development of housing that is affordable to the city’s residents across all income levels, including affordable housing and middle-income housing. Newsom said that Huntington Beach ran afoul of the law when it amended its plan and reduced the numbers of new housing units.

“No one objects to local and state governments investing in or promoting ‘housing affordability,'” notes Steve Murray, president of REAL Trends. “Who could be against affordable housing?”

But Murray warns that efforts to legislate through the problem can do more harm than good, citing research by economist Thomas Sowell, author of Housing Boom and Bust. “Sowell points out that it is, in fact, local and state governments that created the problem in the first place,” says Murray. “By raising the cost and complexity of housing development over a very long period of time, they decreased the land available for residential development, raised the cost of land in areas where housing is needed and hiked development costs to an extent that in some communities in the U.S. the governmental costs per home site are nearing $75,000 per lot.”

“How can you build affordable housing given those conditions?” Murray asked.

Private Industry Addresses Housing Crisis

California is not the only state struggling to meet the housing needs of its citizens. In Washington state, home to tech industry giants Amazon and Microsoft, job growth has outpaced housing growth in Seattle in recent years.

“This gap in available housing has caused housing prices to surge 96 percent in the past eight years, making the Greater Seattle area the sixth most expensive region in the United States.”

Calling the situation a “crisis,” Microsoft recently announced it would commit $500 million to address the issue. Much of the money will be used to preserve existing housing and build new homes for low- and middle-income residents.

Explaining its strategy, Microsoft said it was aiming for a multiplier effect. “We’ve learned from efforts we’ve studied elsewhere that one effective approach is to provide short-term loans to enable those who want to build affordable housing the time needed to navigate the process of acquiring land from the public sector and raise longer-term construction financing. With these and similar investments, it’s possible to lend money, accelerate progress, be repaid and then lend this money again.”

While the actions of Microsoft are laudable, and “may help in the short run,” says Murray, “unless and until local and state governments focus on lowering the barriers and costs to residential development, it will be like the proverbial Dutch boy trying to stop a hundred leaks.”

Upbeat Outlook for First-time Buyers

On a positive note, LendingTree sees much upside for first-time buyers in the coming year and recently studied which cities are most amenable for first-timers. “The market should be more welcoming than last year,” said Tendayi Kapfidze, chief economist at LendingTree. “Inventories have picked up a bit, and home price appreciation has slowed. Even mortgage rates are cooperating, having fallen 50 bps from their peak levels of late last year, after being in an upward trend for two years.

These factors may act to draw more buyers into the market, making it imperative for buyers to be well-prepared. The keys to a successful home buying experience are saving in advance for the down payment, making a home buying budget and sticking to it and shopping for the mortgage by comparing rates with the same care as you shop for the house.”

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After earning her bachelor’s degree in journalism at the University of Central Florida, Tracey set out in the real world at Florida Realtors in 1994 as a communication assistant, working her way up to editor in chief of Florida Realtor magazine. In 2004, she left the association to start her freelance writing and editing business. One of her first clients was REAL Trends, and she started working for the organization in 2005. In 2014, Tracey was promoted to editor in chief of publications for REAL Trends. She handles the writing and editing of all REAL Trends publications and marketing materials, including LORE Magazine, the REAL Trends newsletter and the blog. She is also the primary podcast interviewer where she conducts interviews with top real estate industry leaders and affiliated industry leaders. Tracey is married with two children.

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