The Expert Podcast

How did we get to such a bad place with housing prices? Whether it's single-family homes, apartments, or condominiums, any measure of home prices shows they are much higher than they used to be, putting them out of reach for many average middle-class and working-class people. Many cannot afford the average house, and even some apartments are unattainable. How did we get here?

This is a great article from Cambridge Today that describes this long-term train wreck, calling it a 100-year class war. Over the last century, a combination of political, social, and legal efforts created mechanisms that brought us here. Housing prices are no longer in line with the average income for a typical person.

One major factor was the incentivization of single-family home construction. This was supported by the tax code, which allowed for deductible interest. Building codes and zoning also played a role, creating single-family-only areas. More importantly, the permitting process in many jurisdictions added restrictions, such as setbacks requiring houses to be a certain number of feet from the road or property boundaries. While these might seem like small details, they reduce housing density.

Some people prefer more space and larger lots with big yards for their families, which is fine. However, even if you don’t care for such space and want homes close together, it may not be possible in many areas due to these rules. For instance, parts of Florida have “zero lot lines,” allowing homes to be built very close together, but this type of zoning is rare.

Still, density may not be the solution either. This 100-year combination of rules wasn’t part of an organized conspiracy. It wasn’t a deliberate attempt to raise housing prices to unmanageable levels. Instead, it resulted from residents wanting to protect their quality of life. Suburban neighborhoods with spacious yards for children and pets were designed with those goals in mind.

People tend to resist changes that alter their communities' character. For example, someone living in a suburban neighborhood may not vote for zoning changes that would allow a 50-unit apartment complex next door. It’s not necessarily about making things harder for others but rather preserving what they value.

The combination of tax codes, zoning regulations, setbacks, and permit fees has brought us to where we are today. Undoing these policies is no small feat. If it took 100 years to create this situation, it won’t disappear overnight. It might not even be practical to undo it entirely. Instead, the focus should be on evolving and building forward.

Rather than trying to erase or destroy what’s already there, creating something new in a different location might be more effective. Look at cities like San Francisco, Dallas, New York, Miami, or Portland. What defines these cities? Why not build new urban centers in open spaces with the desired density and characteristics? For instance, Dubai built a high-density city in the middle of a desert.

Instead of reshaping established cities like Portland to fit new ideals, it might be easier and less contentious to start fresh. Building from scratch could allow planners to implement modern density standards, social attributes, and urban environments without resistance. However, even new developments must be carefully planned to avoid replicating existing problems.

This brings us to the unintended consequences of density. Some argue for higher density in urban areas, much like adding lanes to a highway to reduce traffic. But just as more highway lanes often attract more cars and worsen traffic, increased housing density could lead to overcrowding and new challenges.

This situation with housing has developed over a century, and resolving it will take time. The Cambridge Today article provides a compelling overview of how financial incentives for builders, governments, residents, and investors contributed to this disconnect between housing costs and average incomes.