In a recent article on WRE News titled “Renter Population is Growing 3X Faster Than Homeowner Population,” I was drawn in by the alarming data. The number of US renter households in the second quarter grew by 1.9% year-over-year, according to a new data report from Redfin (NASDAQ
This growth is more than three times faster than the number of homeowner households, which grew by only 0.6% in the second quarter to a record 86.3 million. As someone who has spent almost my entire life in the real estate industry, I find this shocking and alarming.
Having witnessed the ebb and flow of the home-building cycle, it is clear that when government overregulation eases up, home-building flourishes and American citizens can experience the American dream. However, undue government meddling in interest rates and overregulation of the home-building process have created one of the most challenging times in our industry. In response to this Government-created mess, Sen. Elizabeth Warren (D-MA) is proposing a gargantuan $550 billion bill to address the housing crisis by raising estate taxes (WRE News).
This proposal underscores a troubling trend in our government’s approach to housing policy. Rather than addressing the root causes of the housing crisis—namely, overregulation and bureaucratic red tape—the government’s solution is to throw more money at the problem, financed by increased taxes. This is not a sustainable or practical solution. We must address the fundamental issues inhibiting the construction of new homes and driving up prices.
The housing market is a complex ecosystem influenced by various factors, including supply and demand, interest rates, labor costs, and government regulations. However, overregulation is one of the most significant impediments to a healthy housing market. When the government imposes excessive regulations on the housing market, it creates a multitude of barriers that prevent builders from constructing new homes efficiently and affordably. These regulations can include zoning laws that restrict the types of buildings that can be constructed in certain areas, environmental restrictions that add significant costs to development, and cumbersome permitting processes that delay projects and increase costs. While some regulations are necessary to ensure safety and environmental protection, many are excessive and counterproductive, only to stifle growth and innovation in the housing sector.
In the past, we have seen periods of robust home building when regulatory constraints were relaxed. During these times, American citizens could more readily experience the American dream of homeownership. Conversely, when government interference increases, the housing market suffers. Builders face higher costs and longer delays, which ultimately translate into higher consumer prices. The current state of the housing market, with its skyrocketing home prices and growing renter population, is a direct result of excessive government regulation.
Understanding the impact of interest rates on the housing market is essential. The Federal Reserve’s manipulation of interest rates has profound effects on the affordability of homeownership. When the Federal Reserve keeps interest rates artificially low, it can create a ‘bubble’ in the housing market. A housing bubble is a temporary condition caused by unjustified speculation in the housing market that leads to a rapid increase in real estate prices. Low interest rates make borrowing cheap, which can lead to an unsustainable surge in home prices. Conversely, when the Federal Reserve raises interest rates to combat inflation, borrowing is more expensive, which can cool the housing market and make it more difficult for people to afford homes.
The recent spike in interest rates has had a chilling effect on the housing market. Prospective homeowners are finding it increasingly difficult to qualify for mortgages, and those who qualify face higher monthly payments. This has forced many would-be buyers into the rental market, further exacerbating the demand for rental housing and driving up rents. It is a vicious cycle fueled by government intervention in the financial markets.
In addition to interest rate manipulation, the government’s overregulation of the housing market is a significant barrier to home construction. One of the most significant regulatory barriers is zoning laws. Zoning laws dictate how land can be used and what types of buildings can be constructed in different areas. While zoning laws are necessary to ensure orderly development and protect property values, many are overly restrictive and prevent new housing construction.
A recent Forbes article, “Report Affirms More Housing Means Lower Rents and Prices,” reviewed a study by the Federal Reserve Bank of Boston, “Local Zoning Laws and the Supply of Multifamily Housing in Greater Boston.” The report found that density restrictions are vital in limiting the multifamily housing supply. Lowering regulations and allowing more homes to be built will decrease prices.
In his recent article in The New York Times, Bryan Caplan stated, “On the other hand, there is good evidence that heavy-handed housing regulation is boosting home prices by restricting supply.” He noted that strictly regulated urban areas like New York City and the Bay Area have high prices and low construction. In contrast, more lightly regulated areas like Houston and Dallas have much lower prices and more construction.
Deregulation is essential to addressing the housing crisis. By allowing builders to construct more homes without excessive government interference, we can increase the housing supply, which will help lower prices and make homeownership more attainable for more Americans. This is not just a theoretical solution; it is a proven approach that has worked in the past and can work again. Deregulation can lead to a more competitive housing market, lower prices, and increased innovation in the housing sector.
In addition to deregulating zoning laws, we must also address the permitting process. Obtaining permits to build new homes is often slow and cumbersome. Builders must navigate a maze of bureaucratic red tape, which can delay projects and increase costs. Streamlining the permitting process would make it easier for builders to start new projects and bring homes to market more quickly.
Furthermore, environmental regulations, while important for protecting our natural resources, can also be a significant barrier to home construction. Many environmental regulations are necessary and beneficial, but some are overly burdensome and inhibit new housing construction. It is possible to balance protecting the environment and allowing for responsible development. We must ensure that environmental regulations are reasonable and do not unnecessarily impede the construction of new homes.
In addition to regulatory reform, it is essential to address the issue of labor shortages in the construction industry. The construction industry faces a significant labor shortage, driving up costs and delaying projects. ABC.org recently reported that “The construction industry will need to attract an estimated 501,000 additional workers on top of the normal pace of hiring in 2024 to meet the demand for labor.” One of the primary reasons for this labor shortage is the need for more skilled workers. To address this issue, we must invest in vocational training and apprenticeship programs to ensure that enough skilled workers meet the demand for new housing.
Another critical factor in addressing the housing crisis is the cost of materials. The cost of construction materials has risen significantly in recent years, driven in part by tariffs and supply chain disruptions. Reducing tariffs on construction materials and addressing supply chain issues would lower the cost of building new homes and make them more affordable for consumers.
While these solutions are critical, fostering a collaborative approach to addressing the housing crisis is also important. I am actively watching political debates, reading the news, and hoping to see someone—anyone—come forward with a robust and reasonable solution to the housing issues we are facing. In a recent Gallup poll, “Gallup has asked Americans at least annually since 2005 to name, without prompting, the top financial problem facing their family. Inflation has topped the list for the past three years. The cost of owning or renting a home ranks second this year at 14%, a new high for that issue” (Gallup).
I strongly encourage everyone to put aside their personal differences, recognize that each individual is trying to find solutions, and work together to fix this problem. We must stop making housing a political talking point and focus on solution-driven initiatives as real estate professionals. Only by working together can we address the housing crisis and ensure that more Americans can achieve the dream of homeownership.
As we move forward, it is essential to keep the needs of the American populace at the forefront of our efforts. Deregulating housing is not just a policy choice but a moral imperative. By allowing builders to build more homes without excessive government interference, we can ensure that more Americans can access affordable housing. This is not just about economics; it is about allowing people to build better lives for themselves and their families.
In conclusion, the housing crisis we face today is a direct result of excessive government regulation and interference in the housing market. To address this crisis, we must take bold action to deregulate the housing market, streamline the permitting process, balance environmental protections with responsible development, invest in vocational training and apprenticeship programs, and address the cost of construction materials. By taking these steps; we can increase the supply of housing, lower prices, and make homeownership more attainable for more Americans.
It is time for our leaders to step up and take decisive action to address the housing crisis. We cannot afford to wait any longer. The American dream of homeownership is slipping out of reach for too many people, and it is our responsibility to do everything we can to bring it back within reach. This is not just about policy; it is about our country’s future and our citizens’ well-being.
I call on my fellow real estate professionals, policymakers, and citizens to join me in this effort. Let us put aside our differences and work together to create a housing market that works for everyone. Let us prioritize the needs of the American populace and take the necessary steps to deregulate housing.
John G. Stevens is the publisher of Weekly Real Estate News.
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When we look at housing costs we think of interest rates first. It is a key component and has a major impact but we neglect the impact the inflation has on housing too! It has caused insurance rates to skyrocket as claims have risen dramatically. Real estate taxes are also going higher and higher and pricing seniors out of their homes in many areas. Government is not our friend. Its uncontrolled spending is driving the inflation, its regs increase building costs and land development and its fees and taxes add to the burden. This is an unsustainable path for us to have a home ownership society
I think this is a fantastic idea. As long as the quality construction stays up. You could regulate the quality of construction that alone could create jobs. Plus, reduce the cost of housing. Just like in the auto industry all these big companies are only building high margin vehicles, leaving all these affordable vehicles out and the same is going for housing. This is the same.
Clearly you do not understand economics and are not in the industry. Don’t meet to start an argument but think through the problem carefully. First of all it’s impossible to regulate quality, like in any industry. Building homes is not a profitable venture
now due to many factors including high wages, lack of quality and trained employees, too many regulations and time yo build, cost of goods and so on. All government can think to do is raise taxes which exacerbates the problem and creates disincentive and so on and so on.
Inflation has NOT caused insurance rates to rise – the rise in natural disasters, i.e., hurricanes, floods, tornadoes and raging forest fires which are increasingly devastating communities all over, due to climate change. I am a realtor if 20 years in New Orleans and am experiencing it firsthand
Insurance fraud has contributed more to rate increases than the so called global warming.
NOT TRUE! Insurance companies have pulled out of states like mine because of hurricanes and floods. They have pulled out of California due to wildfires and on and on. I am a professional and we are kept informed about the situation.
That overused line “due to climate change” in any and every conversation is the modern “boogey man”. Climate change has always been part of our world, but the “climate change” doing the damage is not related to natural events: housing where it is dangerous (the bowl of New Orleans, forested mountain communities, beachfront properties, etc), an abundance of concrete and asphalt, metal, and other heat absorbing materials. Those same human factors create scenarios where catastrophic events are inevitable. So insurance demands are higher because of the population increase in those areas – and typically by elite/luxury property owners which further drive up the replacement cost insurers must cover.
Local permit regulations have put a huge damper on low income housing. By forcing onerous regulations on tens of thousands of vacant properties, the City of Chicago continues to enforce onerous regulations, causing no one able to renovate these properties. This results in the City of Chicago to demolish these properties (predominantly SFH and 2 flats) resulting in less housing and the local governments to never get these back on the real estate tax rolls. Does this make sense for anyone?
Eliminate the back unpaid back taxes, reduce the onerous regulations / violations and team up with local financial institutions to allow owner occupants to get purchase and renovation g low interest loans and allow “flippers” to purchase and renovate – allowing flippers to sell to low income buyers only. Could this work? Immediately let us try a pilot program of 50-100 vacant properties in “demo” court and test this plan!
Love this idea!
This is such a great article!!
You addressed so many issues that we need to focus on as Realtors & as citizens of the US. Your list to address the crisis is spot on. Hopefully we can help young people understand the importance of apprenticeships and working your way up the ladder. Keep up the good work.
Well written without a lot of political name calling. All those things – inflation, interest rates, regulation, labor costs – increase the cost of homes yet workers have not gotten the same increase in income. SPENDING by gov is a big factor. The push for EVERYONE to go to college (and repaying student loans) is also a big factor. Time for a major mindset- CUT spending even if it hurts the politician, encourage learning a trade, cut the bureaucracy by removing unnecessary regulations and restrictions – not only on housing but on all areas and thereby lowering inflationary costs.
If the solution is to reduce interest rates, fast-track development, waive tariffs to bring down materials costs, tweak permit processes, rebalance environmental protection, look no further than the overdevelopment in the North Myrtle Beach Area that has produced traffic gridlock, poor drinking water, vinyl-sided boxes replacing golf courses, and increased flooding, I do agree with more vocational and apprenticeship training, as I do for a re-examination of the entire housing process; however, it seems like politics, cronyism, greed, and special interests cloud the “responsible process.”
I like your thoughts. Not to mention that we still have to go back to our Covid crisis. I was working for a home builder at that time. Not only did the tariffs for Constuction material increase for new appliance just the same. Most of the appliances were manufactured in China. The tariffs were increased and even Concrete was imported from China. Since workers needed to respect the restrictions of Covid, production was reduced to almost nothing. Waiting lists for any material were 3 to 4 times longer than at normal times. Not only to mention prices! Framing material rose 300% not only to mention other items. Yet after covid was easing down, the prices for building material did not duce and still stayed 100% over the average amount from before Covid. I understand companies are in business to have earnings. The market has not returned to normal circumstances even after so many years. It’s not only the government, but we also all play a big role in the now situation
This is code for the government wants to control the real estate industry. You see, before the government steps in, Americans must problems with the product or service. But the government created the problems. I’m a 63yo Cal Berkeley Economics graduate and U.S. combat veteran who has worked and traveled in 37 countries, including seeing Germany when the it was split into East and West Germany until 1989.
I’ve seen this dog and pony show over and over again. Just read how the Bolsheviks tricked the Russian people into following socialism which quickly turned into communism.
We are currently in the storm of socialism… As quoted by the WEF “you will own nothing and be happy”
Govt elect are only supposed to meet once a year.. not get paid as well… they represent the hidden puppets and they are all on strings doing what they say.
So how does taxing my minuscule estate help my kids n grandkids keep my home in the family?
Taxes are illegal
Good article and perspective. What is unfolding is globalization in the real estate mkt. From recent mess w NAR rolling over its members re buyer agent Commission, to MLS boards uniting with foreign countries MLS’ (HAR), to more renters than homeowners- these are incremental steps to “You’ll own nothing and you’ll be happy”.
Lack of supply of homes for sale drives prices upward. You point out some of the reasons for this. However, one thing I rarely see mentioned is the effect of Capital Gains Tax rules, which stop elderly Americans who have lived in their house a long time from moving. The CGT allowances were set in the 90s, but prices have risen so much that a person who has lived in their house for 20 years may have a huge CGT bill if they sell, even if they are wanting to downsize in old age. You may well say ” They made a lot of profit!”….however, the single story house for the Senior may well cost as much or more than the house they are selling, so they cannot afford it once they pay CGT. So all the baby boomers just stay in that house until they die, because that’s the only way out of the CGT!!
Main residence exemption? Most people would have no CGT on selling a main residence. CGT would apply to investors selling an investment property or if selling a second home.
What a fantastic article. As a California resident and real estate agent I cannot emphasize enough how government policy has single-handedly created the mess we are in now.
Thanks I have recently been looking for info about this subject for a while and yours is the greatest I have discovered so far However what in regards to the bottom line Are you certain in regards to the supply
Thank you for your thoughtful insights. I truly believe that the root cause of our residential housing crisis is not so much over-regulation (although you make many valid points and more taxes would not help, and rent control would definitely not help), the root cause to a large degree is because of something called the commoditization of residential real estate, yes – by Wall Street. SFRs are now just like pork bellies and orange juice (metaphorically speaking). Hedge funds, and multi-national corporations are soaking up our supply of “affordable” housing, internet marketing platforms, property management companies, and all the vertical and horizontal economic business trappings that go with housing, especially single-family housing. Having been in the real estate sector for nearly 38 years, I have witnessed the wholesale theft of opportunity, post great recession,
for first-time buyers in competing against these deep-deep all-cash pockets, and the consequential but artificial “driving-up” of residential RE prices as a result. I believe this is the biggest cause for our current inflation worry. Housing is the largest expenditure in a typical household budget (@30%). We know that the dramatic increase in the cost of housing, either for rent, or for sale, is the leading cause of inflation’s pain. It isn’t the price of eggs. This 800 lb. corporate gorilla, with algorithms and insatiable appetite, does not play fair.
In my opinion, the BEST thing our government could do for us is to truly BAN hedge funds, multi-national corporations, and Wall Street folks from PURCHASING SRFs. Period. Full stop. Their entry into our residential housing market, which seems to have taken root post great recession, has created a very lopsided playing field. Shelter is a basic need. Our government should be protecting us from these oligopolies manipulating a basic need.
This!!!! Yes!!
Thank you for a well thought out article. As a property owner in multiple states, regulations have proven to stifle my creativity on how to develop, use, and monetize my properties, which is unfortunate. I agree there should not be so many controls over such a basic necessity, and it seems like we are heading for even more, not less. Time to correct course.
You always know how to provide exactly what your readers need. Thanks!