💼 Affordable Housing is Illegal

briefcase | invest smarter | issue #37

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Hey, can we have some more housing?

Governments be like...

Now, some of you may be thinking...

Governments all over are calling for more affordable housing solutions!

But those are words 🗣. Not actions 💨. The reality is that draconian land use and zoning laws have made creating a critical mass of additional housing supply painfully difficult. And, in most cases, illegal.

Let me explain...

The law of supply and demand is completely out of whack, with supply playing catch up to demand.

Between 2010 and 2020, fewer homes were built than in any other decade since the 1960s.

Further, the share of starter homes (1400 sq ft or less) in the 1980s sat at 35%, now, we are just above 5%.

In one sense, local governments are demanding support for more housing supply, but on the other, they've created it impossible to develop these options. Let's take a closer look.

Dry Supply

📃 Zoning — Local zoning guidelines outline what you can and can't do with a property. In 75% of cases, zoning rules allow only R1 density, which means one single-family home or townhome. What this does is legally excludes other types of housing such as apartments, duplexes, and triplexes.

🤔 Take a look at the R1 zoning in San Jose, which accounts for 94% of all residential zoning.

It's Illegal: By only allowing certain building types in their jurisdictions, local governments have made alternative and affordable housing options illegal by exclusion.

Want a quick history of R1 zoning?

R1 arose, at least in part, from invidious motives. It was built on arguments about the sort of people who don’t live in detached single-family homes and the harms that would arise if they mixed, socially or as fellow taxpayers, with those who do. R1 first proliferated after the Supreme Court struck down racial zoning in 1917 ’s Buchanan v. Warley decision. Buchanan made single-family mandates appealing because they maintained racial segregation without racial language. Forcing consumers to buy land in bulk made it harder for lower income people, and therefore most non-White people, to enter affluent places. R1 let prices discriminate when laws could not. — Journal of the American Planning Association

Wow. And the data shows this to be true, the more R1 zoning that exists, the more caucasian a community is.

Many progressive cities are taking the initiative to end single-family zoning, and that should be applauded.

📏 Height Restrictions — If you're able to have the correct zoning to build smarter and more dense housing, then you still have to contend with local height restrictions, which in some cases is only 2-3 storeys.

It's Illegal: By reducing the height of buildings, local governments have made it illegal to build certain types of multifamily housing. Couple this with lot setbacks and minimum lot sizes that restrict the footprint of your building, and you've made more affordable housing illegal by exclusion.

🚗 Parking Rules — In a great analysis by Vox, parking is outlined as one of the limiting factors to creating more affordable housing. Building a 100 unit apartment building? Great, that'll cost you 200 parking spaces, please.

What this means for developers, is that the vast majority of the land must go to parking, which disincentivizes larger scale developments in places where land is expensive. Or, they just develop fewer units to accommodate parking which drives up the prices of those units (land still costs the same), therefore making the housing stock in that location less affordable.

Finally, if you want a hilariously sad breakdown of housing discrimination in the U.S., you won't want to miss this.

So what? Enabled by NIMBYism, local zoning laws are the biggest threat to affordable housing in North America.

Real estate entrepreneurs who care about affordability and providing homes for everyone, should educate themselves and oppose illegality by exclusion everywhere. People's livelihoods actually depend on it.

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TLDR: Top Stories

👏🏿👏🏾👏🏽👏🏼👏🏻 Biden's infrastructure bill aims to curb exclusionary zoning, which has led to racial segregation and climate vulnerability for low-income Americans — USA Today

📉 Gary Keller thinks there's going to be a price correction — Inman

😎 I've always wanted an oval office: White House replica for sale — The Real Deal

😲 United Wholesale Mortgage, the second-largest mortgage lender in the U.S., said it will accept cryptocurrency for home loans by the end of 2021 — Realtor.com

🎯 Signs of balance in the housing market: Inventory up, prices rises down — Zillow

📈 But rents are rising, faster than original economist projections — Zillow Research

😨 Which is why in half of U.S. metros it's currently cheaper to buy a starter home than rent...Despite record-high home prices — Realtor.com

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Written By Brad Cartier